Key Accounting Terms

Key Accounting Terms

• Bank draft: a written order to a bank to pay a specified amount to the maker or their order.
• Bank overdraft: a credit balance in a cash account due to checks written exceeding the deposit amount.
• Bank service charge: a monthly fee charged by a bank for servicing a depositor's account.
• Bank reconciliation: A report explaining the difference between a company's book balance of cash and the cash balance reported by the bank.
• Bank statement: a report from the bank detailing the depositor's beginning and ending cash balance and any charges for the period.
• Canceled checks: checks paid by the bank and deducted from the depositor's account, also known as checks drawn.
• Cash: includes currency, coins, amounts in bank accounts, and items acceptable for deposit, immediately available for current use.
• Cash equivalents: short-term, highly liquid investments readily convertible to cash, with maturity dates close enough (within 90 days) to avoid sensitivity to interest rate changes.
• Cash over and short: Income statement account used to record discrepancies from cash receipts or payments errors.
• Check: a document instructing a bank to pay a specified recipient or payee a specific amount.
• Compensating balances: the minimum amount a company agrees to keep in a bank for a loan.
• Credit memos: deposits or credits made directly to the depositor's account such as notes collected by the bank, loan proceeds, and earned interest.
• Debit memos: Charges to the depositor's account, such as returned checks, service charges, or payment for check booklets or bank loans.
• Demand deposits: funds in a bank that can be withdrawn on demand.
• Deposit in transit: a deposit made near month-end, recorded in the depositor's books, but not yet reflected in the bank statement.
• Drawn against insufficient fund (DAIF) check: A check returned by the bank because the depositor's account lacked sufficient funds.
• Financial asset: cash, equity instruments of another entity, or a contractual right to receive cash.
• Financial instrument: a contract resulting in a financial asset for one entity and a financial liability or equity instrument for another.
• Imprest system: A method to maintain a constant balance in a petty cash fund, equal to cash plus petty cash receipts, and depositing cash collections intact.
• Internal controls: policies and procedures protecting assets, ensuring reliable accounting, efficient operations and adherence to policies.
• Money order: a demand credit instrument issued and payable by a post office.
• Not sufficient fund (NSF) check: (see DAIF definition)
• Outstanding checks: Checks written and issued but not yet cleared or presented for payment.
• Payroll bank account: bank account solely for paying employee salaries.
• Petty cash: a small cash fund for minor, immediate expenses.
• Post-dated check: a check with a future date, honored on or after that date.
• Proof of cash: a four-column bank reconciliation showing reconciliation of beginning and ending cash balances.
• Voucher system: a system controlling purchases and cash disbursements using business documents to support payments.
• 12-month expected credit loss: the portion of expected lifetime credit losses from possible default events within 12 months of the reporting date.
• Accounts receivable: trade receivables not evidenced by a formal agreement, usually unsecured open accounts.
• Aging of receivables: an allowance based on outstanding receivables past due or not yet due.
• Amortized cost: measured at initial recognition minus principal repayments, plus/minus cumulative amortization using the effective interest method and minus any impairment reduction.
• Assignment of accounts receivable: a formal borrowing arrangement using specific accounts receivable as security on a promissory note.
• Cash discount: an incentive for early payment, also known as a settlement discount.
• Credit loss: the difference between contractual cash flows due and the cash flows the entity expects to receive.
• Credit risk: the risk that a debt payer will not meet obligations.
• Disclosure: information reported either on the face of the financial statements or in the notes.
• Discount: interest earned by a bank, calculated as maturity value x bank discount rate x discount period.
• Discount rate: interest rate used by bank to calculate discount.
• Discount period: the remaining term of a note, from the date of discounting to maturity.
• Effective interest method: provides an equal rate of amortization premium or discount each period, using a constant interest rate times a changing investment balance.
• Factoring: sale of receivables without recourse for cash to a third party.
• General assignment of accounts receivable: borrowing money with receivables pledged as security on the loan.
• Impairment loss: the amount by which an asset's carrying amount exceeds its recoverable amount.
• Interest: an amount paid above the principal, calculated as principal x interest rate x term.
• Interest-bearing note: a note providing interest payments between issuance and due dates.
• Lifetime expected credit losses: expected credit losses from all possible default events.
• Maturity date: the date when a note is due and payable.
• Maturity value: total amount due at maturity date, sum of the principal and interest.
• Non-trade receivables: receivables not directly related to normal business operations.
• Non-interest-bearing note: a note with no provision for interest, called zero-interest bearing note.
• Normal operating cycle: time period to acquire materials, process and realize them in cash.
• Notes receivable: formal claims against another evidenced by a written promise.
• Principal: the amount stated on the face of the note, also called face value.
• Proceeds: an endorser that receives the discounted value of a note from the bank,
• Promissory note: an unconditional written agreement to pay a sum of money on a specific date.
• Receivables: claims against third parties settled by cash receipt.
• Trade discount: a reduction in list price to determine the amount to charge customer.
• Trade receivables: receivables from normal activities of a business (credit sales).
• Cash surrender value: expected amount collected from insurance for surrendering a life policy.
• Change fund: funds like bills and coins to facilitate collections.
• Debt securities: Company-issued typically with a maturity value, interest rate, and maturity date.
• Effective interest rate: the rate discounting estimated future cash receipts to the net carrying amount of a financial asset.
• Equity instrument: a contract evidencing a residual interest in an entity's assets after deducting liabilities.
• Equity securities: financial instruments of ownership with rights to dividends and voting.
• Expected credit losses: the weighted average of credit losses.
• Fair value: the price in an orderly market transaction.
• Loans and receivables: non-derivative financial assets with fixed or determinable payments not quoted in an active market.
• Nominal interest: the interest rate printed on the face of a debt instrument.
• Plant expansion fund: cash and securities, for land and building acquisition.
• Sinking fund: accumulated by an entity to pay long-term debt.
• Trading securities: financial assets at fair value through profit or loss to sell or repurchase for profit.
• Transaction costs: costs related to buy securities like commissions and transfer tax.
• Associate: an entity with significant influence but neither a subsidiary nor a joint venture.
• Bonus issue: share dividends or stock dividends, earnings issued as company share capital.
• Consolidated financial statements: statements where assets, liabilities, equity, income, expenses, and cash flows of a parent and subsidiaries are set as from a single economic entity.
• Control: the power to govern the financial and operating policies of an entity in order to benefit from activities.
• Convertible securities: bonds and preference shares to convert the investment into ordinary shares
• Derivative: a financial instrument that changes in response to interest rates, and requires no initial net investment.
• Joint control: contractually agreed control requiring unanimous consent.
• Joint venture: joint arrangement where parties have rights to the net assets.
• Parent company: a company with over 50% ownership of a subsidiary's voting shares.
• Share split: a reduction in share par value, increasing outstanding share.
• Reverse share split: an increase in par value, decreasing outstanding share.
• Share warrants: rights to purchase shares, issued with another security.
• Significant influence: the power to participate in financial and operating policies without control.
• Stock rights: rights for existing shareholders to maintain proportionate ownership.
• Subsidiary company: owned or controlled by another company.
• Asset swap: transfers non-cash assets to settle obligations.
• Accounts payable: Short term liabilities from purchasing supplies or services on credit.
• Bearer bond: coupon bond, interest is for whoever holds the bonds.
• Bond certificates: evidence of guaranteeing payment and interest.
• Bond discount: the difference between the value and selling when sold below value.
• Bond indenture: the contract between the issuing entity and the bondholders to include terms, rights, and obligations.
• Bond issuance costs: legal services, printing, taxes, and underwriting to sell bonds.
• Bond premium: the difference in value and lower when sold above value.
• Bonds payable: recognized upon bond issuance, equals the value.
• Callable fund: allows the issuing company to call or retire the debt early, on the bond indenture.
• Chattel mortgage bond: secured lien against movable property.
• Collateral trust bond: secured by stocks or bonds held by the issuing company.
• Compound financial instrument: includes liability and equity.
• Constructive obligation: obligation from an entity's actions.
• Convertible bond: bondholder converts bondholding to ordinary shares in a stated time.
• Current liability: meet settlement criteria like normal course of business, dueness within 12 months, held for trading, with no right to defer.
• Debenture bond: unsecured bond based on company credit.
• Debt restructuring: creditor gives debtor a concession.
• Equity swap: debtor issues to settle the creditor obligation.
• Face value: amount paid at maturity date, also called par value.
• Financial liability: contractual obligation related to cash or assets to deliver to another.
• Legal obligation: from contract, legislation, or law.
• Liability: present obligation of an entity with no practical ability to avoid.
• Nominal interest rate: rate stated on the bond face, influenced by company health.
• Non-current liabilities: ones failing current liability criteria, not paid within 12 months.
• Notes payable: obligation evidenced by a note bearing a future time.
• Obligating event: an event creating an obligation.
• Obligation: a duty or responsibility to settle.
• Operating cycle: the time to convert to inventory, receivables, and back to cash.
• Probable loss: contingent loss is likely to occur.
• Provision: liability with amount uncertainty.
• Real estate mortgage bond: secured by lien against real property.
• Registered bond: registered in the books of the issuing company.
• Restructuring: materially changes undertaken, planned, or conducted.
• Secured bond: Security and protection in specific assets of the issuer
• Serial bond: matures in installments.
• Term bond: matures on a single date.
• Zero interest bond: deep-discount bond, issued at less than the face value.
• Cost model: measures the asset at cost less accumulated depreciation.
• Fair value model: measures at fair value, change in profit or loss.
• Finance lease: transfers ownership of the asset to the lessee.
• Investment property: earn rentals or capital appreciation.
• Operating lease: lease other than finance lease.
• Owner-occupied property: held in the production or supplies of goods or services.
• Right-of-use asset: recognized by the lessee with lease liability.
• Active market: take take place with sufficient volume to provide information continuously.
• Amortization: allocates the depreciable amount of an intangible asset life.
• Business combination: separate reporting combined.
• Carrying amount: amount recognized after impairment losses.
• Cash-generating unit (CGU): that generates cash inflows that are from other assets.
• Copyright: protection given to or artistic work.
• Depletion: allocating the periodic expense.
• Development: research applied to improve testing of operation products or pilot plans.
• Fair value less cost to sell: cost to sell disposal between willing parties.
• Franchise: permits the franchisee to use public conduct from its operations.
• Finite useful life: net cash inflows for the entity over that period.
• Goodwill: Economic benefit arising from separated recognized rom assets.
• Government grant: Assistance in the form of compliance entity activities.
• Identifiability: Arising in contractual for from rented or exchanged.
• Impairment loss: by much the carrying exceeds the recoverable more than.
• Intangible asset: Non-monetary substance.
• Patent: Government enabled.
• Recoverable amount: Fair value to sell.
• Research: New Knowledge gaining investigating undertaken.
• Revaluation model: being fair asset value to date.
• Harvest: from or assets processes.
• Useful life: is to be used by or the number from asset.
• Agricultural activity: an for sale additional biological agricultural asset.
• Agricultural process: is the product.
• Bearer plant: a with of asset.
• Biological assets: a the animal or plant.
• Biological transformation: the quantitative or changes asset.
• Cost to sell: an relocating produce.
• Group of biological assets: live plants or the asset.