The complete glossary of Australian Accounting and Bookkeeping terms

A

Account: A record of financial transactions and activities throughout a particular period.

Account Payable: An amount due for payment to a supplier/creditor.

Account Receivable: An amount the creditor is entitled to demand from the debtor following a transaction.

Accountant: A person who is knowledgeable about financial transactions and activities. He or she is qualified to maintain, preserve, prepare, and inspect financial records.

Accounting Cycle: A series of accounting events in a company to analyze business transactions and create financial statements. The accounting cycle is - (1) Identifying transactions, (2) Journal entries, (3) Posting journal entries to the general ledger, (4) Creating an unadjusted trial balance, (5) Preparing adjusting entries, (6) Creating an adjusted trial balance, (7) Financial statements, (8) Closing entries, and (9) Post-closing trial balance.

Accrual: Payments, benefits or any kind of increase over time.

Accrual Accounting: An accounting method measuring the performance of a company based on prescribed accounting events regardless of whether or not there are cash transactions.

Accruals Basis: The effects of transactions are recognised when they occur rather than when they are received and paid. They are recorded in the accounts and reported in the periods in which they occur.

Accrued Interest: Accumulated interest over an initial investment.

Acid Test: The ratio of liquid assets to current liabilities.

Annual Report: A yearly report documenting financial statements and other critical business information in a company.

Annuity: A series of payments made over an interval, which may be fixed by both parties.

Appreciation: An increase in value that accrues over time.

Asset: A resource controlled by an entity as a result of past events and from which future economic benefits are expected to flow to the entity.

Audit: The independent examination of the financial statements of an organisation resulting in an expressed opinion or view of the statements.

B

Bad Debt: When it's known that a debtor is unable to pay an amount due.

Balance: Computed by subtracting the sum of debit entries from the sum of credit entries in a given account. If the difference is positive, the balance is called a debit balance, whereas, if it is negative, it is a credit balance.

Balance Sheet: A statement of the financial position of an entity showing assets, liabilities and ownership interest.

Bank Reconciliation: A process of examining the bank statement and cash accounts of a company to determine whether or not there is a discrepancy.

Bank Statement: A written statement documenting the account's financial transactions.

Bankruptcy: The declaration of a company or institution that their debt is more than their profit.

Beginning Inventory: The documentation of merchandise conducted at the beginning of the accounting period.

Board of Directors: Individuals who are voted to represent the interest of the stockholders. Often called the Board, they are entrusted with the management, supervision, and decision-making process of the corporation.

Bond: Another name for loan finance, more commonly used in the U.S.

Book Value: The total amount of a company upon liquidation of all its assets minus its liabilities.

Bookkeeping: The act of keeping or documenting financial transactions and activities in a corporation.

Buyout: Purchasing of stocks in a corporation that enables the buyer to have control over the said company’s assets and operations.

C

Call option: A contract giving the holder the right to purchase stocks, bonds, or any debt instrument in a period specified under the contract.

Capital: An amount of finance provided to enable a business to acquire assets and sustain its operations.

Capital Expenditure: The amount spent on non-current/fixed assets of an organisation.

Capital Gain: The increase in the value of a corporation’s capital asset.

Cash: Cash on hand and deposits in a bank which can be withdrawn upon.

Cash Basis: A method of documenting revenue and payment of financial transactions. The revenue is secured when cash is received from one party.

Cash Flow: The net amount of cash receipts and disbursements in an accounting period.

Contingent Liabilities: Liabilities that are not entered into the Balance Sheet because they depend upon some other event occurring.

Closing: The clearing of accounts in preparation for the next accounting period.

Collateral asset: An asset that serves as security to ensure that the debt will be paid.

Comparative Financial Statement: A comparison or analysis done on current and previous accounting periods.

Consolidation: Two corporations that combine to create a new entity.

Contributed Capital: Also paid-in capital, this is the amount the stockholders gave to the corporation as an investment upon purchase of their stock.

Convertible Stock: A type of stock that may be converted to another type of stock.

Cost of Capital: The earnings of a business. This is a hypothetical rate of return if the same amount is invested in a different corporation with equal risk.

Cost of Goods Sold: The value of raw materials and production of finished goods.

Credit: The supplier agrees to allow the customer to make payment sometime after delivery.

Credit: Represents the company’s reduction of assets. For companies that follow the double-entry bookkeeping system, it can be found on the right side of the book.

Credit Agreement: An agreement whereby a party borrows money with an unconditional promise to pay the debt in a determinable future time.

Credit Balance: The amount that remains after a short sale.

Creditor: An entity to whom money is owed by the organisation.

Current Asset: An asset that is expected to be converted into cash within a trading cycle.

D

Debit: Cash-out transactions. For companies that follow the double-entry bookkeeping system, it can be found on the left side of the book.

Debt: The amount of money or service the debtor owes to the creditor.

Debtor: An entity that owes the organisation money.

Debt Instrument: An instrument issued to a lender or investor. It is a written obligation that the lender or investor owes money to an entity or organization. The said instrument contains a provision that signifies a promise to pay.

Declining–Balance Method: This is also known as the reducing balance method. This method imposes higher depreciation charges in the early years of an asset’s beneficial life and imposes a lower depreciation charge on the asset’s remaining useful life.

Default: The failure of a party to perform his or her financial obligation, or perform the service agreed upon.

Depreciation: A reduction of value caused by wear and tear. This occurs when an asset’s value decreases with time.

Derivatives: A financial instrument, the value of which relies on the value of an instrument or asset.

Disbursement: Usage of money for financial transactions and activities.

Disclosure: Publicizing information related to the activities of an organization or corporation.

Dividend: An amount paid to shareholders of the organisation as a reward for investment in the company. The dividend paid is related to the number of shares an individual shareholder has.

Drawings: Cash taken from the business for personal use. The opposite of capital.

E

Earnings Per Share: Metric is calculated as earnings for ordinary shareholders divided by the number of shares that the company has issued.

Encumbrance: a burden or a lien imposed on an asset.

Ending Inventory: The inventory count is done at the end of an accounting period to monitor the total inventory held by the corporation during such time.

Equity: The total value of a business when total liabilities are deducted from the total assets.

Escrow: Money, stocks, or any asset under the custody of a third party to ensure that both parties abide by the provisions of their contract before such amount, stock or asset can be released.

Expenditure: The usage of a corporation’s money or asset.

Expense: An expense is caused by a transaction or event arising that results in a decrease of ownership interest during the ordinary activities of the business.

F

Fiduciary: A person or organization bound by a mutual trust to protect the interest of a person or organization. He or she is obligated to perform tasks he or she is required to perform under their agreement.

Financial statements: The documentation and analysis of financial reports and data. This may be conducted on specified accounting periods imposed by the organization.

Financial Year: A financial reporting period. Between July 1 and June 30 in Australia.

Fixed Asset: An asset that is held by the organisation continuously for use in production or administrative services.

G

Gearing: The ratio of debt capital to ownership claim.

Generally Accepted Accounting Principles (GAAP): Rules, guidelines, philosophy, and procedures necessary for an accounting practice.

Goodwill: A company’s reputation as a provider of goods or services. This takes into consideration the years of operation, which enabled the company to secure a loyal following of customers.

Grant: An amount given by a government unit or any entity as a contribution, or donation for any purpose.

Gross: Before making deductions.

Gross Profit/Gross Margin: Sales less cost of sales before deduction of other expenses.

H

Horizontal Analysis: A type of analysis used to compute changes in the financial statements over some time. This is also called trend analysis.

I

IAS: International Accounting Standard, issued by the IASB’s predecessor body.

Impairment: A reduction in the carrying value of an asset, beyond the expected depreciation. Impairments must be reflected within the Balance Sheet.

Income: The earnings of the corporation or business after providing a service or selling a product.

Insolvency: A person, corporation, or entity who has incurred consequential financial losses, consequently, incapacitating the same to pay existing debts.

Insolvent: A person who suffers from insolvency, finances are no longer liquid.

Intangible: Without shape or form. Cannot be touched. Usually related to assets such as intellectual property rights.

Interest: A charge on the principal amount borrowed in case of failure to pay on time.

Interest on loans: The percentage return on the loan capital required by the lender.

Inventory: The act of listing a supply of goods at the start or end of the accounting period.

J

Journal: A record of the daily financial transactions of a company.

K

Key Performance Indicators (KPI): Quantified measures of factors that help to measure the performance of the business effectively.

L

Ledger: A compilation of records of business transactions by type.

Letter of Credit: A document issued in transactions involving the import or export of goods. This is proof of the commitment of a bank to guarantee payment of the imported or exported goods.

Liabilities: Obligations to transfer economic benefits to another entity due to past events or transactions.

Liquid Assets: The corporation’s money. An asset is liquid when it is already converted to cash.

Liquidity: The extent to which a business has access to cash or items that can readily be exchanged for cash.

Liquidation: The process of winding up the corporation. Liquidation happens when the remaining assets are distributed to the person/s entitled to it.

Loan: A transaction or an agreement between two parties, wherein one party, called the creditor, lends money or allows the use of the property to another, called the debtor.

Loss: An occurrence where the company incurs an excess of revenue over revenue in a given time or activity.

M

Management: Includes policies, administration, and a select group of people that performs supervision and necessary decision–making before the implementation of business objectives.

Management Accounting: Reporting financial information from within the business for use by management only.

Market: An intended public place where manufacturers can offer their goods and services directly to the public or through an intermediary.

Market Value (of a share): The price for which a share could be transferred between a buyer and a willing seller.

Maturity: The time when a loan becomes due and demandable. Accrual of interest begins from the date of maturity.

Merger: A form of business acquisition wherein one corporation acquires the assets as well as the liabilities of another corporation or corporation to form a new corporate entity.

Minority Interest/Non-controlling Interest: The ownership in a company held by persons other than the parent company.

Mortgage – security over real property assets.

N

National Association of State Boards of Accountancy (NASBA): An organization formed by the 54 State Boards of Accountancy. The NASBA is the body that administers the national CPA examination, and grants license to Certified Public Accountants, as well as sets the guidelines and regulations for the practice of public accountancy in the United States.

Net Assets: A company generates net assets when there is an excess in the securities currently owned, cash at hand, receivables, and interest over the liabilities of the company.

Net Income: Often referred to as net profit, signifies the company’s total earnings in a given period. The net income is calculated when the total expenses incurred by the company are deducted from the total revenue generated in that same period.

Net Sales: The sum of the company’s total sales. It is generated after subtracting the returns, discounts, and allowances issued by the company during a given period.

Net Worth: The wealth or value of a person or entity. It is defined by the excess of assets when subtracted from the liabilities.

O

Obligations: An amount borrowed which may require payment or services promised to be rendered by one party or both parties at a determinable future time.

Offer: The price by which a property or security is sold to another by the owner.

Operating Cycle: The period needed for the completion of the manufacturing process. It is the duration between the acquisition of raw materials for the manufacturing of goods or services and the end of production, including final cash realization through sales.

Operating Margin: Operating profit as a percentage of sales.

Ordinary Shares: Entitle the holder to a share of the dividend and of net assets on closing down of the business.

Opportunity Cost: An amount that represents the benefits a person, business, or investor may miss when he chooses to proceed with one alternative over another.

Overhead Cost: Expenses that do not necessarily go into the production of goods.

Owners Equity: The proportion of the total value of a company’s assets that can be claimed by its owners and by its shareholders.

P

Partnership: A form of business venture where two or more persons come to an agreement, which may be expressed or implied, to come together to carry on a business or trade for profit and sharing. These persons called the partners, allocate money, property, or industry to create a common fund to finance the business. They exercise equal rights over the administration and share the risk of loss and liability.

Penalty: A liability as a result of non-performance or omission of any act mandated by law.

Period: An interval of time with a specified length or characterized by certain conditions.

Preemptive Right: Sometimes referred to as the right of refusal granted to existing stockholders in a corporation, or lessee of a building to purchase the shares or property before he offers it to third persons.

Preference Shares: Shares in a company that gives the holder a preference to receive dividend before any ordinary share dividend is declared.

Premium: An amount paid in addition, or extra.

Production: The process of creating or manufacturing goods, products, or other commercial objects for distribution.

Profit: Calculated as revenue minus expenses.

Promissory Note: A written instrument evidencing indebtedness to another, which contains an unconditional promise to pay the amount due plus interest, on-demand, or in a determinable future time.

Proxy: A person authorized to represent a shareholder in a meeting. The proxy will exercise the shareholder’s right to vote within the duration he is authorized to do so.

Provision: A liability of uncertain timing or amount.

Q

Qualified opinion: A statement issued by an auditor in his auditor’s report that expressly narrates the company’s financial statement. For a qualified opinion to hold value in the business, it must be issued following the Generally Accepted Accounting Principles (GAAP).

Quarter: A period of three–month intervals within a given year.

Quarterly Reports: A summary of the unaudited statement of accounts, prepared and issued by the company every three months, or every quarter. It is also sometimes referred to as interim financial statements.

R

Receivables: The sum of money or amount due and to be collected from debtors and customers.

Recession: A term often used in macroeconomics, which signifies a sufficient decline in the economy. According to economists, there must be two consecutive quarters of a significant decrease in the domestic economy or the gross national product of a given country.

Reducing balance method: This is also known as the Declining–Balance Method. This method imposes higher depreciation charges in the early years of an asset’s beneficial life and imposes a lower depreciation charge on the asset’s remaining useful life.

Research and Development (R&D): An essential component in any industry, research is a methodical and schematic activity that aims to discover new knowledge to fill the gap in scientific data. Whereas, the development of the translation of the research data into creating a design for innovative products and solutions.

Reserves: The claim that owners have on the assets of a company because the company has created new wealth for them over the period since it began.

Return on Investment (ROI): A means of measuring the amount of profit gained by an investor or a firm through its daily operation. It usually is an indicator that a business is doing well, effective, and efficient in running its business.

Return on Capital Employed: Operating profit before deducting interest and taxation, divided by share capital plus reserves plus long-term loans.

Revenue: The amount generated from the ordinary course of business; it forms part of the income of the business. Revenue comes from the sales of products, merchandise, and services rendered, as well as interest from dividends and rents.

Risk: As defined in financial terms, pertains to a chance of generating a negative outcome or return. It includes the possibility of incurring a loss of all or the entire investment.

Risk Management: The process of identifying and monitoring the risks of doing business, it also includes the assessment of a possible return on investment.

S

Sales/Revenue: Created by transactions during the ordinary course of business which increase the ownership interest. Money received by the business in exchange for goods and services.

Security: A certificate of ownership that can be transferred to another.

Share Capital: Name given to the total amount of cash that the shareholders have contributed to the company.

Start–up Cost: The cost to sustain a newly–established business venture. Start–up cost excludes acquisition cost that was sustained in bringing a new material into the production.

Stock Option: The right given to persons, not a member or stockholder of a corporation, to buy or sell a given number of shares of stock at a specific price point.

T

Tangible Fixed Asset: A fixed asset that has a physical existence.

Tax Year: Twelve months or an entire year that covers a particular tax return.

Taxable Income: The sum of an individual’s earnings during the tax year. This is subject to the Internal Revenue Service (IRS) regulations.

Taxation Process: The process of levying mandatory contributions from individuals, corporations, and other entities to generate public funds to supplement government finances.

Taxpayer Identification Number (TIN): A unique set of numbers that identifies an individual taxpayer or other taxable entity in filing a tax return or financial statement.

Term: The time agreed upon by parties within which the provision and conditions of the contract must be performed.

Trade: A fundamental concept in Economics that includes the buying and selling of goods and services among different parties.

Trademark: A component of intellectual property, Trademark is a distinctive feature that differentiates and identifies a product, service, or goods from any other manufacturer.

Trust: A relationship reposed with confidence; trust is a legal practice and agreement wherein one person, called the trustor, transfers the legal title or right to possess a property to a trustee.

U

Uniform Accountancy Act (UAA): Jointly developed by the American Institute of Certified Public Accountants (AICPA) and the National Association of State Boards of Accountancy (NASBA), proposes a new regulatory framework to regulate the public accounting profession in the country. It aims to enhance the practice of public accountancy in the United States, as well as to streamline the practice across different states.

V

Value: The amount or price attached to goods or products, or the service offered by a producer based on its production cost.

Value-Added Tax (VAT): Amount attached to goods that represents the consumption tax. It is levied on the value added to a given product and pertains to the cost of production stages and the time the goods are purchased.

Valuation: The process of determining, and later, attaching the value or worth of a company’s assets.

Variance: Pertains to the difference between the assessed value of the goods and its actual value post-production and cost of point of the purchase cost.

Venture Capital: A person or an investment company that primarily seeks for up–and–coming business to finance. Venture capital’s primary objective is to secure capital growth by investing in new assets.

W

Wage: The amount paid to an employee or a worker for a day’s work and is usually computed at an hourly rate.

Withholding: The amount withheld or deducted by the employer from an employee’s salary and paid as a contribution to the proper authority.

Working Capital: Also known as the Net Working Capital, it is the amount generated by deducting the company’s current assets from its current liabilities.

Working Capital: Finance to support the short-term assets of the business to the extent that these are not financed by short-term creditors. Current assets are less current liabilities.

Work-in-Progress: Cost of partly completed goods or services, intended for completion and recorded as an asset.

Write–Off: An accounting method where to sustain a positive net worth, the company reduces the total value of its assets, consequently debiting its liabilities. Simply, it charges the company’s assets to its expenses or loss.

Y

Yield: The return on a given investment an investor earns or generates over a particular period. It is the amount realized from the amount invested, taking into account the current market value.