Glossary
A C
Accounts payable:  amounts owed by a
business to suppliers.
Accounts receivable:  amounts owed to a
business by customers.
Accruals concept:  in order to calculate profit,
income for a financial period is matched
exactly with the expenses that relate to that
period, whether paid or not. The concept is
sometimes called the ‘matching concept’.
AGM (annual general meeting):  a yearly
meeting of shareholders where directors report
on the performance of the company.
Allocated:  where an entire cost is charged to a
cost centre.
Apportioned:  where indirect costs are divided
between cost centres in a rational manner.
Auditors:  those responsible for auditing
the accounts of a business. Auditing is
an independent check of the accounting
information used to prepare a financial
statement. Auditors are appointed by the
shareholders of the company.
Authorised share capital:  the maximum
amount of share capital that a limited
company may issue.
B accounting policies should be carried out in
Bank reconciliation statement:  a document
prepared by businesses at regular intervals to
check that their bank records agree with those
provided by the bank.
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Capital expenditure:  amounts spent on
non-current assets that are shown on a
statement of financial position (balance sheet).
Carriage inwards:  the cost of transporting
goods purchased by a business – it is added to
purchases in the income statement.
Carriage outwards:  the cost of transporting
goods to customers – as a selling expense, it
is recorded in the second part of the income
statement.
Cash at bank:  the amount of funds in the
bank current account of a business.
Cash discount:  a reduction in the amount
paid by credit customers as a reward for
settling the amount due within an agreed
time limit.
Cash in hand:  the amount of
cash – notes, coins, etc. – kept on the premises
of the business.
Cash transaction:  a financial activity
involving the use of money.
Clock card:  a document that gives details of
the number of hours an employee has worked,
obtained by using a special clocking in/out
machine or time recorder.
Consistency concept:  the rule that
the same way year on year.
Contra entry (set-off):  (relating to control
accounts) a transfer between an individual
account payable and an account receivable
arising from the fact that the supplier is also a
customer, to establish a net amount to be paid
or to be received.
Glossary
Contra entry:  the record in the cash book
of cash transferred to the bank, or cash
withdrawn from the bank. Contra entries are
indicated by a letter ‘C’ in the folio column.
Contract:  legal document setting out terms of
an employment.
Control account:  a process for checking
entries in the purchases ledger (accounts
payable control account) and sales ledger
(accounts receivable control account).
Cost centre:  part of a business to which costs
can be allocated and apportioned.
Cost of raw materials consumed:  the direct
cost of raw materials used during a financial
year.
Credit note:  document used to record the
amount to be deducted when goods are
returned.
Credit side:  the right-hand side of an
account (Cr).
Credit transaction:  a financial activity where
the payment or receipt of money is delayed.
Credit transfer:  the automatic transfer of
funds into the bank account of a business by
one of its customers.
Current asset:  a resource owned by a
business that will be of short-term benefit
(less than one year).
Current liability:  amounts owed by a
business that will be settled in the short term
(within one year).
D F
Debit note:  document used to record details
of goods being returned to a supplier and the
amount to be deducted from the total due.
Debit notes may also be issued by a business
to correct an undercharge on an invoice.
Debit side:  the left-hand side of an
account (Dr).
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Depreciation:  the loss in value of a
non-current asset over its useful life.
Direct costs:  manufacturing costs that are
attributable to a single product, particularly
direct materials and direct labour.
Direct debit:  where authority is given to a
bank by a customer to make payments on the
customer’s behalf to another organisation.
The amount paid is that requested by that
organisation up to a specified limit.
Directors:  individuals who are appointed by
shareholders to manage the company on their
behalf.
Discount allowed:  cash discount given to
a credit customer for settling their account
within an agreed time limit.
Discount received:  cash discount given by a
credit supplier whose account has been settled
within an agreed time limit.
Dishonoured cheque:  a cheque that the
payee’s bank will not accept for payment
because the payer (person writing the cheque)
does not have sufficient funds to cover the
amount being paid. (This is sometimes referred
to as a ‘returned cheque’.)
Dividend:  the reward paid to shareholders
out of the profits of a limited company.
E
Ethical principles of accounting: 
the moral principles and standards that govern
the conduct of those working in the profession.
Folio references:  a system of cross-
referencing entries for each transaction in the
ledger accounts to which the information has
been posted and in the book of original entry
from which the entry was posted.
Glossary
G M
General journal:  a book of original entry used
to make the first record of transactions that it
would not be appropriate to record in the other
books of original entry.
General reserve:  the retained earnings
of a company that are set aside out of the
company’s profits to meet future (known or
unknown) obligations. General reserves are
unlikely to be used to finance dividends.
Gross profit (or income):  the profit made by
buying and selling goods.
I O
Imprest:  a system for petty cash payments,
where a float is provided to control expenditure
over a given period.
Indirect costs:  manufacturing costs that
cannot be attributed to one product. Indirect
manufacturing costs are also referred to as
manufacturing overhead, factory overhead,
factory burden or
burden.
Issued share capital:  the amount of share
capital that has actually been issued by a
limited company.
L with the intention of making a profit.
Ledger account:  a two-sided form used
to record details of transactions affecting a
particular aspect of a business’s financial
activities.
Limited partnerships:  one or more partners
has limited liability for the debts of the
business, meaning they can only lose the
amount they invested in the business should
it fail. Limited partners cannot take part in the
day-to-day running of the partnership.
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Mutual agency:  each partner has the power
to make contracts on behalf of the partnership
and is bound by the other partners’ actions in
the normal running of the partnership.
N
Non-current asset:  a resource owned by
a business that will be of benefit for a long
period (more than one year).
Non-current liability:  a liability that will be
settled in the longer term (more than one year).
Order of liquidity:  the sequence used to
list items on a statement of financial position
(balance sheet) beginning with cash and
ending with the items least likely to be turned
into cash.
Order of permanence:  the sequence used to
list items on a statement of financial position
(balance sheet) beginning with items likely to
be used by the business for the longest period.
P
Partnership:  a form of business ownership
where two or more individuals work together
Payroll:  the document that summarises
details of each employee’s pay on a weekly or
monthly basis.
Petty cash voucher:  the source document for
each petty cash payment.
Piecework ticket:  a document that records
the number of products an employee has
made.
Prime cost:  the total of direct costs.
Glossary
Profit for the year:  the profit made by a
business in a financial year taking account
of operational expenses. Profit for the year
is sometimes referred to as ‘net profit’ or
‘income’.
Proposed dividends:  the amount
of dividend suggested to shareholders by the
board of directors (BOD) for approval at the
annual general meeting (AGM).
Prudence concept:  the principle that requires
that, where there is doubt, asset and profit
values are understated rather than overstated
(and liabilities and losses are overstated rather
than understated).
Purchases book:  the book of original entry
used to make the first record in an accounting
system of purchases on credit of goods for
resale.
R to another organisation of a fixed amount at
Receipts and payments account:  a summary
of a club’s cash book. It is designed to help
members understand how and
why the club’s cash resources
have changed during a financial period.
Reducing-balance method:  where the
annual depreciation charge is based on a
fixed rate, like the straight-line method, but
is calculated not on the cost of the asset but
rather on its net book value at the beginning of
each year.
Returns inwards book:  a book of original
entry listing all goods returned by credit
customers.
Returns outwards book:  a book of original
entry listing all goods returned to credit
suppliers.
Revenue expenditure:  amounts spent on
everyday running costs that are taken into
account when calculating an organisation’s
annual profit (or loss).
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S
Sales book:  the book of original entry used to
make the first record in an accounting system
of sales on credit of goods in which a business
trades.
Share premium:  the difference between the
nominal value of shares and the price at which
they are issued.
Shareholders:  the owners of the share capital
of a limited company, sometimes called
‘members’.
Source document:  a written record that
provides information from which accounts
can be prepared. Source documents provide
evidence that a particular transaction took
place.
Standing order:  where a bank’s customer
gives instructions for the automatic payment
regular intervals.
Statement of financial position (balance
sheet):  a statement that shows an
organisation’s assets, liabilities and capital at a
particular date.
Straight-line method:  where the depreciation
charge is based on the cost of the asset and
allocates an equal amount of the asset’s cost
to each accounting period in the asset’s
useful life.
Suspense account:  a temporary account
used to make the totals of a trial balance agree.
T
Time sheet:  a document that records the
hours worked by an employee who works
off site.
Trade discount:  a reduction in the price given
as a reward for buying in large quantities.
Glossary

True and fair:  the principle that accounting

records should be factually accurate wherever
possible, or otherwise present a reasonable
estimate of, or judgment about, the financial
position.

U
Unlimited liability:  where the owner(s) of a
business are responsible for all the debts of the
business and may lose all their investment in
the business, and private possessions as well,
in order to pay off the debts of the business.

V
Voluntary association:  a group of individuals
who join together on the basis of common
objectives.

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