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Definitions (Fixed assets: Assets owned by an entity with a lifespan…
Definitions
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Gearing: The relationship between internal (equity) and external (debt) finance in a company's capital structure
Going Concern Concept:The assumption that the entity will continue in operational existence for the foreseeable future
Gross profit margin: A ratio that reflects the gross profit as a percentage of the sales for a business
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Historic cost concept: The principle that resources are normally stated in accounts at the amount that was paid to acquire them
Imprest system: A method of controlling csh or stock, when the cash or stock has been reduced by disbursements or issues, it is restored to its original level
Income and expenditure account: An annual financial statement for a non-profit-making organisation that reflects the surplus or deficit made during the accounting period
Intangible fixed assets: A group of fixed assets owned by an entity with a lifespan greater than 12 months that do not have physical existence, they cannot be seen or touched
Interest cover: A ratio that measures the ability of a company to finance its interest charges. It is measured by the profit before interest and taxation against the interest payable
International Financial Reporting Standards: A set of principles-based standards, interpretations and framework for financial statements
Inventory holding days: A ratio that indicates the length of time inventory is held by comparing the average stock level against the cost of sales
Journal: A record of financial transactions, such as transfers between accounts, not dealt with elsewhere
Liability: The financial obligations of a business, eg creditors, bank and overdrafts
Limited company: A business owned by shareholders with their liability limited to their share capital
Long-term liabilities: Persons or businesses to whom money is owed and the debt is payable beyond 12 months
Materiality: The principle that financial statements should disclose items separately that are significant enough to affect evaluation or decisions
Money measurement concept: The principal that financial accounting information relates only to those activities that can be expressed in money terms
Net assets: The excess of book value of assets over liabilities, including loan capital
Net book value: The historic cost of an asset less any accumulated depreciation or other provision for diminution in value, e.g reduction to net realisable value
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Net realisable value: The sales value of stock that an organisation expects to receive when the stock is sold. This may be lesser or greater than the cost of the stock, owing to deterioration, obsolescence or appreciation over time
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Non-current liabilities: Persons or businesses to whom money is owed and the debt is payable beyond 12 months
Not-for-profit organisations: A non-commercial organisation that does not exist in order to make a profit and is unable to distribute any of its annual surplus to its members
Owner's capital: The total of the original capital invested by the owner in the business, plus any retained profits or reserves from previous years, plus this year's profits less any drawings made by the owner during the year
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Periodicity concept: The period for which a set of business activities is reported in the financial statement
Petty cash account: A record of relatively small cash receipts and payments, the balance representing the cash in the control of an individual, usually dealt with under an imprest system
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Prepayment: Expenditure on goods or services for future benefit which is to be charged to future operations, eg rentals paid in advance
Profit and loss account: A statement that shows the income less the various expenses of an organisation to show the profit and loss for an accounting period
Provision for doubtful debts: A provision made for debtors that may be uncollectible at the balance sheet date
Prudence concept: The principle that income is included in the financial statements only when realised, while likely losses are included as soon as possible
Public listed companies: Limited companies whose shares are available to be purchased by the general public
Purchase ledger control account: A ledger control account that records the total of entries in the individual creditors' ledger
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Reducing balance method: A method of depreciation the reduces annually over the life of the fixed asset
Retained profits: Non-distributed profits retained as revenue reserve. Described as accumulated funds in not-for-profit entities
Revenue expenditure Expenditure on the supply and manufacture of goods and provision of services charged in the accounting period in which they are consumed
Revenue income Amounts derived from the provision of goods and services falling within the company's ordinary activities, after deduction of returns, trade discounts and value added tax
Revenue recognition concept: The recording of revenue in the books of accounts in the appropriate account period. Revenue is recognised when the buyer assumes ownership and title of the goods
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Sales ledger control account: A ledger control account that records the totals of entries in the individual debtors ledger