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Simple Accounting Glossary
Introduction to basic accounting in the small business
For the novice, accounting is not simple to master but is important to maintain some measure of profits, spending and future income in order to plan the future of the business and keep the business sound.
Some important terms in accounting
A full list of definitions is available on the Australian Accountant Standards Board website. A more simplistic explanation of the more basic terminology is at See more at accounting simplified
Profit / Loss – Gain or loss in overall income before tax is deducted
Asset – something that a business owns or controls that offers future economic benefit
Beneficiaries – those who are entitled to or are already receiving benefits from superannuation
Borrowing Costs – costs incurred by as a result of the borrowing of funds
Business – An integrated set of activities and assets that is capable of being conducted and managed for the purpose of providing a return in the form of dividends, lower costs or other economic benefits directly to investors or other owners, members or participants.
Capital – Under a financial concept of capital, such as invested money or invested purchasing power, the net assets or equity of the entity. The financial concept of capital is adopted by most entities. Under a physical concept of capital, such as operating capability, the productive capacity of the entity based on, for example, units of output per day.
Cash – Cash on hand and demand deposits.
Cash Flows – incoming or outgoing cash or similar
Claim – a payment amount demanded by an insurer in response to some loss resulting from an event
Compensation – Short term or long term paid benefits such as wages, salaries, paid leave, shares, pensions or life insurance
Cost – the amount paid for or the reasonable value of assets
Cost of Inventories – all costs of purchase including conversions to bring inventories to their present location or position ***
Cost of purchase – the purchase price including import duties, taxes less the discounts, rebates and other deductible amounts
Cost to sell – the overall costs excluding tax and other costs
Credit risk – a status of the potential risk of financial loss
Defecit – The deficit or surplus is:
(a) the present value of the defined benefit obligation
less
(b) the fair value of plan assets (if any).
Surplus – The deficit or surplus is:
(a) the present value of the defined benefit obligation
less
(b) the fair value of plan assets (if any).
Depreciation – the periodic amount an assets depreciates over its useful lifetime
Entity – something that can exist on its own regardless of it being materialistic
Equity – the residual interest in the assets of the entity after deducting all the liabilities
Expenses – a decrease in the net assets of the entity over an accounting period except for such decreases caused by the distributions to the owners.
Financial Statement – a complete list of various financial statements include assets, liabilities, equity (statement of financial position) income and expenses (income statement).
Gains – an increase in the economic benefits
Government Grants – government grants of resources to a company that are available for specific projects or programs
Group – an entity and all it’s subsidiaries
Income – Increases in economic benefits during the accounting period in the form of inflows or enhancements of assets or decreases of liabilities that result in increases in equity, other than those relating to contributions from equity participants.
Inventories – Assets:
- (a) held for sale in the ordinary course of business;
- (b) in the process of production for such sale; or
- (c) in the form of materials or supplies to be consumed in the production process or in the rendering of services.
Inventories encompass goods purchased and held for resale including, for example, merchandise purchased by a retailer and held for resale, or land and other property held for resale. Inventories also encompass finished goods produced, or work in progress being produced, by the entity and include materials and supplies awaiting use in the production process. In the case of a service provider, inventories include the costs of the service
Lease -An agreement whereby the lessor conveys to the lessee in return for a payment or series of payments the right to use an asset for an agreed period of time.
Liability – A present obligation of the entity arising from past events, the settlement of which is expected to result in an outflow from the entity of resources embodying economic benefits.
Losses – Decreases in economic benefits and as such no different in nature from other expenses.
Market Risk – The risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices. Market risk comprises three types of risk: currency risk, interest rate risk and other price risk.
Measurement – The process of determining the monetary amounts at which the elements of the financial statements are to be recognised and carried in the balance sheet [statement of financial position] and income statement [statement of comprehensive income].
Minority interest monetary assets -Money held and assets to be received in fixed or determinable amounts of money.
Monetary items – Units of currency held and assets and liabilities to be received or paid in a fixed or determinable number of units of currency.
Monetary items – Money held and items to be received or paid in money.
Notes – Notes contain information in addition to that presented in the statement of financial position, statement of comprehensive income, separate income statement (if presented), statement of changes in equity and statement of cash flows. Notes provide narrative descriptions or disaggregations of items presented in those statements and information about items that do not qualify for recognition in those statements.
Performance – The relationship of the income and expenses of an entity, as reported in the income statement [statement of comprehensive income].
Profit – The residual amount that remains after expenses (including capital maintenance adjustments, where appropriate) have been deducted from income. Any amount over and above that required to maintain the capital at the beginning of the period is profit.
Profit or Loss – The total of income less expenses, excluding the components of other comprehensive income
Reporting Entity – An entity in respect of which it is reasonable to expect the existence of users who rely on the entity’s general purpose financial statement for information that will be useful to them for making and evaluating decisions about the allocation of resources. A reporting entity can be a single entity or a group comprising a parent and all of its subsidiaries.
Revenue – The gross inflow of economic benefits during the period arising in the course of the ordinary activities of an entity when those inflows result in increases in equity, other than increases relating to contributions from equity participants.
Separate Financial Statement – Those presented by a parent, an investor in an associate or a venturer in a jointly controlled entity, in which the investments are accounted for on the basis of the direct equity interest rather than on the basis of the reported results and net assets of the investees.
Solvency – The availability of cash over the longer term to meet financial commitments as they fall due.
Tax Expense (tax income) – The aggregate amount included in the determination of
profit or loss for the period in respect of current tax and
deferred tax. Tax expense (tax income) comprises current
tax expense (current tax income) and deferred tax expense
(deferred tax income).
Taxable Profit (tax loss) – The profit (loss) for a period, determined in accordance
with the rules established by the taxation authorities, upon
which income taxes are payable (recoverable).
