*Full definition list is at the end of this document
Bari and Nada
Draft Statement of Financial Position at 31 December 2018
ACC terms
*terms in bold have been asked in previous papers
*terms in italic are just for better understanding
| 1 | Bookkeeping | The process of recording data relating to financial transactions in the accounting books |
| Accounting | The process of identifying, measuring and communicating economic information to permit informed judgements and decisions by users of that information | |
| Drawings | Assets taken by owner from the business for own use | |
| 3.1 | Trial balance | A statement of ledger balances on a particular date |
| 3.4 | Control account | Account containing total of all postings made to accounts in a particular ledger |
| 4.1 | Capital expenditure | Money spent on non-current assets lasting more than a year |
| Revenue expenditure | Money spent on day-to-day expenses used up in less than a year | |
| 4.2 | Depreciation | An estimate of the loss in value of non-current assets over its useful economic life |
| 4.4 | Irrecoverable debts | Created when goods/services are sold on credit and payment for these has not materialised |
| 4.5 | Valuation of inventory | Inventory stated at lower of cost and net realisable value |
| Net realisable value | The actual or estimated selling price less cost of putting it into saleable condition | |
| 5.2 | Residual profit | Share of profit |
| 5.3 | Limited companies | an organisation owned by shareholders with separate legal entity |
| Ordinary shares | people who own these shares are owners of the company entitled to vote on proposals made by directors | |
| Preference shares | people who own these shares do not have voting rights but have a fixed rate of dividend | |
| Interim dividend | dividend paid during the year ar | |
| General reserve | A reserve fund created by keeping aside a part of the profit earned | |
| Retained earnings | The profit leftover after paying direct costs, indirect costs, income taxes & dividends to shareholders | |
| Debentures | A loan paid over a long period with fixed interest rate | |
| 5.4 | Accumulated fund | Surpluses which accumulate over the years. Also equivalent to capital of a business |
| Subscriptions | Amount paid by members of a club to use facilities provided by the club | |
| Receipts & payments account | Amount summarising the money received and paid by a club during a financial year | |
| 5.5 | Direct material | material from which goods are made |
| Direct labour | the wages of the workers who actually made the goods | |
| Direct expense | Fixed sum that has to be paid for every unit of good produced | |
| Direct costs | Expenses resulting from the production of goods and services | |
| Indirect material | All materials purchased for the factory which do not form part of the goods being produced | |
| Indirect labour | Wages of workers who do not actually make the goods (e.g. factory managers, supervisors, cleaners) | |
| Overheads/ Indirect costs | Costs that aren’t directly related to the production of goods or services, but are necessary for the operation of a business | |
| Work in progress (WIP) | Partly finished goods | |
| 6 | Profitability ratios | A group of ratios which will help to assess the profitability over a period of time |
| Gross margin | Shows how much gross profit each dollar of revenue generates | |
| Mark-up | How much the business marks-up its cost of sales to arrive at the selling price | |
| Profit margin | How much profit for the year is generated from revenue | |
| Return on capital employed (ROCE) | The amount of profit in cents in relation to each $1 of capital used within the business | |
| Liquidity ratios | A measure of how well the company is able to pay its day-to-day operations | |
| Current ratio/working capital ratio | Shows the current assets available to pay its current liabilities when it falls due | |
| Liquid (acid test) ratio/ quick ratio | Shows the proportion of liquid assets that is available to pay the current liabilites | |
| Rate of inventory turnover | Shows the number of times the inventory is sold during a financial period | |
| Trade receivables turnover | Shows the average amount of time (in days) it takes for TR to pay their debts | |
| Trade payables turnover | Shows the average amount of time (in days) it takes for the business to pay its debts | |
| 7 | Duality | Every transaction has 2 aspects and shoult be recorded in double-entry account |
| Prudence | Anticipate all losses, recognise profits only when realised | |
| Matching | Expenses matched with revenue earnt for the year | |
| Realisation | Revenue is regarded as being earnt when title of goods are passed to customers | |
| Consistency | Transactions of similar nature should be recorded in the same way in the same accounting period & all future periods | |
| Materiality | Absolute precision in recording items which are less significant in business context is not needed | |
| Going concern | Assumes that business will continue to operate in its foreseeable future & owners have no intention of closing down | |
| Historic cost | Transactions should be recorded at their cost to the business | |
| Business entity | Business is regarded as being separate from owner | |
| Money measurement | Only transactions that can be expressed in monetary terms are recorded in the ledger accounts |
