Professional Documents
Culture Documents
Section 1
Chapter 1
1. Book keeping – the detailed recording of all the financial transactions of a business
2. Accounting – using book keeping records to prepare financial statements and to assist in
decision making
3. Statement of financial position – shows the assets and liabilities of a business on a certain
date
4. Capital – the total resources provided by the owner and represents what the business owes
the owner
5. Assets – represents anything owed by or owing to the business
6. Liabilities – represents anything owed by the business
7. Inventory – the goods a business has available for resale
8. Trade payables – represents the amount the business owes to the credit suppliers of goods
9. Trade receivables – represents the amount owed to the business by its credit customers
Chapter 2
1. Double entry book keeping – the process of making a debit entry and a credit entry for each
transaction
2. Drawings – represents any value taken from the business by the owner of that business
3. Balance – in a ledger account is the difference between the debit side and the credit side
4. Carriage – the cost of transporting goods
5. Carriage inward – the cost of bringing goods to the business
6. Carriage outward – the cost of delivering the goods to the customer
Chapter 3
1. Trial balance – a list of balances on the accounts in the ledger at a certain date
Chapter 4
1. Sales ledger – the ledger in which the accounts of credit customers are maintained
2. Purchase ledger – ledger in which the accounts of credit suppliers are maintained
3. Nominal ledger – the ledger where all the other accounts are maintained
4. Contra entry – one which appears on both sides of the cashbook
5. Bank overdraft – occurs when more has been paid out of the bank than was put into the
bank account
6. Cash discount – an allowance given to a customer when an account Is settled within a time
limit set by the supplier
7. Dishonoured cheque – a cheque received which the debtor’s bank refuses to pay
Chapter 5
Chapter 6
1. Invoice – a document issued by the supplier of goods on credit showing details, quantities
and prices of goods supplied
2. Trade discount – a reduction in the price of goods the rate often increases according to
quantity purchased
3. Debit note – a document issued by a purchaser of goods on credit to request a reduction in
the invoice received
4. Credit note – a document issued by a seller of goods on credit to notify of a reduction in an
invoice previously issued
5. Statement of account – a document issued by the seller of goods on credit to summarise the
transactions for the month
6. Cheque – a written order to a bank to pay a stated sum of money to the person or business
named on the order
7. Receipt – a written acknowledgement of money received and acts as proof of payment
Chapter 7
1. Book of prime entry – one in which transactions are recorded before being entered in the
ledger
2. Sales journal – shows a list of the names of businesses to which credit sales have been made
the value of the goods sold and the date on which the sales were made
3. Sales return journal – shows a list of the names of businesses which have returned goods
previously sold on credit the value of the goods returned and the date on which the returns
were made
4. Purchase journal – a list of the names of businesses from which credit purchases have been
made the value of the goods purchased and the date on which the purchases were made
5. Purchase returns journal – a list of the names of businesses to which goods previously
purchased on credit have been returned the value of the goods returned and the date on
which the returns were made
Section 3
Chapter 8
1. Income statement – a statement prepared for a trading period to show the gross profit and
profit for the year
2. Gross profit – the difference between the selling price and the cost of those goods
3. Profit for the year – the final profit after any other income has been added to the gross profit
and the running expenses have been deducted
4. Service business – one which provides a service
5. Trading business – one which buys and sells goods
Chapter 9
1. Non-current assets – assets which are obtained for use and not for resale which help the
business earn revenue
2. Goodwill – the amount by which the value of a business as a whole exceeds the value of the
separate assets and liabilities
3. Current assets – short – term assets whose amounts are constantly changing
4. Non-current liabilities – amounts owed which are not due for repayment within the next 12
months
5. Current liabilities – amounts owed which are due for repayment within the the next 12
months
Chapter 10
1. Business entity principle – means that the business is treated as being completely separate
from the owner of the business
2. Consistency principle – means that accounting methods must be used consistently from one
accounting period to the next
3. Principle of duality – means that every transaction is recorded twice once on the debit side
and once on the credit side
4. Going concern principle – means that the accounting records are maintained on the basis
that the business will continue to operate for an indefinite period of time
5. Historic cost principle – means that all assets and expenses are initially recorded at their
actual cost
6. Matching principle – means that the revenue of the accounting period is matched against the
costs of the same period
7. Materiality principle – means that individual items which will not significantly affect either
the profit or the assets of a business do not need to be recorded separately
8. Money measurement principle – means that only information which can be expressed in
terms of money can be recorded in the accounting records
9. Prudence principle – means that profits and assets should not be overstated and losses and
liabilities should not be understated
10. Realisation principle – means that revenue is only regarded as being earned when the legal
title of goods passes from the seller to the buyer
11. Capital expenditure – money spent on purchasing, improving or extending non-current
assets
12. Revenue expenditure – money spent on running a business on a day-to-day basis
13. Capital receipt – money received by a business from a source other than the normal trading
activities
14. Revenue receipt – money received by a business from normal trading activities
Chapter 11
Chapter 12
1. Depreciation – an estimate of the loss in value of a non-current asset over its expected
working life
2. Straight line method – where the same amount of depreciation is charged every year
3. Residual value – the value of a non-current asset at the end of its useful life
4. Reducing balance method – depreciation charged each year decreases as it is calculated on
the net book value
5. Net book value – of a non-current asset is the cost price less the total depreciation
6. Revaluation method – where the opening and closing value of a non-current asset are
compared to determine the depreciation for year
Chapter 13
1. Irrecoverable debt – an amount owing to a business which will not be paid by the credit
customer
2. Debt written off – may be recovered if a credit customer pays some or all amount owed after
the amount was written off
3. Provision for doubtful debts – an estimate of the amount which a business will lose in a
financial year because of irrecoverable debts
Section 4
Chapter 14
1. Bank statement – a copy of a customer’s account in the books of the bank which is sent to
the customer at regular intervals
2. Bank reconciliation statement – a document prepared by a business to explain why the
updated bank balance in the cash book does not agree with the balance on the bank
statement
Chapter 15
1. Journal – a book of prime entry used to record transactions which cannot be recorded in any
other book of prime entry
2. Suspense account – a temporary account opened in order to make the totals of a trial
balance agree
Chapter 16
1. Sales ledger control account – an account summarising all the accounts of the trade
receivables
2. Purchase ledger control account – an account summarising all the accounts of the trade
payables
3. Contra entries – referred to as inter ledger transfers or set-offs and when a transfer is made
from an account in the sales ledger to an account of the same person in the purchase ledger
chapter 17
Non trading organisation – an organisation formed to provide the facilities and services for members.
They are not formed with the aim of making a profit
Chapter 19
1. Partnership -a business in which two or more people work together as owners with a view to
make profits
2. Partnership agreement – a document setting out the rules under which the patterns will
operate the business
3. Appropriation account – part of the year end financial statements
Chapter 20
1. Manufacturing account – part of the annual financial statements and is used to calculate the
cost of goods produced
Chapter 21
Chapter 22
1. Profitability ratios – measures the performance of the business by comparing the profit to
the other figures in the same set of financial statements
2. Liquidity ratios – measures the ability of the business to burn assets to cash to pay its short-
term debts