Glossary of Financial Accounting Terms
GlossarioTermini Contabilità Finanziaria

Glossario Termini di Contabilità Finanziaria

In un mondo globalizzato nel quale la moneta circola senza più barriere né confini, è importante conoscere il significato dei termini contabili più utilizzati nel mondo della finanza.

Questo glossario è destinato ad essere utilizzato come riferimento rapido per alcuni dei termini tecnici contenuti nella contabilità finanziaria.

Queste definizioni e descrizioni non dovrebbero essere considerate singolarmente ma tenendo conto del contesto lessicale nel quale vengono inserite.


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AVVERTENZE D'UTILIZZO: Il presente glossario contiene la definizione dei termini indicati con riferimento alla Contabilità Finanziaria.
La spiegazione di ciascuno dei termini indicati in questo glossario è di carattere meramente orientativo e priva di valore legale; si raccomanda, quindi, di tenere conto del contesto e dell'evento in cui essi vanno applicati, in quanto il significato loro attribuito potrebbe differire rispetto a quello qui rappresentato.

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  - A -  


Account Payable

An amount due for payment to a supplier of goods or services, also described as a "Trade Creditor".

Account Receivable

An amount due from a customer, also described as a trade debtor.

Accountancy Firm

A business partnership (or possibly a limited company) in which the partners are qualified Accountants.

The firm undertakes work for clients in respect of audit, accounts preparation, tax and similar activities.

Accountancy Profession

The collective body of persons qualified in accounting, and working in accounting-related areas.

Usually they are members of a professional body, membership of which is attained by passing examinations.

Accounting

The process of identifying, measuring and communicating financial information about an entity to permit informed judgements and decisions by users of the information.

Accounting Equation

The relationship between assets, liabilities and ownership interest.

Accounting Period

Time period for which financial statements are prepared (e.g. month, quarter, year).

Accounting Policies

Accounting methods which have been judged by business enterprises to be most appropriate to their circumstances and adopted by them for the purpose of preparing their financial statements.

Accounting Standards

Definitive statements of best practice issued by a body having suitable authority.

Accounting Standards

Board The authority in the UK which issues definitive statements of best accounting practice.

Accruals Basis

The effects of transactions and other events are recognised when they occur (and not as cash or its equivalent is received or paid) and they are recorded in the accounting records and reported in the financial statements of the periods to which they relate (see also matching).

Accumulated Depreciation

Total depreciation of a non-current (fixed) asset, deducted from original cost to give net book value.

Acid Test

The ratio of liquid assets to current liabilities.

Acquiree

Company that becomes controlled by another.

Acquirer

Company that obtains control of another.

Acquisition

An acquisition takes place where one company – the acquirer – acquires control of another – the acquiree – usually through purchase of shares.

Acquisition Method

Production of consolidated financial statements for an acquisition.

Administrative Expenses

Costs of managing and running a business.

Agency

A relationship between a principal and an agent. In the case of a limited liability company, the shareholder is the principal and the director is the agent.

Agency Theory

A theoretical model, developed by academics, to explain how the relationship between a principal and an agent may have economic consequences.

Aggregate Depreciation

See accumulated depreciation.

Allocate

To assign a whole item of cost, or of revenue, to a simple cost centre, account or time period.

Allocated, Allocation

See allocate.

Amortisation

Process similar to depreciation, usually applied to intangible fixed assets.

Annual Report

A document produced each year by limited liability companies containing the accounting information required by law. Larger companies also provide information and pictures of the activities of the company.

Articles of Association

Document setting out the relative rights of shareholders in a limited liability company.

Articulation

The term 'articulation' is used to refer to the impact of transactions on the balance sheet and profit and loss account through application of the accounting equation.

Assets

Rights or other access to future economic benefits controlled by an entity as a result of past transactions or events.

Associated Company

One company exercises significant influence over another, falling short of complete control.

Audit

An audit is the independent examination of, and expression of opinion on, financial statements of an entity.

Audit Manager

An employee of an accountancy firm, usually holding an accountancy qualification, given a significant level of responsibility in carrying out an audit assignment and responsible to the partner in charge of the audit.


  - B -  


Bad Debt

It is known that a credit customer (debtor) is unable to pay the amount due.

Balance Sheet

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

Bank Facility

An arrangement with a bank to borrow money as required up to an agreed limit.

Bond

The name sometimes given to loan finance (more commonly in the USA).

Broker (Stockbroker)

Member of a Stock Exchange who arranges purchase and sale of shares and may also provide an information service giving buy/sell/hold recommendations.

Broker's Report

Bulletin written by a stockbroking firm for circulation to its clients, providing analysis and guidance on companies as potential Investments.

Business Combination

A transaction in which one company acquires control of another.

Business Cycle

Period (usually 12 months) during which the peaks and troughs of activity of a business form a pattern which is repeated on a regular basis.

Business Entity

A business which exists independently of its owners.

  - C -  


Called Up (Share Capital)

The company has called upon the shareholders who first bought the shares, to make their payment in fu

Capital

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

Capital Expenditure

Spending on non-current (fixed) assets of a business.

Capitalisation Issue

Issue of shares to existing shareholders in proportion to shares already held. Raises no new finance but changes the mix of share capital and reserves.

Cash

Cash on hand (such as money held in a cash box or a safe) and DEPOSITS in a bank that may be withdrawn on demand.

Cash Equivalents

Short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value.

Cash Flow Projections

Statements of cash expected to flow into the business and cash expected to flow out over a particular period.

Cash Flow Statement

Provides information about changes in financial position.

Chairman

The person who chairs the meetings of the board of directors of a company (preferably not the chief executive).

Charge

In relation to interest or taxes, describes the reduction in ownership interest reported in the income statement (profit and loss account) due to the cost of interest and tax payable.

Chief Executive

The director in charge of the day-to-day running of a company.

Close Season

Period during which those who are 'insiders' to a listed company should not buy or sell shares.

Commercial Paper

A method of borrowing money from commercial institutions such as banks.

Companies Act 2006 (The)

Legislation to control the activities of limited liability companies.

Comparability

Qualitative characteristic expected in financial statements, comparable within company and between companies.

Completeness

Qualitative characteristic expected in financial statements.

Conceptual Framework

A statement of principles providing generally accepted guidance for the development of new reporting practices and for challenging and evaluating the existing practices.

Conservatism

See prudence. Sometimes used with a stronger meaning of understating assets and overstating liabilities.

Consistency

The measurement and display of similar transactions and other events is carried out in a consistent way throughout an entity within each accounting period and from one period to the next, and also in a consistent way by different entities.

Consolidated Financial Statements

Present financial information about the group as a single reporting entity.

Consolidation

Consolidation is a process that aggregates the total assets, liabilities and results of the parent and its subsidiaries (the group) in the consolidated financial statements.

Contingent Liabilities

Obligations that are not recognised in the balance sheet because they depend upon some future event happening.

Control

The power to govern the financial and operating policies of an entity so as to obtain benefits from its activities.

Convertible Loan

Loan finance for a business that is later converted into share capital.

Corporate Governance

The system by which companies are directed and controlled. Boards of directors are responsible for the governance of their companies.

Corporate Recovery Department

Part of an accountancy firm which specialises in assisting companies to recover from financial problems.

Corporate Social Responsibility

Companies integrate social and environmental concerns in their business operations and in their interactions with stakeholders.

Corporation Tax

Tax payable by companies, based on the taxable profits of the period.

Cost of a Non-Current Asset

Is the cost of making it ready for use, cost of finished goods is cost of bringing them to the present condition and location.

Cost of Goods Sold

Materials, labour and other costs directly related to the goods or services provided.

Cost of Sales

See cost of goods sold.

Coupon

Rate of Interest payable on a loan.

Credit (Bookkeeping System)

Entries in the credit column of a ledger account represent increases in liabilities, increases in ownership interest, revenue, or decreases in assets.

Credit (Terms of Business)

The supplier agrees to allow the customer to make payment some time after the delivery of the goods or services.

Typical trade credit periods range from 30 to 60 days but each agreement is different.

Credit Note

A document sent to a customer of a business cancelling the customer's debt to the business, usually because the customer has returned defective goods or has received inadequate service.

Credit Purchase

A business entity takes delivery of goods or services and is allowed to make payment at a later date.

Credit Sale

A business entity sells goods or services and allows the customer to make payment at a later date.

Creditor

A person or organisation to whom money is owed by the entity.

Critical Event

The point in the business cycle at which revenue may be recognised.

Current Asset

An asset that is expected to be converted into cash within the trading cycle.

Current Liability

A liability which satisfies any of the following criteria:
(a) it is expected to be settled in the entity's normal operating cycle;
(b) it is held primarily for the purpose of being traded;
(c) it is due to be settled within 12 months after the balance sheet date.

Current Value

A method of valuing assets and liabilities which takes account of changing prices, as an alternative to historical cost.

Customers' Collection Period

Average number of days credit taken by customers.

Cut-Off Procedures

Procedures applied to the accounting records at the end of an accounting period to ensure that all transactions for the period are recorded and any transactions not relevant to the period are excluded.


  - D -  



Debenture

A written acknowledgement of a debt – a name used for loan financing taken up by a company.

Debtor

A person or organisation that owes money to the entity.

Deep Discount Bond

A loan issued at a relatively low price compared to its nominal value.

Default

Failure to meet obligations as they fall due for payment.

Deferred Asset

An asset whose benefit is delayed beyond the period expected for a current asset, but which does not meet the definition of a fixed asset.

Deferred Income

Revenue, such as a government grant, is received in advance of performing the related activity. The deferred income is held in the balance sheet as a type of liability until performance is achieved and is then released to the income statement.

Deferred Taxation

The obligation to pay tax is deferred (postponed) under tax law beyond the normal date of payment.

Depreciable Amount

Cost of a non-current (fixed) asset minus residual value.

Depreciation

The systematic allocation of the depreciable amount of an asset over its useful life. The depreciable amount is cost less residual value.

Derecognition

The act of removing an item from the financial statements because the item no longer satisfies the conditions for recognition.

Difference on Consolidation

Difference between fair value of the payment for a subsidiary and the fair value of net assets acquired, more commonly called goodwill.

Direct Method (of Operating Cash Flow)

Presents cash inflows and cash outflows.

Directive

A document issued by the European Union requiring all Member States to adapt their national law to be consistent with the Directive.

Director(s)

Person(s) appointed by shareholders of a limited liability company to manage the affairs of the company.

Disclosed, Disclosure

An item which is reported in the notes to the accounts is said to be disclosed but not recognised.

Discount Received

A supplier of goods or services allows a business to deduct an amount called a discount, for prompt payment of an invoiced amount.

The discount is often expressed a percentage of the invoiced amount.

Dividend

Amount paid to a shareholder, usually in the form of cash, as a reward for investment in the company.

The amount of dividend paid is proportionate to the number of shares
held.

Dividend Cover

Earnings per share divided by dividend per share.

Dividend Yield

Dividend per share divided by current market price.

Doubtful Debts

Amounts due from credit customers where there is concern that the customer may be unable to pay.

Drawings

Cash taken for personal use, in sole trader or partnership business, treated as a reduction of ownership interest.


  - E -  


Earnings for Ordinary Shareholders

Profit after deducting interest charges and taxation and after deducting preference dividends (but before deducting extraordinary items).

Earnings per Share

Calculated as earnings for ordinary shareholders divided by the number of shares which have been issued by the company.

Effective Interest Rate

The rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument.

Efficient Markets Hypothesis

Share prices in a stick market react immediately to the announcement of new information.

Endorsed

International financial reporting standards approved for use in Member States of the European Union through a formal process of endorsement.

Endorsement

See endorsed.

Enterprise

A business activity or a commercial project.

Entity, Entities

Something that exists independently, such as a business which exists independently of the owner.

Entry Price

The value of entering into acquisition of an asset or liability, usually replacement cost.

Equities Analyst

A person who investigates and writes reports on ordinary share investments in companies (usually for the benefit of investors in shares).

Equity

A description applied to the ordinary share capital of an entity.

Equity Accounting

Reports in the balance sheet the parent or group's share of the investment in the share capital and reserves of an associated company.

Equity Interest

See ownership interest.

Equity Portfolio

A collection of equity shares.

Equity Shares

Shares in a company which participate in sharing dividends and in sharing any surplus on winding up, after all liabilities have been met.

Eurobond Market

A market in which bonds are issued in the capital market of one country to a non-resident borrower from another country.

Exit Price

See exit value.

Exit Value

A method of valuing assets and liabilities based on selling prices, as an alternative to historical cost.

Expense

An expense is caused by a transaction or event arising during the ordinary activities of the business which causes a decrease in the ownership interest.

External Reporting

Reporting financial information to those users with a valid claim to receive it, but who are not allowed access to the day-to-day records of the business.

External Users (of Financial Statements)

Users of financial statements who have a valid interest but are not permitted access to the day-to-day records of the company.


  - F -  


Fair Value

The amount at which an asset or liability could be exchanged in an arm's-length transaction between a willing buyer and a willing seller.

Faithful Presentation

Qualitive characteristic, information represents what it purports to represent.

Financial Accounting

A term usually applied to external reporting by a business where that reporting is presented in financial terms.

Financial Adaptability

The ability of the company to respond to unexpected needs or opportunities.

Financial Gearing

Ratio of loan finance to equity capital and reserves.

Financial Information

Information which may be reported in money terms.

Financial Reporting

Standard Title of an accounting standard issued by the UK Accounting Standards Board as a definitive statement of best practice (issued from 1990 onwards – predecessor documents are Statements of Standard Accounting Practice, many of which remain valid).

Financial Risk

Exists where a company has loan finance, especially long-term loan finance where the company cannot relinquish its commitment.

The risk relates to being unable to meet payments of interest or repayment of capital as they fall due.

Financial Statements

Documents presenting accounting information which is expected to have a useful purpose.

Financial Viability

The ability to survive on an ongoing basis.

Financing Activities

Activities that result in changes in the size and composition of the contributed equity and borrowings of the entity.

Fixed Asset

An asset that is held by an enterprise for use in the production or supply of goods or services, for rental to others, or for administrative purposes on a continuing basis in the reporting entity's activities.

Fixed Assets

See non-current assets.

Fixed Assets Usage

Revenue divided by net book value of fixed assets.

Fixed Capital

Finance provided to support the acquisition of fixed assets.

Fixed Cost

One which is not affected by changes in the level of output over a defined period of time.

Floating Charge

Security taken by lender which floats over all the assets and crystallises over particular assets if the security is required.

Forecast

Estimate of future performance and position based on stated assumptions and usually including a quantified amount.

Format

A list of items which may appear in a financial statement, setting out the order in which they are to appear.

Forward Exchange Contract

An agreement to buy foreing currency at a fixed future date and at an agreed price.

Fully Paid

Shares on which the amount of share capital has been paid in full to the company.

Fund Manager

A person who manages a collection (portfolio) of investments, usually for an insurance company, a pension fund business or a professional fund management business which invests money on behalf of clients.


  - G -  


Gearing (Financial)

The ratio of debt capital to ownership claim.

General Purpose Financial Statements

Documents containing accounting information which would be expected to be of interest to a wide range of user groups.

For a limited liability company there would be: a balance sheet, a profit and loss account, a statement of recognised gains and losses and a cash flow statement.

Going Concern Basis

The assumption that the business will continue operating into the foreseeable future.

Goodwill

Goodwill on acquisition is the difference between the fair value of the amount paid for an investment in a subsidiary and the fair value of the net assets acquired.

Gross

Before making deductions.

Gross Margin

Sales minus cost of sales before deducting administration and selling expenses (another name for gross profit). Usually applied when discussing a particular line of activity.

Gross Margin Ratio

Gross profit as a percentage of sales.

Gross Profit

Sales minus cost of sales before deducting administration and selling expenses (see also gross margin).

Group

Economic entity formed by parent and one or more subsidiaries.


  - H -  


Highlights Statement

A page at the start of the annual report setting out key measures of performance during the reporting period.

Historical Cost

Method of valuing assets and liabilities based on their original cost without adjustment for changing prices.

HM Revenue and Customs (HMRC)

The UK government's tax-gathering organisation (previously called the Inland Revenue).


  - I -  


IAS

International Accounting Standard, issued by the IASB's predecessor body.

IASB

International Accounting Standards Board, an independent body that sets accounting standards accepted as a basis for accounting in many countries, including all Member States of the European Union.

IASB System

The accounting standards and guidance issued by the IASB.

IFRS

International FINANCIAL REPORTING Standard, issued by the IASB.

Impairment

A reduction in the carrying value of an asset, beyond the expected depreciation, which must be reflected by reducing the amount recorded in the balance sheet.

Impairment Review

Testing assets for evidence of any impairment.

Impairment Test

Test that the business can expect to recover the carrying value of the intangible asset, through either using it or selling.

Improvement

A change in, or addition to, a non-current (fixed) asset that extends its useful life or increases the expected future benefit. Contrast with repair which restores the existing useful life or existing expected future benefit.

Income Statement

Financial statement presenting revenues, expenses, and profit. Also called profit and loss account.

Incorporation, Date of.

The date on which a company comes into existence.

Indirect Method (of Operating Cash Flow)

Calculates operating cash flow by adjusting operating profit for non-cash items and for changes in working capital.

Insider Information

Information gained by someone inside, or close to, a listed company which could confer a financial advantage if used to buy or sell shares.

It is illegal for a person who is in possession of inside information to buy or sell shares on the basis of that information.

Institutional Investor

An organisation whose business includes regular investment in shares of companies, examples being an insurance company, a pension fund, a charity, an investment trust, a unit trust, a merchant bank.

Intangible

Without shape or form, cannot be touched.

Interest (on Loans)

The percentage return on capital required by the lender (usually expressed as a percentage per annum).

Interim Reports

Financial statements issued in the period between annual reports, usually half-yearly or quarterly.

Internal Reporting

Reporting financial information to those users inside a business, at various levels of management, at a level of detail appropriate to the recipient.

Inventory

Stocks of goods held for manufacture or for resale.

Investing Activities

The acquisition and disposal of long-term assets and other investments not included in cash equivalents.

Investors

Persons or organisations which have provided money to a business in exchange for a share of ownership.


  - J -  


Joint and Several Liability (in a Partnership)

The partnership liabilities are shared jointly but each person is responsible for the whole of the partnership.


  - K -  


Key Performance Indicators

Quantified measures of factors that help to measure the performance of the business effectively.


  - L -  


Leasing

Acquiring the use of an asset through a rental agreement.

Legal Form

Representing a transaction to reflect its legal status, which might not be the same as its economic form.

Leverage

Alternative term for gearing, commonly used in the USA.

Liabilities

Obligations of an entity to transfer economic benefits as a result of past transactions or events.

Limited Liability

A phrase used to indicate that those having liability in respect of some amount due may be able to invoke some agreed limit on that liability.

Limited Liability Company

Company where the liability of the owners is limited to the amount of capital they have agreed to contribute.

Liquidity

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

Listed Company

A company whose shares are listed by the Stock Exchange as being available for buying and selling under the rules and safeguards of the Exchange.

Listing Requirements

Rules imposed by the Stock Exchange on companies whose shares are listed for buying and selling.

Listing Rules

Issued by the UK Listing Authority of the Financial Services Authority to regulate companies listed on the UK Stock Exchange. Includes rules on accounting information in annual reports.

Loan Covenants

Agreement made by the company with a lender of long-term finance, protecting the loan by imposing conditions on the company, usually to restrict further borrowing.

Loan Notes

A method of borrowing from commercial institutions such as banks.

Loan Stock

Loan finance traded on a Stock Exchange.

Long-Term Finance, Long-Term Liabilities

Money lent to a business for a fixed period, giving that business a commitment to pay interest for the period specified and to repay the loan at the end of the period Also called non-current liabilities information in the financial statements should show the commercial substance of the situation.


  - M -  


Management

Collective term for those persons responsible for the day-to-day running of a business.

Management Accounting

Reporting accounting information within a business, for management use only.

Market Value (of a Share)

The price for which a share could be transferred between a willing buyer and a willing seller.

Marking to Market

Valuing a marketable asset at its current market price.

Margin

Profit, seen as the 'margin' between revenue and expense.

Matching

Expenses are matched against revenues in the period they are incurred (see also accruals basis).

Material

See materiality.

Materiality

Information is material if its omission or misstatement could influence the economic decisions of users taken on the basis of the financial statements.

Maturity

The date on which a liability is due for repayment.

Maturity Profile of Debt

The timing of loan repayments by a company in the future.

Memorandum (for a Company)

Document setting out main objects of the company and its powers to act.

Merger

Two organisations agree to work together in a situation where neither can be regarded as having acquired the other.

Minority Interest

The ownership interest in a company held by persons other than the parent company and its subsidiary undertakings. Also called a non-controlling interest.


  - N -  


Net

After making deductions.

Net Assets

Assets minus liabilities (equals ownership interest).

Net Book Value

Cost of non-current (fixed) asset minus accumulated depreciation.

Net Profit

Sales minus cost of sales minus all administrative and selling costs.

Net Realisable Value

The proceeds of selling an item, less the costs of selling.

Neutral

Qualitative characteristic of freedom from bias.

Nominal Value (of a Share)

The amount stated on the face of a share certificate as the named value of the share when issued.

Non-Controlling Interest

See minority interest.

Non-Current Assets

Any asset that does not meet the definition of a current asset. Also described as fixed assets.

Non-Current Liabilities

Any liability that does not meet the definition of a current liability. Also described as long-term liabilities.

Notes to the Accounts

Information in financial statements that gives more detail about items in the financial statements.


  - O -  


Off-Balance-Sheet Finance

An arrangement to keep matching assets and liabilities away from the entity's balance sheet.

Offer for Sale

A company makes a general offer of its shares to the public.

Operating Activities

The principal revenue-producing activities of the entity and other activities that are not investing or financing activities.

Operating and Financial Review

Section of the annual report of many companies which explains the main features of the financial statements.

Operating Gearing

The ratio of fixed operating costs to variable operating costs.

Operating Margin

Operating profit as a percentage of sales.

Operating Risk

Exists where there are factors, such as a high level of fixed operating costs, which would cause profits to fluctuate through changes in operating conditions.

Ordinary Shares

Shares in a company which entitle the holder to a share of the dividend declared and a share in net assets on closing down the business.

Ownership Interest

The residual amount found by deducting all of the entity's liabilities from all of the entity's assets. (Also called equity interest.)


  - P -  


Par Value

See nominal value.

Parent Company

Company which controls one or more subsidiaries in a group.

Partnership

Two or more persons in business together with the aim of MAKING A PROFIT.

Partnership Deed

A document setting out the agreement of the partners on how the partnership is to be conducted (including the arrangements for sharing profits and losses).

Partnership Law

Legislation which governs the conduct of a partnership and which should be used where no partnership deed has been written.

Portfolio (of Investment)

A collection of investments.

Portfolio of Shares

A collection of shares held by an investor.

Preference Shares

Shares in a company which give the holder a preference (although not an automatic right) to receive a dividend before any ordinary share dividend is declared.

Preliminary Announcement

The first announcement by a listed company of its profit for the most recent accounting period. Precedes the publication of the full annual report.

The announcement is made to the entire STOCK MARKET so that all investors receive information at the same time.

Premium

An amount paid in addition, or extra.

Prepayment

An amount paid for in advance for an benefit to the business, such as insurance premiums or rent in advance. Initially recognised as an asset, then transferred to expense in the period when the benefit is enjoyed. (Also called a prepaid expense.)

Present Fairly

A condition of the IASB system, equivalent to true and fair view in the UK ASB system.

Price–Earnings Ratio

Market price of a share divided by earnings per share.

Price-Sensitive Information

Information which, if known to the market, would affect the price of a share.

Primary Financial Statements

The balance sheet, profit and loss account, statement of total recognised gains and losses and cash flow statement.

Principal (Sum)

The agreed amount of a loan, on which interest will be charged during the period of the loan.

Private Limited Company (Ltd)

A company which has limited liability but is not permitted to offer its shares to the public.

Production Overhead Costs

Costs of production that are SPREAD across all output, rather than being identified with specific goods or services.

Profit

Calculated as revenue minus expenses.

Profit and Loss Account

Financial statement presenting revenues, expenses, and profit. Also called income statement.

Prospective Investor

An investor who is considering whether to invest in a company.

Prospectus

Financial statements and supporting detailed descriptions published when a company is offering shares for sale to the public.

Provision

A liability of uncertain timing or amount.

Provision for Doubtful Debts

An estimate of the risk of not collecting full payment from credit customers, reported as a deduction from TRADE receivables (debtors) in the balance sheet.

Prudence

A degree of caution in the exercise of the judgements needed in making the estimates required under conditions of uncertainty, such that gains and assets are not overstated and losses and liabilities are not understated.

Public Limited Company (PLC)

A company which has limited liability and offers its shares to the public.

Purchase Method

Method of producing consolidated financial statements (see acquisition method).

Purchases

Total of goods and services bought in a period.


  - Q -  


Qualified Audit Opinion

An audit opinion to the effect that: the accounts do not show a true and fair view; or the accounts show a true and fair view except for particular matters.

Quality of Earnings

Opinion of investors on reliability of earnings (profit) as a basis for their forecasts.

Quoted Company

Defined in section 262 of the Companies Act 1985 as a company that has been included in the official list in accordance with the provisions of Part VI of the Financial Services and Markets Act 2000, or is officially listed in an EEA state, or is admitted to dealing on either the New York Stock Exchange or the exchange known as Nasdaq.


  - R -  


Realised Profit, Realisation

A profit arising from revenue which has been earned by the entity and for which there is a reasonable prospect of cash being collected in the near future.

Recognised

An item is recognised when it is included by means of words and amount within the main financial statements of an entity.

Recognition

See recognised.

Registrar of Companies

An official authorised by the government to maintain a record of all annual reports and other documents issued by a company.

Relevance

Qualitative characteristic of influencing the economic decisions of users.

Reliability

Qualitative characteristic of being free from material error and bias, representing faithfully.

Replacement Cost

A measure of current value which estimates the cost of replacing an asset or liability at the DATE of the balance sheet. Justified by reference to value to the business.

Reserves

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

Residual Value

The estimated amount that an entity would currently obtain from disposal of the asset, after deducting the estimated cost of disposal, if the asset were already of the age and in the condition expected at the end of its useful life.

Retained Earnings

Accumulated past profits, not distributed in dividends, available to finance INVESTMENT in assets.

Retained Profit

Profit of the period remaining after dividend has been deducted.

Return

The yield or reward from an investment.

Return on Capital Employed

Operating profit before deducting interest and taxation, divided by share capital plus reserves plus long-term loans.

Return on Total Assets

Operating profit before deducting interest and taxation, divided by total assets.

Return on Shareholders' Equity

Profit for shareholders divided by share capital plus reserves.

Return (in Relation to Investment)

The reward earned for investing money in a business. Return may appear in the form of regular cash payments (dividends) to the investor, or in a growth in the value of the amount invested.

Revaluation Reserve

The claim which owners have on the assets of the business because the balance sheet records a MARKET value for an asset that is greater than its historical cost.

Revenue

Created by a transaction or event arising during the ordinary activities of the business which causes an increase in the ownership interest.

Rights Issue

A company gives its existing shareholders the right to buy more shares in proportion to those already held.

Risk (in Relation to Investment)

Factors that may cause the profit or cash flows of the business to fluctuate.


  - S -  


Sales

See revenue, turnover.

Sales Invoice

Document sent to customers recording a sale on credit and requesting payment.

Secured Loan

Loan where the lender has taken a special claim on particular assets or revenues of the company.

Segmental Reporting

Reporting revenue, profit, cash flow assets , liabilities for each geographical and business segment within a business, identifying segments by the way the organisation is managed.

Share Capital

Name given to the total amount of cash which the shareholders have contributed to the company.

Share Certificate

A document providing evidence of share ownership.

Share Premium

The claim which owners have on the assets of a company because shares have been purchased from the company at a price greater than the nominal value.

Shareholders

Owners of a limited liability company.

Shareholders' Funds

Name given to total of share capital and reserves in a company balance sheet.

Shares

The amount of share capital held by any shareholder is measured in terms of a number of shares in the total capital of the company.

Short-Term Finance

Money lent to a business for a short period of time, usually repayable on demand and also repayable at the choice of the business if surplus to requirements.

Sole Trader

An individual owning and operating a business alone.

Specific Purpose Financial Statements

Documents containing accounting information which is prepared for a particular purpose and is not normally available to a wider audience.

Stakeholders

A general term devised to indicate all those who might have a legitimate interest in receiving financial information about a business because they have a 'stake' in it.

Statement of Changes in Equity

A financial statement reporting all items causing changes to the ownership interest during the financial period, under the IASB system.

Statement of Principles

A document issued by the Accounting Standards Board in the United Kingdom setting out key principles to be applied in the process of setting accounting standards.

Statement of Recognised Income and Expense

A financial statement reporting realised and unrealised income and expense as part of a statement of changes in equity under the IASB system.

Statement of Total Recognised Gains and Losses

A financial statement reporting changes in equity under the UK ASB system.

Stepped Bond

Loan finance that starts with a relatively low rate of interest which then increases in steps.

Stewardship

Taking care of resources owned by another person and using those resources to the benefit of that person.

Stock

A word with two different meanings. It may be used to describe an inventory of goods held for resale or for use in business. It may also be used to describe shares in the ownership of a company. The meaning will usually be obvious from the way in which the word is used.

Stock Exchange (Also called Stock Market)

An organisation which has the authority to set rules for persons buying and selling shares. The term 'stock' is used loosely with a meaning similar to that of 'shares'.

Stock Holding Period

Average number of days for which inventory (stock) is held before use or sale.

Stock Market

See Stock Exchange.

Subsidiary Company

Company in a group which is controlled by another (the parent company). (See Chapter 7 for full definition.) Sometimes called subsidiary undertaking.

Substance (Economic)

Information in the financial statements should show the economic or commercial substance of the situation.

Subtotal

Totals of similar items grouped together within a financial statement.

Suppliers' Payment Period

Average number of days credit taken from suppliers.


  - T -  


Tangible Fixed Assets

A fixed asset (also called a non-current asset) which has a physical existence.

Timeliness

Qualitative characteristic that potentially conflicts with relevance.

Total Assets Usage

Sales divided by total assets.

Trade Creditors

Persons who supply goods or services to a business in the normal course of trade and allow a period of credit before payment must be made.

Trade Debtors

Persons who buy goods or services from a business in the normal course of trade and are allowed a period of credit before payment is due.

Trade Payables

Amounts due to suppliers (trade creditors), also called accounts payable.

Trade Receivables

Amounts due from customers (trade debtors), also called accounts receivable.

True and Fair View

Requirement of UK company law for UK companies not using IASB system.

Turnover

The sales of a business or other form of revenue from operations of the business.


  - U -  


UK ASB System

The accounting standards and company law applicable to corporate reporting by UK companies that do not report under the IASB system.

Understandability

Qualitative characteristic of financial statements, understandable by users.

Unlisted (Company)

Limited Liability Company whose shares are not listed on any stock eschange.

Unrealised

Gains and losses representing changes in values of assets and liabilities that are not realised through sale or use.

Unsecured Creditors

Those who have no claim against particular assets when a company is wound up, but must take their turn for any share of what remains.

Unsecured Loan

Loan in respect of which the lender has taken no special claim against any assets.


  - V -  


Value to the Business

An idea used in deciding on a measure of current value.

Variance

The difference between a planned, budgeted or standard cost and the actual cost incurred. An adverse variance arises when the actual cost is greater than the standard cost.

A favourable variance arises when the actual cost is less than the standard cost.


  - W -  


Working Capital

Finance provided to support the short-term assets of the business (stocks and debtors) to the extent that these are not financed by short-term creditors.

It is calculated as current assets minus current liabilities.

Working Capital Cycle

Total of stock holding period plus customers collection period minus suppliers payment period.

Work-in-Progress

Cost of partly completed goods or services, intended for completion and recorded as an asset.

Written Down Value

See net book value.



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