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Account
A General Ledger location where each business transaction is allocated. Each line item in a Balance Sheet or Income Statement represents a separate account or combination of accounts. In an electronic accounting system each account is defined by a name or number and is listed in the Chart of Accounts or COA.
Accounting
The process of measuring and recording the financial transactions of a business, producing accurate financial reports and communicating these reports to the decision makers of the business.
Accounting Equation
The basic premise of accounting used to explain the resources of a business and the claims to those resources: Assets = Liabilities + Owners' Equity
Accounts Payable
Also known as creditors. These are amounts owing or due to other entities such as suppliers or other vendors generally paid within 1 - 3 months depending on the credit terms negotiated. Accounts Payable is a current liability and will be seen under this heading on the balance sheet.
Accounts Receivable
Also known as debtors. These are amounts owing or due to the business from customers who are given credit terms. Accounts Receivable is a current asset and will be seen under this heading on the balance sheet.
Accounts Receivable Aging Listing
A report which shows a listing of all customers owing money to the business. It is usually broken down into groups by length of time outstanding such as Current, 30 days, 60 days and 90+ days.
Accruals Basis
The system of accounting where transactions are posted as they occur rather than when money exchanges hands. See Cash Basis for related definition.
Accrued Expense
An expense that has been incurred by the business but has not yet been paid for. These expenses form part of the Accounts Payable & Accrued Liabilities on the Balance Sheet.
Accumulated Depreciation
The total of all depreciation charged against an asset since its purchase.
Amortisation
The periodic devaluation of intangible assets such as patents, copyrights or goodwill over a specific time period. Usually an intangible asset is amortised per year by an amount calculated using the straight line method. Amortisation is the equivalent of depreciation for intangible assets.
Asset
An asset is an item owned by a business. Assets can be classified in a number of ways such as current or non-current, tangible or intangible. Assets are consumed in the course of business or turned into another asset class.
Asset Register
A list of all non-current assets owned by the business. Generally the register would show purchase details, servicing details and any other important information relating to each asset such as warranty details and storage location.
Audit
An inspection of the accounts of a business to check that transactions have been recorded correctly and according to law and to verify their accuracy. Government requires external auditing of certain entities over a specified threshold level of turnover or assets for independent verification and assurance and to reduce the chances of fraudulent activity.
AVCO (Average Cost Method)
This is an inventory costing method that is based on the average cost of inventory during a period. It is computed by dividing the aggregate cost of the item in inventory over the specific period, by the number of units of that item in inventory at any point in time.
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A General Ledger location where each business transaction is allocated. Each line item in a Balance Sheet or Income Statement represents a separate account or combination of accounts. In an electronic accounting system each account is defined by a name or number and is listed in the Chart of Accounts or COA.
Accounting
The process of measuring and recording the financial transactions of a business, producing accurate financial reports and communicating these reports to the decision makers of the business.
Accounting Equation
The basic premise of accounting used to explain the resources of a business and the claims to those resources: Assets = Liabilities + Owners' Equity
Accounts Payable
Also known as creditors. These are amounts owing or due to other entities such as suppliers or other vendors generally paid within 1 - 3 months depending on the credit terms negotiated. Accounts Payable is a current liability and will be seen under this heading on the balance sheet.
Accounts Receivable
Also known as debtors. These are amounts owing or due to the business from customers who are given credit terms. Accounts Receivable is a current asset and will be seen under this heading on the balance sheet.
Accounts Receivable Aging Listing
A report which shows a listing of all customers owing money to the business. It is usually broken down into groups by length of time outstanding such as Current, 30 days, 60 days and 90+ days.
Accruals Basis
The system of accounting where transactions are posted as they occur rather than when money exchanges hands. See Cash Basis for related definition.
Accrued Expense
An expense that has been incurred by the business but has not yet been paid for. These expenses form part of the Accounts Payable & Accrued Liabilities on the Balance Sheet.
Accumulated Depreciation
The total of all depreciation charged against an asset since its purchase.
Amortisation
The periodic devaluation of intangible assets such as patents, copyrights or goodwill over a specific time period. Usually an intangible asset is amortised per year by an amount calculated using the straight line method. Amortisation is the equivalent of depreciation for intangible assets.
Asset
An asset is an item owned by a business. Assets can be classified in a number of ways such as current or non-current, tangible or intangible. Assets are consumed in the course of business or turned into another asset class.
Asset Register
A list of all non-current assets owned by the business. Generally the register would show purchase details, servicing details and any other important information relating to each asset such as warranty details and storage location.
Audit
An inspection of the accounts of a business to check that transactions have been recorded correctly and according to law and to verify their accuracy. Government requires external auditing of certain entities over a specified threshold level of turnover or assets for independent verification and assurance and to reduce the chances of fraudulent activity.
AVCO (Average Cost Method)
This is an inventory costing method that is based on the average cost of inventory during a period. It is computed by dividing the aggregate cost of the item in inventory over the specific period, by the number of units of that item in inventory at any point in time.
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Balance Sheet
A statement of financial position which demonstrates the accounting equation. It portrays the financial state of the business at a specific date showing the balances of the asset, liability and equity accounts.
Break-even
The quantum of sales of a business where it makes $0 in profit over a specific time period. i.e. It does not make a profit nor incur a loss. In budgeting, break-even sales is the level of sales necessary to cover all expenses and therefore break-even.
Budget
A forecast of income and expenditures and expected performance of a business over a specific time period. Budgets of all financial statements are usually completed to serve as a guide and target for businesses in a future financial period.
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A statement of financial position which demonstrates the accounting equation. It portrays the financial state of the business at a specific date showing the balances of the asset, liability and equity accounts.
Break-even
The quantum of sales of a business where it makes $0 in profit over a specific time period. i.e. It does not make a profit nor incur a loss. In budgeting, break-even sales is the level of sales necessary to cover all expenses and therefore break-even.
Budget
A forecast of income and expenditures and expected performance of a business over a specific time period. Budgets of all financial statements are usually completed to serve as a guide and target for businesses in a future financial period.
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Capital
Money which is contributed to the equity of a business by the owners.
Cash Basis
The system of accounting where transactions are posted only when money exchanges hands rather than when the transaction occurs. See Accruals Basis for related definition.
Cash Equivalents
These are current assets which are liquid in nature and easily converted into known amounts of cash. Short-term highly liquid investments and bank overdraft arrangements are examples of cash equivalents.
Chart of Accounts (COA)
This is a listing of General Ledger accounts to which transactions can be posted in an electronic or manual accounting or bookkeeping system. Accounts are grouped by type and are usually assigned a unique name and sometimes an account number.
Classification
This is the process of correctly assigning accounts to a transaction. Every transaction is classified according to its nature.
Company File
This is the term used in electronic accounting or bookkeeping to describe the database containing all of the data and transactions of a business. Specialised accounting software is used to add transactions as well as edit and update the company file.
Contribution Margin
This is demonstrated by the equation: Sales - Variable Costs = Contribution Margin. The contribution margin is then available to pay fixed costs, resulting in Gross Profit Margin, and to contribute towards net profits.
Cost of Goods Sold (COGS)
This is the cost to a business of producing the goods it sells whether through manufacturing or reselling. Typically the COGS includes purchases from suppliers and freight inwards and in the case of manufacturing, direct labour and factory overheads.
Credit
One of two ‘sides’ used in double-entry bookkeeping. Credits are shown on the right hand side of a ledger. A credit entry will increase sales or liabilities and decrease expenses or assets. See Debit for related definition.
Current
A term used in reference to assets or liabilities meaning that the particular item will typically be used or converted to another balance sheet classification within 1 year.
Cash Flow Statement
A financial statement which reports the inflows and outflows of the cash of a business. This statement shows the movement in cash resources and is divided into 3 main areas of activities involving cash: operating, investing and financing.
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Money which is contributed to the equity of a business by the owners.
Cash Basis
The system of accounting where transactions are posted only when money exchanges hands rather than when the transaction occurs. See Accruals Basis for related definition.
Cash Equivalents
These are current assets which are liquid in nature and easily converted into known amounts of cash. Short-term highly liquid investments and bank overdraft arrangements are examples of cash equivalents.
Chart of Accounts (COA)
This is a listing of General Ledger accounts to which transactions can be posted in an electronic or manual accounting or bookkeeping system. Accounts are grouped by type and are usually assigned a unique name and sometimes an account number.
Classification
This is the process of correctly assigning accounts to a transaction. Every transaction is classified according to its nature.
Company File
This is the term used in electronic accounting or bookkeeping to describe the database containing all of the data and transactions of a business. Specialised accounting software is used to add transactions as well as edit and update the company file.
Contribution Margin
This is demonstrated by the equation: Sales - Variable Costs = Contribution Margin. The contribution margin is then available to pay fixed costs, resulting in Gross Profit Margin, and to contribute towards net profits.
Cost of Goods Sold (COGS)
This is the cost to a business of producing the goods it sells whether through manufacturing or reselling. Typically the COGS includes purchases from suppliers and freight inwards and in the case of manufacturing, direct labour and factory overheads.
Credit
One of two ‘sides’ used in double-entry bookkeeping. Credits are shown on the right hand side of a ledger. A credit entry will increase sales or liabilities and decrease expenses or assets. See Debit for related definition.
Current
A term used in reference to assets or liabilities meaning that the particular item will typically be used or converted to another balance sheet classification within 1 year.
Cash Flow Statement
A financial statement which reports the inflows and outflows of the cash of a business. This statement shows the movement in cash resources and is divided into 3 main areas of activities involving cash: operating, investing and financing.
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Debit
One of the two ‘sides’ used in double-entry bookkeeping. Debits are shown on the left hand side of a ledger. A debit entry will increase expenses, cost of goods sold (COGS) or assets but decrease sales or liabilities. See Credit for related definition.
Debt
This is an amount owing by a business to another entity. Debts can be both long term loans or short term accounts payable.
Depreciation
The reduction in value of tangible non-current assets. Non-current assets are depreciated per year and the depreciation is included as a non-cash expense on the income statement. The 2 most common methods of depreciation are the straight-line method and the reducing-balance method.
Depreciation Schedule
A listing showing all depreciable assets and the calculated depreciation per year over the useful life of each asset. Typically a depreciation schedule would show details such as description, purchase date, depreciation rate, purchase price, annual depreciation charge and written down value at the end of each year. A depreciation schedule would also show categories of assets such as motor vehicles, office equipment etc.
Direct Cost
A cost that can be directly attributable to a cost driver such as a product or sale. Many direct costs are included in COGS on the Income Statement. Examples are Direct Labour, Direct Materials and Freight. See Indirect Costs for related definition.
Disposal
This refers to the sale or removal of a depreciable asset from a business. Disposal could be because of many reasons including age, obsolescence, damage or the need to raise additional cash.
Double Entry
The method of bookkeeping where each transaction is entered twice into the ledger, once to the debit side of an account and once to the credit side of another account. The amount debited must equal the amount credited.
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One of the two ‘sides’ used in double-entry bookkeeping. Debits are shown on the left hand side of a ledger. A debit entry will increase expenses, cost of goods sold (COGS) or assets but decrease sales or liabilities. See Credit for related definition.
Debt
This is an amount owing by a business to another entity. Debts can be both long term loans or short term accounts payable.
Depreciation
The reduction in value of tangible non-current assets. Non-current assets are depreciated per year and the depreciation is included as a non-cash expense on the income statement. The 2 most common methods of depreciation are the straight-line method and the reducing-balance method.
Depreciation Schedule
A listing showing all depreciable assets and the calculated depreciation per year over the useful life of each asset. Typically a depreciation schedule would show details such as description, purchase date, depreciation rate, purchase price, annual depreciation charge and written down value at the end of each year. A depreciation schedule would also show categories of assets such as motor vehicles, office equipment etc.
Direct Cost
A cost that can be directly attributable to a cost driver such as a product or sale. Many direct costs are included in COGS on the Income Statement. Examples are Direct Labour, Direct Materials and Freight. See Indirect Costs for related definition.
Disposal
This refers to the sale or removal of a depreciable asset from a business. Disposal could be because of many reasons including age, obsolescence, damage or the need to raise additional cash.
Double Entry
The method of bookkeeping where each transaction is entered twice into the ledger, once to the debit side of an account and once to the credit side of another account. The amount debited must equal the amount credited.
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Effective Life
Also called economic life. This refers to the length of time an asset is expected to be useful for.
Entity Structure
The legal form of an entity. Businesses can be established in a number of ways including sole proprietorships, partnerships, limited liability companies and so on. It is important that the economic activities of each entity are clearly defined and can be separately reported on. A business Group is a number of related entities with common or affiliated ownership.
Equity
The amount of funds that the owners have in a business. Equity is also a part of the accounting equation and can be calculated as: Assets - Liabilities = Equity.
Expense
A cost related to producing revenue in a business. Expenses are shown on the Income Statement below the gross profit line. Expenses can be monetary such as utilities or non-cash such as depreciation. Only costs which relate to items to be consumed within a year are included as expenses. Purchases of non-current assets, for example, cannot be included as an expense unless the costs of such are of a sufficiently low amount to be immaterial to the balance sheet.
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Also called economic life. This refers to the length of time an asset is expected to be useful for.
Entity Structure
The legal form of an entity. Businesses can be established in a number of ways including sole proprietorships, partnerships, limited liability companies and so on. It is important that the economic activities of each entity are clearly defined and can be separately reported on. A business Group is a number of related entities with common or affiliated ownership.
Equity
The amount of funds that the owners have in a business. Equity is also a part of the accounting equation and can be calculated as: Assets - Liabilities = Equity.
Expense
A cost related to producing revenue in a business. Expenses are shown on the Income Statement below the gross profit line. Expenses can be monetary such as utilities or non-cash such as depreciation. Only costs which relate to items to be consumed within a year are included as expenses. Purchases of non-current assets, for example, cannot be included as an expense unless the costs of such are of a sufficiently low amount to be immaterial to the balance sheet.
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FIFO (First in first out method)
This is an inventory valuation method that is based on the assumption that the oldest inventory is used first. (In many businesses this is exactly what happens, regardless of accounting method.) As a result, the ending inventory is valued on your balance sheet at a cost closest to the current cost since prices tend to increase over time.
Financial Statements
A set of financial reports including the Balance Sheet, Income Statement and Cash Flow Statement and related Notes which report the performance of a business of a specific time period. Financial Statements are used to inform owners and management and help them make intelligent decisions as to the operating of the business.
Financing Activities
A sub-section of the Cash Flow Statement showing the movement in cash relating to loans and owner’s equity.
Finished Goods
In a manufacturing business these are products that have passed through the production cycle and are completed, awaiting delivery to customers. A subsection of inventory or stock.
Fixed
Meaning the same as non-current in reference to assets and liabilities.
Fixed Costs
Costs or expenses which must be paid at a predetermined amount and do not depend on the level of sales revenue, as opposed to variable costs.
Freight
Costs of transporting stock in the case of freight in, or finished products in the case of freight out.
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This is an inventory valuation method that is based on the assumption that the oldest inventory is used first. (In many businesses this is exactly what happens, regardless of accounting method.) As a result, the ending inventory is valued on your balance sheet at a cost closest to the current cost since prices tend to increase over time.
Financial Statements
A set of financial reports including the Balance Sheet, Income Statement and Cash Flow Statement and related Notes which report the performance of a business of a specific time period. Financial Statements are used to inform owners and management and help them make intelligent decisions as to the operating of the business.
Financing Activities
A sub-section of the Cash Flow Statement showing the movement in cash relating to loans and owner’s equity.
Finished Goods
In a manufacturing business these are products that have passed through the production cycle and are completed, awaiting delivery to customers. A subsection of inventory or stock.
Fixed
Meaning the same as non-current in reference to assets and liabilities.
Fixed Costs
Costs or expenses which must be paid at a predetermined amount and do not depend on the level of sales revenue, as opposed to variable costs.
Freight
Costs of transporting stock in the case of freight in, or finished products in the case of freight out.
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GAAP
The acronym for ‘Generally Accepted Accounting Principles.’ These are standards or rules that have been agreed upon by international accounting bodies to improve the consistency and quality of accounting by those who subscribe to the principles.
General Ledger
Also known as the ‘GL.’ This is the main ledger that contains all of the transactions that constitute the Trial Balance, Income Statement and Balance Sheet.
Goodwill
The difference between the amount paid for the purchase of a business and the value of its net tangible assets.
Gross Profit
Also referred to as ‘GP.’ This is an amount shown on the Income Statement and is calculated as ‘Sales’ less ‘Cost of Goods Sold.’
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The acronym for ‘Generally Accepted Accounting Principles.’ These are standards or rules that have been agreed upon by international accounting bodies to improve the consistency and quality of accounting by those who subscribe to the principles.
General Ledger
Also known as the ‘GL.’ This is the main ledger that contains all of the transactions that constitute the Trial Balance, Income Statement and Balance Sheet.
Goodwill
The difference between the amount paid for the purchase of a business and the value of its net tangible assets.
Gross Profit
Also referred to as ‘GP.’ This is an amount shown on the Income Statement and is calculated as ‘Sales’ less ‘Cost of Goods Sold.’
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Indirect Costs
Costs that cannot be traced directly to a cost driver such as a sale or a product. Examples of indirect costs are administration costs or utilities. See Direct Cost for related definition.
Interest
This is a fee charged by the lender to the borrower for the privilege of using borrowed funds. A loan repayment is typically made up of both principal and interest.
Interest Rate
This is the amount of interest charged on a loan to a borrower. It is expressed as a percentage per annum and is determined both by market forces as well as the perceived risk of the borrower defaulting.
Internal Controls
Systems and policies put in place by a business to minimise the chance of errors or fraudulent activity. Common internal controls include separation of duties and reporting.
Inventory
Also known as ‘stock.’ This is the store of goods held available for sale by a business. In a manufacturing business, inventory includes raw materials, work-in-progress and finished goods.
Investing Activities
A subsection of the ‘Cash Flow Statement’ showing the movement in cash relating to the purchase and disposal of non-current assets.
Intangible
Specifically referring to assets, this means not having an actual physical presence e.g. patents, copyrights and goodwill.
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Costs that cannot be traced directly to a cost driver such as a sale or a product. Examples of indirect costs are administration costs or utilities. See Direct Cost for related definition.
Interest
This is a fee charged by the lender to the borrower for the privilege of using borrowed funds. A loan repayment is typically made up of both principal and interest.
Interest Rate
This is the amount of interest charged on a loan to a borrower. It is expressed as a percentage per annum and is determined both by market forces as well as the perceived risk of the borrower defaulting.
Internal Controls
Systems and policies put in place by a business to minimise the chance of errors or fraudulent activity. Common internal controls include separation of duties and reporting.
Inventory
Also known as ‘stock.’ This is the store of goods held available for sale by a business. In a manufacturing business, inventory includes raw materials, work-in-progress and finished goods.
Investing Activities
A subsection of the ‘Cash Flow Statement’ showing the movement in cash relating to the purchase and disposal of non-current assets.
Intangible
Specifically referring to assets, this means not having an actual physical presence e.g. patents, copyrights and goodwill.
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Journal Entry
A transaction that is recorded in a ledger. A journal entry is usually utilised to record transactions not possible by other methods such as an invoice, receipt or cheque.
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A transaction that is recorded in a ledger. A journal entry is usually utilised to record transactions not possible by other methods such as an invoice, receipt or cheque.
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Key Performance Indicator
Also known as a ‘KPI.’ A measure of performance of an area of business such as sales or costs. The KPI is then compared to the benchmark or target for the specific area as well as past performance to assess the current period.
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Also known as a ‘KPI.’ A measure of performance of an area of business such as sales or costs. The KPI is then compared to the benchmark or target for the specific area as well as past performance to assess the current period.
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Liability
An obligation or debt that a business owes to another person or entity. Liabilities can be either current, which means they will be repaid within 1 year, or long-term which means they will be repaid over a period longer than 1 year. Both types of liabilities are found on the Balance Sheet.
LIFO (Last in first out method)
This is an inventory valuation method that it based on the assumption that the last item of inventory purchased is the first one sold. While most companies do not use this process, a company can still use this method to calculate its inventory valuation.
Liquidity
This refers to the amount of cash a business has available to fund its activities. The liquidity position of a business affects how the business is able to pay debts and expenses on time and can be analysed using liquidity ratios.
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An obligation or debt that a business owes to another person or entity. Liabilities can be either current, which means they will be repaid within 1 year, or long-term which means they will be repaid over a period longer than 1 year. Both types of liabilities are found on the Balance Sheet.
LIFO (Last in first out method)
This is an inventory valuation method that it based on the assumption that the last item of inventory purchased is the first one sold. While most companies do not use this process, a company can still use this method to calculate its inventory valuation.
Liquidity
This refers to the amount of cash a business has available to fund its activities. The liquidity position of a business affects how the business is able to pay debts and expenses on time and can be analysed using liquidity ratios.
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Margin
The percentage of profit represented of the sale price of an item. Margin is usually used in terms of gross profit also known as gross margin. Often confused with Mark-up.
Mark-Up
The percentage of profit represented of the cost price of an item. Mark-up and Margin are commonly misunderstood in that they are seen as the same thing which is incorrect.
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The percentage of profit represented of the sale price of an item. Margin is usually used in terms of gross profit also known as gross margin. Often confused with Mark-up.
Mark-Up
The percentage of profit represented of the cost price of an item. Mark-up and Margin are commonly misunderstood in that they are seen as the same thing which is incorrect.
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Net Assets
This is total assets minus total liabilities. Net assets is also the same as total equity or net worth.
Net Profit
Also referred to as NP. This is the total amount remaining when both the cost of goods sold and expenses have been deducted from sales.
Non Current
Used to describe assets or liabilities meaning longer than 1 year or will not be converted from their present state within 1 year.
Net Profit After Tax (NPAT)
This is the profit remaining after corporation tax has been paid on the Net Profit.
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This is total assets minus total liabilities. Net assets is also the same as total equity or net worth.
Net Profit
Also referred to as NP. This is the total amount remaining when both the cost of goods sold and expenses have been deducted from sales.
Non Current
Used to describe assets or liabilities meaning longer than 1 year or will not be converted from their present state within 1 year.
Net Profit After Tax (NPAT)
This is the profit remaining after corporation tax has been paid on the Net Profit.
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Operating Activities
A subsection of the Cash Flow Statement showing the movement in cash relating to general business activities excluding funding and investments.
Overdraft Facility
An agreement with a bank which allows a business to withdraw or spend more funds, up to a certain agreed limit, than they have deposited with the bank. This means the bank account is allowed to have a negative balance. Banks usually charge an agreed rate of interest on overdrawn amounts.
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A subsection of the Cash Flow Statement showing the movement in cash relating to general business activities excluding funding and investments.
Overdraft Facility
An agreement with a bank which allows a business to withdraw or spend more funds, up to a certain agreed limit, than they have deposited with the bank. This means the bank account is allowed to have a negative balance. Banks usually charge an agreed rate of interest on overdrawn amounts.
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Posted
Bookkeeping terminology for when a transaction has been entered into the bookkeeping system.
Prepayment
An amount paid for goods or services in a financial period before the same goods or services will be consumed or used. A prepayment is a current asset and can be found under this heading in the Balance Sheet.
Principal
A term used in loan transactions referring to the amount borrowed. Loan repayments will typically include both a principal and interest component.
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Bookkeeping terminology for when a transaction has been entered into the bookkeeping system.
Prepayment
An amount paid for goods or services in a financial period before the same goods or services will be consumed or used. A prepayment is a current asset and can be found under this heading in the Balance Sheet.
Principal
A term used in loan transactions referring to the amount borrowed. Loan repayments will typically include both a principal and interest component.
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Raw Materials
In a manufacturing business these are the basic components or ingredients used to manufacture or construct the product/s being sold. A subsection of inventory or stock.
Reconciliation
A process involving checking and comparing 2 sets of records to make sure that they are in agreement. Any differences must be accounted for. For example, a bank reconciliation checks the bank balance as reported by the bank with the bank account balance in the bookkeeping system.
Reducing-balance Method
This is a method of calculating the depreciation on an asset for a specific period. It involves calculating a percentage of the written down value of the asset at the end of the previous period. This amount is the depreciation for the period. This method will invariably never completely write off an asset as the depreciation amount continues getting smaller each period.
Reversed Transaction
A transaction which is reversed or cancels the initial transaction. Reasons why a transaction would be reversed are that it could be erroneous, cancelled or could be an adjusting entry from a previous financial period needing to be reversed in the current period and updated information entered.
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In a manufacturing business these are the basic components or ingredients used to manufacture or construct the product/s being sold. A subsection of inventory or stock.
Reconciliation
A process involving checking and comparing 2 sets of records to make sure that they are in agreement. Any differences must be accounted for. For example, a bank reconciliation checks the bank balance as reported by the bank with the bank account balance in the bookkeeping system.
Reducing-balance Method
This is a method of calculating the depreciation on an asset for a specific period. It involves calculating a percentage of the written down value of the asset at the end of the previous period. This amount is the depreciation for the period. This method will invariably never completely write off an asset as the depreciation amount continues getting smaller each period.
Reversed Transaction
A transaction which is reversed or cancels the initial transaction. Reasons why a transaction would be reversed are that it could be erroneous, cancelled or could be an adjusting entry from a previous financial period needing to be reversed in the current period and updated information entered.
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Security
Tangible property that a financing institution can claim if a borrower defaults on a loan. Security is usually required by financing institutions such as banks in order to release funds to the borrower, particularly for larger amounts being borrowed.
Source Document
The evidence of a transaction such as an invoice or a cheque. In order for a transaction to be entered in a bookkeeping system, evidence should always be given in order to validate the transaction and ensure accuracy.
Statement
A summary of transactions relating to an account. A statement could be of an account within the General Ledger or could be of a customer’s account showing their personal transactions with the business.
Stocktaking
This is a count of all inventory held by a business at a point in time in order to verify and compare the counted value with the bookkeeping system's calculated total. Differences can arise due to expiration, spoilage, theft etc. The stocktaking value is then used in financial reports.
Straight-line Method
This is a method of calculating depreciation on an asset for a specific period. It involves taking a fixed amount per year from the written down value of the asset at the end of the previous period. The fixed amount is calculated when the asset is purchased based on the estimated useful life of the asset. Unlike the reducing-balance method, this method will completely depreciate an asset over its useful life.
Suspense Account
An account to which transactions are posted if they are unclear or if details are pending. Transactions posted to a suspense account should always be reconciled and resolved as soon as possible to minimise errors and increase accuracy.
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Tangible property that a financing institution can claim if a borrower defaults on a loan. Security is usually required by financing institutions such as banks in order to release funds to the borrower, particularly for larger amounts being borrowed.
Source Document
The evidence of a transaction such as an invoice or a cheque. In order for a transaction to be entered in a bookkeeping system, evidence should always be given in order to validate the transaction and ensure accuracy.
Statement
A summary of transactions relating to an account. A statement could be of an account within the General Ledger or could be of a customer’s account showing their personal transactions with the business.
Stocktaking
This is a count of all inventory held by a business at a point in time in order to verify and compare the counted value with the bookkeeping system's calculated total. Differences can arise due to expiration, spoilage, theft etc. The stocktaking value is then used in financial reports.
Straight-line Method
This is a method of calculating depreciation on an asset for a specific period. It involves taking a fixed amount per year from the written down value of the asset at the end of the previous period. The fixed amount is calculated when the asset is purchased based on the estimated useful life of the asset. Unlike the reducing-balance method, this method will completely depreciate an asset over its useful life.
Suspense Account
An account to which transactions are posted if they are unclear or if details are pending. Transactions posted to a suspense account should always be reconciled and resolved as soon as possible to minimise errors and increase accuracy.
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Tangible
Referring to assets, this means having an actual physical existence such as property or vehicles.
Tax
A levy charged to persons and businesses by the government in order to run the country. The amount of tax paid depends on many different factors including primarily amount of taxable income, type of entity, expenses incurred and amounts able to be claimed as credits.
Tax Credit
A rebate offered by a country’s tax authorities which reduces the amount of tax payable. Tax credits are typically volatile and change frequently. Examples are child tax credits and personal allowances.
Tax Deduction
An item allowed by a country’s tax office to be deducted in calculating taxable income. For example, in a business most legitimate business expenses are allowed as deductions in calculating taxable income.
Tax Rate
The percentage charged to your taxable income to calculate tax payable. Tax rates are often dependent on the amount of taxable income based on a sliding scale with higher incomes paying a higher rate.
Transaction
The exchange of a good or service between entities. For example, every sale and purchase of goods or services is a transaction.
Turnover
The total sales revenue for a period.
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Referring to assets, this means having an actual physical existence such as property or vehicles.
Tax
A levy charged to persons and businesses by the government in order to run the country. The amount of tax paid depends on many different factors including primarily amount of taxable income, type of entity, expenses incurred and amounts able to be claimed as credits.
Tax Credit
A rebate offered by a country’s tax authorities which reduces the amount of tax payable. Tax credits are typically volatile and change frequently. Examples are child tax credits and personal allowances.
Tax Deduction
An item allowed by a country’s tax office to be deducted in calculating taxable income. For example, in a business most legitimate business expenses are allowed as deductions in calculating taxable income.
Tax Rate
The percentage charged to your taxable income to calculate tax payable. Tax rates are often dependent on the amount of taxable income based on a sliding scale with higher incomes paying a higher rate.
Transaction
The exchange of a good or service between entities. For example, every sale and purchase of goods or services is a transaction.
Turnover
The total sales revenue for a period.
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Useful Life
Referring to assets, this means the period of time, usually in years, which the asset is estimated to reasonably last before needing replacement.
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Referring to assets, this means the period of time, usually in years, which the asset is estimated to reasonably last before needing replacement.
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Value Added Tax (VAT)
A goods-and-services type tax levied by the government on the sales of items by VAT Registrants. Laws surrounding VAT can change frequently such as some goods being excluded from the tax or the rate of tax changing.
Validation
Checking source documents, personnel and policies before entering transactions into a bookkeeping system to ensure that they are truthful and correct.
Variable Costs
Costs that are caused by, and change in proportion to, sales revenue. Some costs may be semi-variable where there is a certain fixed limit such as an upper or lower boundary.
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A goods-and-services type tax levied by the government on the sales of items by VAT Registrants. Laws surrounding VAT can change frequently such as some goods being excluded from the tax or the rate of tax changing.
Validation
Checking source documents, personnel and policies before entering transactions into a bookkeeping system to ensure that they are truthful and correct.
Variable Costs
Costs that are caused by, and change in proportion to, sales revenue. Some costs may be semi-variable where there is a certain fixed limit such as an upper or lower boundary.
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Work-In-Progress
A sub-section of inventory, encompassing goods passing through a manufacturing process that are not yet complete. When completed they will move into the finished goods sub-section.
Working Capital
The amount of funds needed to finance the day to day operations of a business or run the business normally for the length of the working capital cycle.
Working Capital Cycle
The amount of time it typically takes a business between the purchase of a product and collection of the money relating to its sale to a customer.
Written Down Value
The purchase price of an asset less any accumulated depreciation up to the current point in time.
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A sub-section of inventory, encompassing goods passing through a manufacturing process that are not yet complete. When completed they will move into the finished goods sub-section.
Working Capital
The amount of funds needed to finance the day to day operations of a business or run the business normally for the length of the working capital cycle.
Working Capital Cycle
The amount of time it typically takes a business between the purchase of a product and collection of the money relating to its sale to a customer.
Written Down Value
The purchase price of an asset less any accumulated depreciation up to the current point in time.
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