Accounting The process of identifying, measuring and communicating economic information about an organisation or other entity, in order to permit informed judgements by users of the information.
Accounting equation The formula representing the relationship between a business's assets, liabilities and capital, usually expressed as A - L = C or, when extended to include revenue and expenses, A + E = L + C + R.
Assets A resource controlled by the entity as a result of past events and from which future economic benefits are expected to flow to the entity.
Balance sheet A financial summary showing the assets, liabilities and capital at a specific date.
Bookkeeping The process of recording financial transactions.
Capital The value of the investment of the owner or owners in the business, found by deducting all of the organisation's liabilities from all of the organisation's assets. Also known as 'equity'.
Capital expenditure Another term for non-current assets.
Current asset An asset whose value constantly changes during the course of a business's activities.
Current liability A liability expected to be paid within one year of the date of the balance sheet.
Depreciation An estimate of the loss in value of a non-current asset.
Double-entry The system, first described by Luca Pacioli in 1494, which allows a logical record to be bookkeeping made of all the components of the accounting equation.
Equity Another term for 'capital'.
Expenses Expenditure made by a business related to the revenue generated within the same financial period. It includes goods bought for resale, and overheads such as light and heat, wages and salaries.
Financial accounting The day-to-day recording of an organisation's financial transactions and the summarising of those transactions to satisfy the information needs of various user groups in accordance with the regulatory framework.
Income statement A financial summary showing revenue and expenses for the financial period. 'In the red' In the days before computers, banks used to use red ink to show overdrawn balances, hence you were 'in the red' if you had an overdraft.
Key concepts Important principles underlying the preparation of financial summaries.
Liabilities Present obligations of the entity arising from past events, the settlement of which is expected to result in an outflow from the entity of resources embodying economic benefits.
Management accounting The internal accounting needs of an organisation, involving planning, forecasting and budgeting for decision-making purposes.
Non-current assets Assets which are normally expected to be retained by the business for at least a year from the date of the balance sheet and are of a significant value. Most are subject to depreciation. Also referred to as 'capital expenditure' or 'fixed ' assets.
Non-current liability A liability expected to be paid more than one year after the balance sheet date.
Regulatory framework The rules and regulations followed by financial accountants, imposed mainly by company legislation and Accounting Standards Boards.
Revenue The revenue generated by the business by selling its goods or services, plus sundry income
such as interest received.
True and fair view An important accounting concept, requiring financial summaries to reflect truth and fairness in their representation of the organisation 's affairs.
