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Accounting terms

General accounting terms

QuestionAnswer
Mark up Relationship between cost of sales and sales
Margin Relationship between gross profit and sales
Accrual Period end adjustment which increases the expense and goes as current liability on b/s
Prepayment Period end adjustment which decreases the expense and goes as current asset on b/s
Depreciation Reduction in cost of asset due to wearing out
Prudence Concept of taking no profit and anticipating all losses
Matching Concept of making period end adjustments so that income and expenses occur in the same period
Asset Something the business owns - debit on statement of financial position
Liability Something the business owes - credit on statement of financial position
Income Money coming into the business - credit in income statement
Expense Money paid out of the business - debit in income statement
Bad debt Known amount of money that will not be paid to the business
Provision for doubtful debt Guess/estimation of money that will not be received from debtors
Reducing balance Method of depreciation where the expense for the year is calculated on the NBV brought forward
Net book value Cost of asset minus accumulated depreciation
Accumulated depreciation Depreciation that has been accrued over a period of time against the cost of an asset
Non-current asset Asset which is expected to have use in the business of more than one year
Current asset Asset which is expected to be used in the business within one year
Current liability Amount of money which is expected to be paid by the business within one year
Drawings Money taken out of the business by the owner
Share capital Money invested in the company by shareholders
Inventory Assets held by the business for resale
Goods returned inwards Sales returns sent back by the customer
Goods returned outwards Purchases returned by the business to the seller
Discount allowed Reduction in the amount to be collected by the business from debtors - expense
Discount received Reduction in the amount owing to creditors - income
Opening capital Opening assets less opening liabilities
Closing capital Closing assets less closing liabilities
Sole trader One owner/investor in the business. But may still employ others
Limited company Business financed by share capital from shareholders.
Limited liability Investors can only lose the amount they have invested and their other assets are safe in case of debt.
Created by: amandacavanagh