150+Total Terms
26Letters Covered
16Lessons Referenced
8Topic Categories
7707Cambridge Syllabus
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Topic Categories:
Bookkeeping
Verification
Adjustments
Fin. Statements
Special Topics
Analysis
Concepts
Ratios
A
Accounting Equation
Bookkeeping
Assets = Liabilities + Capital (or equivalently: Assets − Liabilities = Capital). This equation must always balance — it is the foundation of the entire double-entry system. Every transaction affects at least two elements but leaves the equation in balance. L1
Accrual (Accrued Expense)
Adjustments
An expense that has been incurred during the accounting period but has not yet been paid in cash. It is added to the expense in the Income Statement and shown as a current liability in the SFP. Example: electricity used in December but bill arrives in January. L9
Accruals Concept
Concepts
The fundamental accounting principle that income and expenses must be recognised in the period in which they are earned or incurred — not when cash is received or paid. Also called the matching principle. Underpins accruals, prepayments, depreciation and bad debt adjustments. L16
Accrued Income
Adjustments
Income that has been earned during the period but has not yet been received in cash. Added to income in the Income Statement and shown as a current asset in the SFP. Example: rent receivable for December not yet paid by tenant. L9
Accumulated Depreciation
Adjustments
The total depreciation charged on a non-current asset from its date of purchase to the current date. Held in the Provision for Depreciation Account. In the SFP, accumulated depreciation is deducted from the asset's cost to give the Net Book Value (NBV). L8
Accumulated Fund
Special Topics
The equivalent of the capital account for a non-profit organisation (club or society). Represents total net assets (Assets − Liabilities) built up since the organisation was formed. Increases by a surplus and decreases by a deficit each year. No drawings are made from it. L14
Appropriation Account
Fin. Statements
A statement prepared after the Income Statement for a partnership. Shows how the net profit is distributed among partners — after adding interest on drawings and deducting partners' salaries and interest on capital, the residual profit is shared in the agreed ratio. Always balances to the profit available. L12
Asset
Bookkeeping
A resource owned or controlled by a business that is expected to provide future economic benefit. Assets are either non-current (held for more than one year, e.g. machinery, premises) or current (expected to be converted to cash within one year, e.g. inventory, receivables, bank). L1
B
Bad Debt
Adjustments
A debt owed by a customer that is confirmed as irrecoverable and must be written off. Double entry: DR Bad Debts Expense / CR Debtor's Account. The amount is charged to the Income Statement as an expense and the debtor's account is closed to nil. Also reduces the SLCA. L10
Bad Debts Recovered
Adjustments
A debt previously written off that is unexpectedly paid by the customer. Two entries required: (1) reinstate the debtor account; (2) record cash received. The Bad Debts Recovered Account is credited and transferred to the Income Statement as other income. L10
Balance b/d
Bookkeeping
Balance brought down — the opening balance carried forward from the previous period to the start of the current period. Appears on the opposite side to the balance c/d. A debit balance b/d indicates an asset or expense; a credit balance b/d indicates a liability, income or capital. L2
Balance c/d
Bookkeeping
Balance carried down — the closing balance entered as the balancing figure on the larger side of the ledger account to make both sides equal. It is then brought down on the opposite side as the opening balance (balance b/d) for the next period. L2
Bank Reconciliation Statement
Verification
A statement that explains the difference between the Cash Book balance and the Bank Statement balance at a given date. Starts with the Bank Statement balance, adds outstanding lodgements, and deducts unpresented cheques to arrive at the updated Cash Book balance. Prepared after updating the Cash Book for omissions. L7
Bank Statement
Verification
A record of transactions on a business's bank account, prepared by the bank. Money received by the business appears as a credit on the statement (the bank owes the business more); money paid out appears as a debit. This is the opposite perspective to the Cash Book. L7
Books of Original Entry
Bookkeeping
The books (day books and journals) where transactions are first recorded before being posted to the ledger. Include: Sales Day Book, Purchases Day Book, Returns Inwards and Outwards Day Books, Cash Book, Petty Cash Book, and General Journal. Provide the source figures for ledger entries. L3
Business Entity Concept
Concepts
The accounting principle that the business is treated as separate from its owner. Only transactions of the business are recorded — the owner's personal transactions are excluded. Personal spending by the owner is recorded as drawings, not a business expense. L16
C
Capital
Bookkeeping
The owner's investment in the business — the net assets belonging to the owner. Calculated as: Assets − Liabilities. Increases with additional capital introduced and net profit; decreases with drawings and net losses. Shown in the bottom section of the Statement of Financial Position. L1
Capital Account (Partnership)
Fin. Statements
A fixed account recording each partner's long-term capital investment in the partnership. Usually remains unchanged unless new capital is introduced or permanently withdrawn. Distinct from the Current Account, which fluctuates with profit shares, drawings, salaries and interest. L12
Capital Expenditure
Bookkeeping
Spending on non-current assets — items that provide economic benefits over more than one accounting period (e.g. buying machinery, extending premises). Capital expenditure is recorded on the Statement of Financial Position as an asset, not in the Income Statement. Contrast with revenue expenditure. L8
Carriage Inwards
Fin. Statements
The cost of transporting purchased goods into the business. Treated as part of the cost of purchases — added to net purchases in the Trading Section of the Income Statement (increases Cost of Sales). Not to be confused with Carriage Outwards. L11
Carriage Outwards
Fin. Statements
The cost of delivering goods to customers. Treated as a selling expense in the Profit & Loss Section of the Income Statement — it reduces net profit, not gross profit. Does not affect Cost of Sales. L11
Cash Book
Bookkeeping
A book of original entry and a ledger account combined, recording all cash and bank transactions. The two-column Cash Book has cash and bank columns; the three-column version adds a discount column. The debit side records receipts; the credit side records payments. L3, L5
Closing Inventory
Fin. Statements
The value of unsold goods remaining at the end of the accounting period. Appears in two places: (1) deducted from Cost of Goods Available in the Income Statement Trading Section; (2) shown as a current asset in the SFP. Valued at the lower of cost and net realisable value (prudence). L11
Compensating Error
Verification
An error that is hidden by another error of equal value on the opposite side. Because they cancel out, the trial balance still balances — this type of error is not revealed by the trial balance. Example: Purchases overstated by $500 and Sales overstated by $500. L4
Consistency Concept
Concepts
The principle that the same accounting methods should be applied from one period to the next, enabling meaningful year-on-year comparison. If a change in method is made, it must be disclosed. Example: a business must use the same depreciation method each year. L16
Contra Entry (Set-Off)
Verification
An entry that occurs when the same person is both a debtor and a creditor. The balances are offset against each other. Recorded as: CR Sales Ledger Control Account / DR Purchases Ledger Control Account. Source: General Journal. Reduces both the debtor and creditor balance. L6
Control Account
Verification
A summary account in the General Ledger that records the totals of all transactions in a subsidiary ledger. Used to check the accuracy of the Sales Ledger (SLCA) and Purchases Ledger (PLCA). The balance must equal the sum of all individual balances in the subsidiary ledger. Also called a Total Account. L6
Cost of Sales
Fin. Statements
The direct cost of the goods actually sold during the period. Formula: Opening Inventory + Net Purchases − Closing Inventory. Net Purchases = Purchases − Returns Outwards + Carriage Inwards. Gross Profit = Revenue − Cost of Sales. L11
Credit (CR)
Bookkeeping
An entry on the right-hand side of a ledger account. Credits increase liabilities, capital and income; they decrease assets and expenses. The mnemonic CLIC (Credits increase Liabilities, Income, Capital) helps remember which accounts have normal credit balances. L1
Current Account (Partnership)
Fin. Statements
A fluctuating account for each partner recording day-to-day movements — credited with salary, interest on capital and share of profit; debited with drawings and interest on drawings. A debit balance means the partner has overdrawn (owes the firm) — shown as a current asset in the SFP. L12
Current Assets
Fin. Statements
Assets expected to be converted to cash within one year. Listed in order of increasing liquidity in the SFP: Inventory → Trade Receivables → Prepayments → Accrued Income → Bank → Cash. Working Capital = Current Assets − Current Liabilities. L11
Current Liabilities
Fin. Statements
Obligations expected to be settled within one year. Include: Trade Payables, Accruals (accrued expenses), Income Received in Advance, Bank Overdraft, and short-term loans. Current Ratio = Current Assets ÷ Current Liabilities. Ideal ≈ 1.5:1 to 2:1. L11
Current Ratio
Ratios
A liquidity ratio measuring ability to meet short-term obligations. Formula: Current Assets ÷ Current Liabilities. Result expressed as X:1. Ideal range ≈ 1.5:1 to 2:1. Below 1:1 = cannot pay short-term debts (liquidity concern). Above 3:1 = too much idle assets (poor asset management). L15
D
Day Books
Bookkeeping
Books of original entry used to record credit transactions before posting to the ledger. The four main day books are: Sales Day Book (credit sales), Purchases Day Book (credit purchases), Returns Inwards Day Book, and Returns Outwards Day Book. Totals are posted periodically to control accounts. L3
Debit (DR)
Bookkeeping
An entry on the left-hand side of a ledger account. Debits increase assets and expenses; they decrease liabilities, capital and income. Every debit entry must have a corresponding equal credit entry — this is the dual aspect concept. L1
Deficit
Special Topics
The term used by non-profit organisations when total expenditure exceeds total income — the equivalent of a net loss for a business. A deficit reduces the Accumulated Fund in the Statement of Financial Position. The opposite of a surplus. L14
Depreciation
Adjustments
The systematic allocation of the cost of a non-current asset over its useful economic life. Causes: wear and tear, obsolescence, passage of time, depletion. Two main methods: Straight Line (equal charge each year) and Reducing Balance (% of NBV — higher early, lower later). A non-cash expense. L8
Direct Debit (DD)
Verification
A bank-initiated payment authorised by the business that allows a third party to collect variable amounts directly from the bank account. If not yet recorded in the Cash Book, it must be entered on the credit side of the Cash Book when updating for bank reconciliation. L7
Discount Allowed
Bookkeeping
A reduction in the amount owed by a customer, given as an incentive for prompt payment. Recorded: DR Discount Allowed (expense) / CR Trade Receivable. Appears in the Income Statement as an expense (P&L section). Shown on the credit side of the SLCA. L3, L6
Discount Received
Bookkeeping
A reduction in the amount owed to a supplier, received by the business for paying promptly. Recorded: DR Trade Payable / CR Discount Received (income). Appears in the Income Statement as other income. Shown on the debit side of the PLCA. L3, L6
Dishonoured Cheque
Verification
A cheque returned unpaid by the bank (also called a bounced cheque or "refer to drawer"). In the Cash Book: credit the bank column to reverse the original receipt. In the debtor's account: debit to reinstate the debt. In the SLCA: debit to reverse the original receipt entry. L6, L7
Disposal Account
Adjustments
A temporary ledger account used to calculate the profit or loss when a non-current asset is sold or scrapped. Debited with cost; credited with accumulated depreciation and sale proceeds. The balancing figure is either profit (CR excess) or loss (DR excess) — transferred to the Income Statement. L8
Double Entry Bookkeeping
Bookkeeping
The system of recording every transaction with two equal and opposite entries — a debit in one account and a credit in another. Based on the dual aspect concept. Ensures the accounting equation always balances and provides an automatic check on accuracy. The foundation of all formal accounting systems. L1
Drawings
Fin. Statements
Amounts taken by the owner from the business for personal use — cash, goods, or other assets. Not a business expense — never appears in the Income Statement. Deducted from capital in the SFP. Goods taken as drawings are recorded at cost price (not selling price). L11
Dual Aspect Concept
Concepts
Every financial transaction has two equal and opposite effects on the accounting equation. For every debit there must be an equal credit. This is the foundation of double-entry bookkeeping and ensures the accounting equation always remains balanced. L16
E
Error of Commission
Verification
An error where a transaction is posted to the correct type of account but the wrong individual account. The trial balance still balances. Example: a payment to Ali posted to the account of Ahmed instead. Corrected via the General Journal. L4
Error of Omission
Verification
A transaction that has been completely omitted from the books — not recorded at all. The trial balance still balances because both the debit and credit are missing. Corrected by making the full double entry in the General Journal. L4
Error of Original Entry
Verification
An error where the wrong amount is used for both the debit and credit entry. The trial balance still balances because both sides carry the same wrong figure. Corrected by posting the difference between the correct and incorrect amounts. L4
Error of Principle
Verification
An error where a transaction is posted to the wrong type of account — violating an accounting principle. The trial balance still balances. Example: treating capital expenditure (buying machinery) as revenue expenditure (posting to repairs expense). Corrected via General Journal. L4
Error of Reversal
Verification
An error where the correct accounts are used but debit and credit are swapped. The trial balance still balances. Example: a sale is debited to Sales and credited to the customer instead of the correct reverse. The correction requires a journal entry for double the amount. L4
F
Final Accounts
Fin. Statements
The traditional term for the Income Statement and Statement of Financial Position prepared at the end of an accounting period. Provide a summary of the business's financial performance (Income Statement) and financial position (SFP) for stakeholders including owners, lenders and tax authorities. L11
Folio Column
Bookkeeping
A reference column in a ledger account or book of original entry that records where the corresponding entry was posted. Allows an audit trail from one book to another. Common references: SL (Sales Ledger), PL (Purchases Ledger), GL (General Ledger), CB (Cash Book). L2
G
General Journal
Bookkeeping
The book of original entry for transactions that do not fit into any other day book — including opening entries, closing entries, correction of errors, purchase/sale of non-current assets on credit, writing off bad debts, and contra entries. Each entry has a narrative explaining the transaction. L3
General Ledger
Bookkeeping
The main ledger containing accounts for all assets, liabilities, capital, income and expenses — except individual debtor and creditor accounts (which are in the Sales and Purchases Ledgers). Also contains the Sales and Purchases Ledger Control Accounts (SLCA and PLCA). L2
Going Concern Concept
Concepts
The assumption that the business will continue operating for the foreseeable future — it will not be wound up or sold. Justifies recording assets at cost (or NBV) rather than forced-sale value. If the going concern assumption breaks down, assets must be revalued at net realisable value. L16
Gross Profit
Fin. Statements
The profit earned from trading activities before deducting overhead expenses. Formula: Net Revenue − Cost of Sales. Represents the mark-up on goods sold. A fall in gross profit margin (with stable net profit margin) suggests rising cost of sales or falling selling prices. L11
Gross Profit Margin
Ratios
A profitability ratio measuring gross profit as a percentage of revenue. Formula: (Gross Profit ÷ Revenue) × 100. Shows how much of each dollar of sales is retained as gross profit after paying for cost of goods. A higher % is generally better. Compare with prior years and industry benchmarks. L15
H
Historical Cost Concept
Concepts
Assets and transactions are recorded at their original purchase cost at the date of acquisition — not at current market value or replacement cost. Provides objective, verifiable figures. Weakness: during inflation, historical cost may significantly understate the current value of assets such as land and buildings. L16
I
Imprest System
Bookkeeping
A method of managing the Petty Cash Book where a fixed float (imprest amount) is maintained. At the end of each period, petty cash spending is reimbursed so the float is restored to its original amount. Provides control — the cash on hand plus receipts always equals the imprest amount. L5
Income and Expenditure Account
Special Topics
The equivalent of the Income Statement for a non-profit organisation. Prepared on the accruals basis — showing income earned and expenditure incurred (not cash received and paid). Produces a surplus (income exceeds expenditure) or deficit (expenditure exceeds income). L14
Income Received in Advance
Adjustments
Cash received for income that relates to a future accounting period. Deducted from income in the current Income Statement and shown as a current liability in the SFP (the business owes the service). Also called deferred income. Example: rent received in December for January next year. L9
Income Statement
Fin. Statements
A financial statement showing the profit or loss of a business for an accounting period. Has two sections: (1) Trading Section — calculates Gross Profit; (2) Profit & Loss Section — deducts expenses and adds other income to give Net Profit. Formerly called the Trading and Profit & Loss Account. L11
Incomplete Records
Special Topics
A situation where a business does not maintain full double-entry records. Financial statements must be reconstructed from available information using techniques: Statement of Affairs (to find capital), control account reconstruction (to find credit sales/purchases), cash account reconstruction (to find drawings), and mark-up/margin. L13
Interest on Capital
Fin. Statements
An amount credited to a partner's Current Account as a reward for the capital they have invested in the partnership. Calculated as a percentage of the partner's fixed capital balance. Shown in the Appropriation Account as a deduction from profit before sharing the residual in the profit-sharing ratio. L12
Interest on Drawings
Fin. Statements
A charge to a partner's Current Account as a penalty for withdrawing funds early. Calculated as a percentage of drawings. In the Appropriation Account, interest on drawings is added back to profit (increases the pool available) before deducting salaries and interest on capital. L12
Inventory (Stock)
Fin. Statements
Goods held for resale or used in the production of goods for sale. Valued at the lower of cost and net realisable value (prudence concept). Opening inventory is used in the Cost of Sales calculation; closing inventory is deducted from Cost of Goods Available and shown as a current asset in the SFP. L11
Inventory Turnover
Ratios
An efficiency ratio measuring how many times inventory is sold and replaced during the year. Formula: Cost of Sales ÷ Average Inventory (times per year). Average Inventory = (Opening + Closing) ÷ 2. Higher turnover = faster selling. Lower turnover = slow-moving stock. Compare with industry average. L15
J
Journal Entry
Bookkeeping
A record of a transaction in the General Journal, showing the accounts to be debited and credited, the amounts, and a narrative explanation. Format: account to be debited (with amount) on the first line; account to be credited (indented, with amount) on the second line; followed by the narrative. L3
L
Ledger Account
Bookkeeping
A T-shaped account in the ledger recording all transactions relating to one specific item (e.g. one asset, one expense, one debtor). Has a debit (left) side and a credit (right) side. Balanced periodically by inserting a balance c/d and bringing it down as balance b/d at the start of the next period. L2
Liability
Bookkeeping
An obligation of the business to pay money or provide value to an external party. Non-current liabilities are due in more than one year (e.g. long-term loans). Current liabilities are due within one year (e.g. trade payables, accruals, overdraft). Liabilities have a normal credit balance. L1
Liquidity
Analysis
The ability of a business to meet its short-term financial obligations as they fall due. Measured by the Current Ratio and Quick Ratio. A business can be profitable but illiquid if it cannot convert assets to cash quickly enough. Poor liquidity can lead to insolvency even when the business is profitable. L15
M
Mark-Up
Special Topics
Gross profit expressed as a percentage of Cost of Sales. Formula: (Gross Profit ÷ Cost of Sales) × 100. Used in incomplete records to find missing sales or purchases. A 25% mark-up means: for every $100 cost, selling price = $125. Mark-up % is always higher than the equivalent margin % for the same profit. L13
Margin (Gross Profit Margin)
Special Topics
Gross profit expressed as a percentage of Revenue (Sales). Formula: (Gross Profit ÷ Sales) × 100. Used in incomplete records to find missing sales or cost of sales. A 25% margin means: for every $100 of sales, gross profit = $25. Margin % is always lower than the equivalent mark-up % for the same profit. L13, L15
Materiality Concept
Concepts
Only items that are significant enough to influence decisions of financial statement users need to be disclosed separately or treated with full rigour. Insignificant items may be treated more simply. Example: a $3 stapler may be written off as expense immediately rather than being capitalised and depreciated. What is material depends on the size of the business. L16
N
Net Book Value (NBV)
Adjustments
The carrying value of a non-current asset shown in the Statement of Financial Position. Formula: Cost − Accumulated Depreciation. Also called the carrying amount. It is not the market value — it is simply the cost not yet charged as depreciation expense. Reduces each year as depreciation is charged. L8
Net Current Assets
Fin. Statements
Also called Working Capital. Formula: Current Assets − Current Liabilities. Represents the funds available to meet day-to-day trading obligations. A positive figure is needed for solvency. Shown in the Statement of Financial Position between current liabilities and non-current liabilities. L11
Net Profit
Fin. Statements
The profit remaining after all expenses have been deducted and all other income added. Formula: Gross Profit + Other Income − All Expenses. Transferred to the capital section of the SFP (increases owner's equity). In partnerships, divided via the Appropriation Account. L11
Net Profit Margin
Ratios
A profitability ratio measuring net profit as a percentage of revenue. Formula: (Net Profit ÷ Revenue) × 100. If NP margin falls while GP margin is stable, expenses have increased. If both fall, cost of sales has risen. Compare NP and GP margins together for a full picture of profitability. L15
Non-Current Assets
Fin. Statements
Assets held for use in the business for more than one year, not intended for resale. Shown in the SFP at cost less accumulated depreciation (NBV). Examples: premises, machinery, equipment, vehicles, fixtures and fittings. Depreciated over their useful lives. Land is not usually depreciated. L8, L11
Non-Current Liabilities
Fin. Statements
Obligations due for settlement in more than one year. Shown below Net Current Assets in the SFP. Most common example: long-term bank loans. Deducted from (Non-Current Assets + Net Current Assets) to give Net Assets, which must equal total capital. L11
Non-Profit Organisation (NPO)
Special Topics
An organisation (club, society, charity) that exists to serve its members or a social cause — not to generate profit for owners. Prepares a Receipts and Payments Account and an Income and Expenditure Account instead of a Cash Book and Income Statement. Equity is shown as the Accumulated Fund. L14
O
Objectivity Concept
Concepts
Financial information should be based on objective, verifiable evidence free from personal bias. Asset values should use purchase invoices and receipts — not the owner's opinion. Where estimates are unavoidable (e.g. asset useful life), they must be reasonable and consistently applied. L16
Opening Inventory
Fin. Statements
The value of unsold goods at the start of the accounting period — equal to the closing inventory of the previous period. Added to net purchases in the Trading Section to give the total cost of goods available for sale. A higher opening inventory increases Cost of Sales (reduces gross profit if sales are unchanged). L11
Outstanding Lodgement
Verification
Cash or cheques deposited by the business that have been recorded in the Cash Book (debit side) but have not yet appeared on the Bank Statement. A timing difference — not an error. In the Bank Reconciliation Statement, outstanding lodgements are added to the Bank Statement balance. Also called deposits in transit. L7
Overdrawn Balance
Verification
A negative bank balance — the business owes money to the bank. In the Cash Book, shown as a credit balance (a liability). On the Bank Statement, shown as a debit balance (the bank has lent money to the business). An overdraft is a current liability in the SFP. L7
P
Partner's Salary
Fin. Statements
An amount allocated to a partner before sharing residual profit, recognising their contribution to running the business. Not a business expense in the Income Statement — it is an appropriation of profit in the Appropriation Account. Credited to the partner's Current Account. L12
Partnership
Fin. Statements
A business owned by two or more people (partners) who share risks, responsibilities and profits. Governed by a Partnership Agreement (or the Partnership Act 1890 if no agreement exists — profits shared equally, no salaries or interest). Prepares an Appropriation Account to distribute profit. L12
Partnership Act 1890
Fin. Statements
The default rules that apply to a partnership when no Partnership Agreement exists: profits and losses shared equally; no interest on capital; no partners' salaries; no interest on drawings; interest on loans to the firm at 5% per annum. Partners should always have a written agreement to avoid these defaults. L12
Petty Cash Book
Bookkeeping
A subsidiary cash book used to record small day-to-day cash payments (e.g. postage, tea, taxi fares). Usually operated on the Imprest system. Has analytical columns grouping expenses by type. The cashier controls petty cash; the main accountant periodically reimburses spent amounts to restore the float. L5
Prepayment (Prepaid Expense)
Adjustments
An expense paid in advance that relates partly or wholly to a future accounting period. Deducted from the expense in the Income Statement (only this period's portion is charged). Shown as a current asset in the SFP — the business has paid for a benefit it has not yet received. L9
Profit-Sharing Ratio
Fin. Statements
The agreed ratio in which partners share the residual profit (or bear a residual loss) after all salaries and interest on capital have been allocated. Applied only to the residual — never to the full net profit. Example: 3:2 means Partner A gets 3/5 and Partner B gets 2/5 of the residual. L12
Provision for Depreciation
Adjustments
A ledger account that accumulates total depreciation charged on a non-current asset. Has a normal credit balance. The Asset Account stays at cost; this account grows each year with the annual depreciation charge. In the SFP, deducted from cost to give NBV. Never debit the Asset Account directly with depreciation. L8
Provision for Doubtful Debts
Adjustments
An estimate set aside for debts that may not be recovered. Based on prudence — anticipated before confirmed. Only the change in provision goes to the Income Statement (increase = expense; decrease = income). The full balance is deducted from Trade Receivables in the SFP. Does not close individual debtor accounts. L10
Prudence Concept
Concepts
Revenues and profits are only recognised when certain; losses and expenses are recognised as soon as they are probable. When in doubt, err on the side of caution — understate assets/income rather than overstate. Underpins bad debt provisions and inventory valuation at lower of cost and NRV. L16
Purchases Day Book
Bookkeeping
A book of original entry recording all credit purchases from invoices received from suppliers. Totals are posted periodically: DR Purchases Account / CR Purchases Ledger Control Account. Cash purchases are not recorded here — they go directly to the Cash Book. L3
Purchases Ledger
Bookkeeping
A subsidiary ledger containing individual accounts for each credit supplier (creditor/trade payable). Has a normal credit balance per account. Summarised by the Purchases Ledger Control Account (PLCA) in the General Ledger. Separate from the General Ledger to enable division of labour. L2
Purchases Ledger Control Account (PLCA)
Verification
A summary account in the General Ledger totalling all Purchases Ledger transactions. Normal credit balance (total owed to creditors). Used to verify the Purchases Ledger and to reconstruct missing figures in incomplete records. Also called Total Creditors Account. Debit side: cash paid, discount received, returns outwards, contra. L6
Q
Quick Ratio (Acid Test)
Ratios
A strict liquidity ratio excluding inventory. Formula: (Current Assets − Inventory) ÷ Current Liabilities. Ideal ≈ 1:1. Below 1:1 = cannot meet current liabilities from liquid assets alone (serious concern). Inventory is excluded because it is the least liquid current asset — it takes time to sell and may not achieve full value. L15
R
Realisation Concept
Concepts
Revenue is recognised only when it has been earned — typically when goods or services are delivered and the right to receive payment is established — regardless of when cash is received. Prevents recognising deposits and advance payments as revenue before they are earned. Works closely with prudence and accruals concepts. L16
Receipts and Payments Account
Special Topics
A simple cash-based summary of all receipts and payments by a non-profit organisation during a period — essentially a summarised cash book. Does not apply the accruals concept, does not show depreciation, and includes capital items (e.g. equipment purchases). Used to prepare the Income and Expenditure Account. L14
Receivables Days (Debtor Days)
Ratios
An efficiency ratio measuring the average number of days taken to collect payment from credit customers. Formula: (Trade Receivables ÷ Credit Sales) × 365. Fewer days = better cash flow. If days exceed credit terms, the business is not collecting debts efficiently. Always use credit sales — not total sales. L15
Reducing Balance Method (RBM)
Adjustments
A depreciation method where a fixed percentage is applied to the Net Book Value at the start of each year. Produces a higher charge in early years and a lower charge later — reflecting how many assets (e.g. vehicles) lose value rapidly at first. The NBV never reaches zero under this method. L8
Residual Profit (or Loss)
Fin. Statements
The amount of profit remaining in the Appropriation Account after all salaries and interest on capital have been deducted (and interest on drawings added). This residual is shared among partners in the agreed profit-sharing ratio. If negative, it is a residual loss — shared in the same ratio as a debit to Current Accounts. L12
Residual Value (Scrap Value)
Adjustments
The estimated sale proceeds of a non-current asset at the end of its useful life. Used in the Straight Line Method: Annual Depreciation = (Cost − Residual Value) ÷ Useful Life. Under the Reducing Balance Method, no residual value is used in the annual formula — the NBV approaches but never reaches zero. L8
Return on Capital Employed (ROCE)
Ratios
A profitability ratio measuring how efficiently the business generates profit from total long-term investment. Formula: (Net Profit ÷ Capital Employed) × 100. Capital Employed = Owner's Capital + Long-term Loans. Compare with bank interest rate — ROCE should exceed the interest rate to justify investment risk. L15
Returns Inwards (Sales Returns)
Bookkeeping
Goods returned to the business by customers — typically because they are faulty or not as described. Recorded in the Returns Inwards Day Book. Deducted from Sales in the Income Statement Trading Section to give Net Revenue. Appear on the credit side of the SLCA (reduce what debtors owe). L3, L6
Returns Outwards (Purchases Returns)
Bookkeeping
Goods returned by the business to suppliers — typically because they are faulty or incorrect. Recorded in the Returns Outwards Day Book. Deducted from Purchases in the Income Statement Trading Section to give Net Purchases. Appear on the debit side of the PLCA (reduce what we owe creditors). L3, L6
Revenue Expenditure
Bookkeeping
Spending on day-to-day running costs that relates to one accounting period only — charged to the Income Statement as an expense. Examples: wages, rent, repairs, electricity, stationery. Contrast with capital expenditure (buying non-current assets). Misclassifying one as the other is an error of principle. L8
S
Sales Day Book
Bookkeeping
A book of original entry recording all credit sales from invoices issued to customers. Totals are posted periodically: DR Sales Ledger Control Account / CR Sales Account. Cash sales are not recorded here — they go directly to the Cash Book. L3
Sales Ledger
Bookkeeping
A subsidiary ledger containing individual accounts for each credit customer (debtor/trade receivable). Has a normal debit balance per account. Summarised by the Sales Ledger Control Account (SLCA) in the General Ledger. Total of all individual balances must agree with the SLCA closing balance. L2
Sales Ledger Control Account (SLCA)
Verification
A summary account in the General Ledger totalling all Sales Ledger transactions. Normal debit balance (total owed by debtors). Used to verify the Sales Ledger and to find missing credit sales in incomplete records. Also called Total Debtors Account. Credit side: cash received, discount allowed, returns inwards, bad debts, contra. L6
Statement of Affairs
Special Topics
A simplified Statement of Financial Position prepared from available information to calculate opening or closing capital: Capital = Assets − Liabilities. Used in incomplete records when formal accounts have not been maintained. The opening capital figure is then used in the net profit calculation. L13
Statement of Financial Position (SFP)
Fin. Statements
A financial statement showing the assets, liabilities and capital of a business at a specific date — a financial snapshot. Structure: Non-Current Assets + Net Current Assets − Non-Current Liabilities = Net Assets = Capital. The top half (Net Assets) must equal the bottom half (Capital). Formerly called the Balance Sheet. L11
Standing Order (SO)
Verification
A fixed regular payment from the business's bank account, set up by the business to pay a fixed amount at regular intervals (e.g. monthly rent). If not yet recorded in the Cash Book, it must be entered on the credit side of the Cash Book when updating for bank reconciliation. L7
Straight Line Method (SLM)
Adjustments
A depreciation method charging an equal amount each year over the asset's useful life. Formula: (Cost − Residual Value) ÷ Useful Life. Simple to calculate. The NBV reaches the residual value exactly at the end of the asset's life. Suitable for assets used evenly (furniture, buildings). L8
Subscriptions
Special Topics
Annual fees paid by members of a non-profit organisation. The cash received may differ from the income for the year due to subscriptions in advance (current liability) and subscriptions owing (current asset). The Subscriptions Account (T-account) is reconstructed to find the correct income for the Income and Expenditure Account. L14
Surplus
Special Topics
The term used by non-profit organisations when total income exceeds total expenditure — the equivalent of net profit for a business. A surplus increases the Accumulated Fund in the Statement of Financial Position. The opposite of a deficit. Not distributed to members — retained within the organisation. L14
Suspense Account
Verification
A temporary account used to make the trial balance agree when an error causes it to be out of balance by a known amount. The suspense account holds the difference while the error is investigated and corrected. Once all errors are found and corrected, the suspense account balance reduces to nil. L4
T
T-Account
Bookkeeping
The traditional T-shaped layout of a ledger account with the account name at the top, debit entries on the left and credit entries on the right. Named for its visual resemblance to the letter T. The backbone of double-entry bookkeeping — every ledger account follows this format. L1
Trade Payables (Creditors)
Bookkeeping
Amounts owed by the business to suppliers for goods or services purchased on credit. Shown as a current liability in the SFP. Each supplier has an individual account in the Purchases Ledger. The total is represented by the Purchases Ledger Control Account balance. L2
Trade Receivables (Debtors)
Bookkeeping
Amounts owed to the business by customers who purchased goods or services on credit. Shown as a current asset in the SFP (net of any Provision for Doubtful Debts). Each customer has an individual account in the Sales Ledger. The total is represented by the Sales Ledger Control Account balance. L2
Trial Balance
Verification
A list of all ledger account balances at a given date, with debit balances in one column and credit balances in the other. If the total debits equal total credits, the books are arithmetically correct. However, a balanced trial balance does not guarantee the absence of errors — six types of error do not affect it. L4
True and Fair View
Concepts
The overriding requirement that financial statements must give a true and fair view of the business's financial performance and position. This overarching principle underpins all accounting standards and concepts — financial statements should not mislead users through inaccuracy, omission, or deliberate distortion. L16
U
Unpresented Cheque
Verification
A cheque written and sent by the business to a payee, already recorded on the credit side of the Cash Book, but which has not yet been presented to the bank for payment. A timing difference — not an error. In the Bank Reconciliation Statement, unpresented cheques are deducted from the Bank Statement balance. L7
W
Window Dressing
Analysis
The practice of manipulating year-end figures to make financial ratios look better than they actually are — without any real improvement in performance. Example: delaying supplier payments to inflate the current ratio. A key limitation of ratio analysis — ratios reflect the position at a specific date, which may be unrepresentative. L15
Working Capital
Fin. Statements
The funds available for day-to-day operations. Formula: Current Assets − Current Liabilities. Also called Net Current Assets. Positive working capital means the business can meet short-term obligations. Negative working capital (current liabilities exceed current assets) indicates a potential liquidity problem. L11, L15
Write Off
Adjustments
The removal of an irrecoverable amount from the accounts. A bad debt write-off removes a specific debtor balance: DR Bad Debts Expense / CR Debtor Account. An asset write-off reduces the asset's value to nil (e.g. fully depreciated asset with no residual value). The amount is charged to the Income Statement. L10