Foundation of Accounting glossary

The process of identifying, recording, classifying, summarising and communicating financial information about a business, so that its users can make informed decisions.

Taught in The accounting framework and concepts

The span of time, typically a financial year, over which an entity's financial performance is measured and reported.

Taught in The accounting framework and concepts

Transactions are recognised when they occur, not when cash changes hands, so revenue is recorded when earned and expenses when incurred, regardless of when the related cash is received or paid.

Taught in The accounting framework and concepts

Transactions are recognised when they occur, not when cash is received or paid, so revenue and the expenses incurred in earning it fall in the same period.

Taught in The accounting framework and concepts

Expenses incurred, or income earned, in the current period but not yet paid or received in cash, recognised anyway under the accrual basis.

Taught in The accounting framework and concepts

Resources controlled by an entity, as a result of past events, from which future economic benefit is expected to flow to it.

Taught in The accounting framework and concepts

The end-of-period process of transferring the balances on income and expense accounts into the statement of profit or loss, leaving only the permanent asset, liability and equity accounts open to carry forward into the next period.

Taught in The accounting framework and concepts

Where there is genuine uncertainty, expenses and liabilities are recognised as soon as they are reasonably possible, but income and assets only once they are reasonably assured.

Taught in The accounting framework and concepts

An accounting policy, once chosen, is applied the same way period after period, so figures stay comparable; a change is only justified by a more reliable presentation, and must be disclosed.

Taught in The accounting framework and concepts

An asset is recorded at its original cost at acquisition, not at its current market value, giving a verifiable, objective starting figure.

Taught in The accounting framework and concepts

An entry recorded on the right-hand side of an account, increasing a liability, equity or income account, or decreasing an asset or expense account.

Taught in The accounting framework and concepts

Suppliers and lenders, who assess whether the entity can pay what it owes when it falls due.

Taught in The accounting framework and concepts

An entry recorded on the left-hand side of an account, increasing an asset or expense account, or decreasing a liability, equity or income account.

Taught in The accounting framework and concepts

Use financial information to set strategy and to account to shareholders for their stewardship of the entity.

Taught in The accounting framework and concepts

A business's transactions are recorded separately from the personal transactions of its owner, even where the business has no separate legal personality of its own.

Taught in The accounting framework and concepts

Assess job security and the entity's ability to pay wages, bonuses and pensions.

Taught in The accounting framework and concepts

The residual interest in an entity's assets after deducting all its liabilities, the owner's stake in the business.

Taught in The accounting framework and concepts

Decreases in economic benefit during the period, in the form of outflows or depletions of assets, that decrease equity, other than distributions to owners.

Taught in The accounting framework and concepts

Financial statements disclose all information material enough to influence a user's decisions, whether in the statements themselves or in accompanying notes.

Taught in The accounting framework and concepts

Financial statements are prepared on the assumption the entity will continue operating for the foreseeable future, unless there is clear evidence otherwise.

Taught in The accounting framework and concepts

Tax authorities and other government bodies, who assess tax liability and compliance with regulation.

Taught in The accounting framework and concepts

Bodies such as the IASB that use aggregated financial reporting practice to inform how accounting standards themselves develop.

Taught in The accounting framework and concepts

Accounting exists to record an entity's transactions in a structured way (its nature and purpose) so that a true and fair view of its financial performance and position can be reported to the people who need it (the objective of financial accounting).

Taught in The accounting framework and concepts

Existing and potential shareholders, who assess the return and risk of investing in the entity.

Taught in The accounting framework and concepts

Financial and business media, who use published financial statements to inform public reporting on an entity's performance.

Taught in The accounting framework and concepts

Present obligations of an entity, arising from past events, the settlement of which is expected to result in an outflow of economic benefit.

Taught in The accounting framework and concepts

Use financial information for planning, budgeting and controlling the operations they are responsible for.

Taught in The accounting framework and concepts

An expense is recognised in the same period as the revenue it helped generate, rather than in the period it happened to be paid.

Taught in The accounting framework and concepts

Accounts for income and expenses, closed off to the statement of profit or loss at the end of each period rather than carried forward.

Taught in The accounting framework and concepts

Assess how well the business they own is performing and how much can safely be withdrawn or reinvested.

Taught in The accounting framework and concepts

Accounts recording an entity's dealings with a specific person or organisation, a supplier, a customer, or the owner, such as a trade receivable or trade payable account.

Taught in The accounting framework and concepts

Accounts for assets, tangible items such as land, buildings and equipment, that an entity owns and continues to hold across accounting periods.

Taught in The accounting framework and concepts

Bodies overseeing a specific industry, assessing compliance with sector-specific reporting and conduct requirements.

Taught in The accounting framework and concepts

Increases in economic benefit during the period, in the form of inflows or enhancements of assets, that increase equity, other than contributions from owners.

Taught in The accounting framework and concepts

Customers and suppliers assessing whether the entity is a reliable party to continue doing business with.

Taught in The accounting framework and concepts