IGCSE Accounting key terms

122 terms with short definitions you can learn for the exam. Type to filter the list.

Key terms glossary 86

Accounting equation: Assets = capital + liabilities.
Accruals concept: Income and expenses are recorded in the period they relate to, not when cash is received or paid.
Accrued expense (other payable): An expense owing at the year end: added to the expense and shown as a current liability.
Accumulated depreciation: The total depreciation charged on a non-current asset since it was bought.
Appropriation account: The statement that shows how a partnership's profit for the year is shared between the partners.
Asset: A resource owned or controlled by the business, such as equipment, inventory or cash.
Bank reconciliation statement: A statement explaining the difference between the cash book bank balance and the bank statement balance.
Business entity concept: The business is treated as separate from its owner.
Capital: The owner's investment in the business; assets minus liabilities.
Capital expenditure: Spending on buying or improving non-current assets, including delivery and installation costs.
Carriage inwards: The cost of delivering purchases to the business; added to cost of sales.
Carriage outwards: The cost of delivering goods to customers; an expense in the income statement.
Carrying amount: Cost of a non-current asset less its accumulated depreciation.
Cash book: The book of original entry for cash and bank transactions, which is also a ledger account.
Cash discount: A reduction given for paying quickly; recorded as discount allowed or discount received.
Compensating error: Two errors of equal value that cancel each other out.
Complete reversal of entries: The correct amount entered in the correct accounts but on the wrong sides.
Consistency concept: The same accounting methods are used from year to year so results can be compared.
Contra entry: An entry that appears on both sides of the cash book, such as paying cash into the bank; also a set-off between receivables and payables control accounts.
Control account: A summary account for the receivables or payables ledger, used to find errors and deter fraud.
Cost of sales: Opening inventory + net purchases + carriage inwards − closing inventory.
Credit note: A document sent by a seller to reduce the amount a customer owes, for example for returned goods.
Current account (partnership): A partner's account recording salary, interest on capital, share of profit, drawings and interest on drawings.
Current assets: Assets expected to turn into cash within a year: inventory, trade receivables, other receivables, bank and cash.
Current liabilities: Amounts due for payment within a year: trade payables, other payables and bank overdraft.
Day books: Books of original entry for credit sales, credit purchases, sales returns and purchases returns.
Depreciation: The part of the cost of a non-current asset charged as an expense in each year of its use.
Discount allowed: A cash discount given to a credit customer for prompt payment; an expense.
Discount received: A cash discount received from a supplier for prompt payment; income.
Dishonoured cheque: A cheque the customer's bank refuses to pay; the customer owes the money again.
Disposal account: The ledger account used to find the profit or loss on selling a non-current asset.
Double entry: Recording every transaction with an equal debit and credit.
Drawings: Money or goods taken out of the business by the owner for private use.
Error of commission: A correct amount entered on the correct side but in the wrong person's account of the same type.
Error of omission: A transaction left out of the books completely.
Error of original entry: A wrong amount recorded in both accounts.
Error of principle: An entry in the wrong type of account, such as capital expenditure treated as an expense.
Gross profit: Revenue minus cost of sales.
Imprest system: A petty cash system where the float is restored to a fixed amount at the end of each period.
Income statement: The statement showing revenue, cost of sales, gross profit, expenses and profit for the year.
Incomplete records: When a business does not keep full double-entry records, so figures must be worked out from other information.
Interest on capital: An appropriation of profit paid to partners on the capital they have invested.
Interest on drawings: An amount charged to partners on their drawings, which adds to the profit shared.
Inventory: Goods held for resale, or materials and goods in production; valued at the lower of cost and net realisable value.
Invoice: A document sent by a seller to a buyer listing goods supplied, prices and the amount owed.
Irrecoverable debt: A debt that will not be paid, so it is written off as an expense.
Journal: The book of original entry for unusual items such as corrections, opening entries and asset purchases on credit.
Ledger: The book containing all the accounts; divided into the nominal (general), receivables and payables ledgers.
Liability: An amount the business owes to others.
Limited liability partnership (LLP): A partnership structure where members can only lose what they invested; a separate legal entity.
Liquidity: The ability to pay short-term debts when they are due.
Manufacturing account: The account that shows the production cost of goods completed by a manufacturer.
Margin: Gross profit as a percentage of selling price.
Mark-up: Gross profit as a percentage of cost price.
Materiality: An item is material if leaving it out or misstating it would affect users' decisions.
Money measurement concept: Only items that can be measured in money are recorded.
Net realisable value: The expected selling price of inventory less any costs to sell it.
Non-current assets: Assets kept and used in the business for more than a year, such as premises and equipment.
Non-current liabilities: Amounts due for payment after more than a year, such as a long-term loan.
Outstanding lodgement: Money paid into the bank and entered in the cash book that has not yet appeared on the bank statement.
Partnership Act 1890 (Section 24): If there is no agreement: profits and losses shared equally, no salaries, no interest on capital, no interest on drawings, and 5% a year interest on partners' loans.
Petty cash book: The book used to record small cash payments, with analysis columns for types of expense.
Prepaid expense (other receivable): An expense paid in advance for the next period: deducted from the expense and shown as a current asset.
Prime cost: Direct materials + direct labour + direct expenses.
Profit for the year: Gross profit plus other income minus expenses.
Profitability: The ability to make a profit from sales and from the capital invested.
Provision for doubtful debts: An estimate of the receivables that may not be paid, deducted from trade receivables (prudence).
Prudence concept: Do not overstate profits or assets, or understate losses or liabilities.
Purchase order: A document sent by a buyer to a supplier to order goods.
Reducing balance method: Depreciation charged as a fixed percentage of the carrying amount each year.
Remittance advice: A document sent with a payment showing which invoices are being paid.
Residual value: The amount an asset is expected to be sold for at the end of its useful life.
Revenue: Income from the sale of goods or services (sales less sales returns).
Revenue expenditure: Spending on running the business, such as repairs, wages and fuel; an expense in the income statement.
Statement of account: A document sent to a credit customer each month showing what they owe.
Statement of affairs: A list of assets and liabilities at a date, used to find capital when records are incomplete.
Statement of financial position: The statement of assets, liabilities and capital at the end of the period.
Straight line method: Depreciation of (cost − residual value) ÷ useful life, the same amount each year.
Suspense account: A temporary account used to make the trial balance agree until errors are found and corrected.
Trade discount: A reduction off the list price given to trade customers; not recorded in the ledger.
Trade payables: Amounts owed to credit suppliers.
Trade receivables: Amounts owed by credit customers.
Trial balance: A list of ledger balances at a date, used to check that total debits equal total credits.
Unpresented cheque: A cheque written and entered in the cash book that the bank has not yet paid.
Work in progress: Partly finished goods still in production.
Working capital: Current assets minus current liabilities.

International terms and older names 14

Carrying amount: Older name: net book value
Financial statements: Older name: final accounts
Income statement: Older name: trading and profit and loss account
Inventory: Older name: stock
Irrecoverable debts: Older name: bad debts
Non-current assets: Older name: fixed assets
Non-current liabilities: Older name: long-term liabilities
Other payables: Older name: accruals
Other receivables: Older name: prepayments
Profit for the year: Older name: net profit
Revenue: Older name: sales or turnover
Statement of financial position: Older name: balance sheet
Trade payables: Older name: creditors
Trade receivables: Older name: debtors

Formulas and ratios 22

Carrying amount: cost − accumulated depreciation
Closing capital: opening capital + capital introduced + profit for the year − drawings
Cost of sales: opening inventory + purchases − purchases returns + carriage inwards − closing inventory
Credit purchases from incomplete records: payments to suppliers + closing trade payables − opening trade payables
Credit sales from incomplete records: receipts from customers + closing trade receivables − opening trade receivables
Current (working capital) ratio: current assets ÷ current liabilities, written as x : 1 (topic 4.4)
Expense for the year (with accruals and prepayments): amount paid − opening accrual + closing accrual + opening prepayment − closing prepayment
Gross profit: revenue − cost of sales
Gross profit percentage: gross profit ÷ revenue × 100 (topic 4.4)
Liquid (acid test) ratio: (current assets − inventory) ÷ current liabilities, written as x : 1 (topic 4.4)
Margin: gross profit ÷ revenue × 100
Mark-up: gross profit ÷ cost of sales × 100
Prime cost: direct materials + direct labour + direct expenses
Production cost of goods completed: prime cost + factory overheads + opening work in progress − closing work in progress
Profit for the year: gross profit + other income − expenses
Profit for the year as a percentage of revenue: profit for the year ÷ revenue × 100 (topic 4.4)
Profit from changes in capital: closing capital − opening capital + drawings − capital introduced
Profit or loss on disposal: sale proceeds − carrying amount at the date of disposal
Reducing balance depreciation: rate % × carrying amount at the start of the year
Residual profit (partnership): profit for the year + interest on drawings − partners' salaries − interest on capital
Return on capital employed (ROCE): profit for the year ÷ capital employed × 100, where capital employed is the owner's capital plus non-current liabilities (topic 4.4)
Straight line depreciation: (cost − residual value) ÷ useful life in years

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