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Accounting Revision

TermDefinition
Accumulated Depreciation The total amount of depreciation that has been written off from the date the asset came under the control of the business until the present time.
Carrying Value The value of a non-current asset yet to be depreciated (calculated by deducting accumulated depreciation from an asset's historical cost).
Depreciation Expense The amount of depreciation written off as an expense for one particular reporting period.
Expired Cost The value of a non-current asset that has already been written off as depreciation.
residual or scrap value The amount an asset is expected to realise at the end of its useful life when it is sold, traded in or scrapped.
Straight-line method A method of depreciation that allocates the same amount of depreciation every reporting period, regardless of the age of the asset.
Useful Life The period of time that a business expects to use a non-current asset for the purpose of earning revenue.
Accrual Accounting A system of determining profit whereby revenue earned is matched with expenses incurred, with the difference being profit for the period.
Adjusting Entries Entries made in the general journal to adjust revenue and expense accounts.
Balance day adjustments Adjustments made to revenue and expense accounts at the end of a period so that they equal revenue earned and expenses incurred.
Closing Entry A general journal entry used to close off a revenue or expense account.
Credit Note A source document used to evidence the return of goods because they were damaged or were the wrong colour, size or brand.
Comparability A qualitative characteristic of accounting that demands that consistent methods by applied from one reporting period to the next so that valid comparisons of performance are possible.
Consistency An accounting principle that demands that accounting methods be applied consistently from one reporting period to the next so that valid comparisons can be made.
Reducing Balance Depreciation A method of depreciation which allocates more depreciation in the early years of an asset's life, and less depreciation in the later years of the asset's life.
loss on disposal of asset The difference between the carrying value of an asset and the proceeds from the disposal of the asset, where the proceeds are less than the carrying value.
Over-depreciation A situation whereby a non-current asset has been depreciated too much due to the under-estimation of either the asset's useful life or its residual value, leading to a profit on disposal.
Under-depreciation A situation whereby a non-current asset has not been depreciated enough due to the over-estimation of either the asset's useful life or its residual value, leading to a loss on disposal.
proceeds from disposal of asset The amount of cash received, or the trade-in value granted, on the disposal of a non-current asset.
Profit on disposal of asset The difference between the carrying value of an asset and the proceeds from the disposal of the asset, where the proceeds are greater than the carrying value.
Sundry creditor A supplier that has provided an asset, other than stock, on credit.
Lower of cost and net realisable value A rule used to value inventory at the lower of two values: that of its cost price and its estimated net proceeds from sale.
Materiality test A test used to determine if the value of an item is likely to be relevant, based on whether or not it is likely to affect decision-making. The materiality test also allows very small, insignificant items to be omitted from general purpose reports.
Net Realisable Value (NRV) The estimated selling price of an item of inventory, less any costs incurred in its selling, marketing or distribution. That is, the net proceeds expected from selling the item of inventory.
Period cost A cost that is written off as an expense for the reporting period and is not added to the cost of a particular item of inventory.
Product cost A cost that is added to the cost price of a unit of inventory. That is, it becomes part of the cost of a particular product in its stock card.
Stock write-down A general journal entry that is used to write-down the value of an item of inventory from its cost price to a lower value, due to its anticipated net realisable value being lower than its cost price.
Accrued Revenue Revenue that has been earned but not yet received (E.G interest revenue).
Prepaid Revenue Revenue that has been received in advance but not yet earned (E.G plane tickets).
The liability approach to prepaid revenue A method of accounting for prepaid revenue whereby the initial receipt of revenue is treated as a liability, with a subsequent transfer of the amount earned to a revenue account.
Accounting Entity principle All relevant items must be reported for a business entity, which therefore excludes personal transactions of the owner.
conservatism principle A cautious or prudent approach to accounting, with a tendency to stay on the 'safe side'.
historical cost principle The original cost of an item at the time it was purchased.
Relevance A quality of accounting that demands that all information that may influence the users of a report be disclosed so that decision-makers are fully informed.
Reporting period principle A period of time over which financial events are recorded and reported.
Created by: Giant Kahuna