GCE O/N LEVEL PRINCIPLES OF ACCOUNTS CE (POA) KEY TERMS & DEFINITIONS

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A
Account a record of transactions of a similar nature Accounting planning, recording, summarizing, analysing, and interpreting financial information ing, Accounting elements classification of transactions into the types of accounts Accounting equation an equation showing the relationship among asse liabilities, and owner's assets, equity, mathematically, it is Assets = Owners Equity + Liabilities , Accounting period the length of time for which a business summarises and reports financial time information, usually 12 months Accrual basis of accounting the accounting method that records revenues when they are earned nting (goods/services are provided and expenses when they are incurred (goods/services are consumed), provided) this oppose the Cash basis of accounting Accrued revenue income earn in this accounting period yet to be received Accrued expense resources consumed that has not been paid for in this accounting period Acid-test ratio see Quick ratio Adjusting entries journal entries recorded to update general ledger accounts at the end of an accounting period Amalgamation the combination of two or more existing businesses into a single entity Appropriation account a partnership financial statement showing net income or loss distribution to partners Asset anything of value that is owned by the business which brings economic benefits

B
Bad debts debtor amounts that is irrecoverable Balance sheet a financial statement that reports assets, liabilities, and owner's equity on a specific date see Financial statements Balance Day Adjustments adjusting entries are made on balance day or the last day of the accounting period see Adjusting entries Bank statement a report showing the transactions between a depositor and a bank Book of original entry see Journal Bookkeeping the systematic maintenance and convenient records of all transactions in order to show the financial condition of a business entity. Book value of a fixed asset see Net book value of fixed asset

C
Capital the account used to summarise the owner's equity in a business summarise Capital expenditure the purchase of fixed assets which benefits the business for more than one accounting period. This expense appears in the balance sheet Cash basis of accounting the accounting method that records revenues when they are received and expenses when they are paid, this oppose the accrual concept of accounting see Accrued basis of nses paid, accounting Cash book a special journal used to record only cash receipts and payment transactions Cash discount a deduction from the invoice amount to encourage ear repayment from the uction early customer Cash flows the cash receipts and cash payments of a company Cash sale a sale in which cash is received for the total amount of the sale at the time of the transaction Chart of accounts a list of accounts used by a business Cheque a business form ordering a bank to pay cash from a bank account Cheque counterfoil record of amount and details of the transaction paid by cheque Closing entries journal entries used to prepare temporary accounts for a new accounting period Closing stock ending merchandise inventory on hand for sale to customers Consistency concept The accounting treatment applied to an item should be the same for all accounting periods Contra account an account that reduces a related account on a financial statement Contra balance an account balance that is opposite the normal balance (think contradict,contraband) band) Correcting entry a journal entry made to correct an error in the ledger

GCE O/N LEVEL PRINCIPLES OF ACCOUNTS KEY TERMS & DEFINITION

PRINCIPLESOFACCOUNTS.COM.SG Cost of goods sold the total original price of all goods sold during a accounting period Credit an amount recorded on the right side of a T account Credit sale a sale for which cash will be received at a later date Credit note a form prepared by the vendor showing the amount deducted for returns or for any amounts overcharged Creditor a person or organisation to whom a liability is owed Creditor Control Account a subsidiary ledger containing only accounts for suppliers from whom items are purchased or bought on credit Current assets cash and other assets expected to be exchanged for cash or consumed within a year Current liabilities liabilities due within a short time, usually within a year Current ratio a ratio that shows the numeric relationship of current assets to current liabilities

D
Day book see Journal Debit an amount recorded on the left side of a T account Debit note a form prepared by the vendor to add charges to an invoice previously issued Debtors Control Account a subsidiary ledger containing only accounts for customers who bought on credit also known as Sales ledger control account Depreciation the loss in the value of a fixed asset over a period of time Depreciation expense the portion of a fixed asset's cost that is transferred to an expense account in each accounting period during a fixed asset's useful life Diminishing method see Reducing balance method Discount allowed see Cash discount Dishonoured cheque a cheque that a bank refuses to clear Dividends earnings distributed to stockholders who invested in a business Double-entry accounting the recording of debit and credit parts of a transaction, based on Assets = Liabilities + Owners Equity Doubtful debts amount from debtors which are expected as uncollectible from debtors. Drawings assets taken out of a business for the owner's personal use

E
Entry information for each transaction recorded in a journal Equities financial rights to the assets of a business Ethics refers to the standards of conduct by which ones actions are judged as right or wrong, honest or dishonest, fair or not fair Error of complete reversal of entries Both entries of a transaction are made on the opposite sides Error of compensation errors of the same amount are recorded on both the debit and credit sides, thus cancelling each other Error of omission the complete omission of the double-entry records for a transaction which has taken place. Error of commission Double entries recorded are of the correct amounts and on the right side of the account but in the wrong accounts of the same category Error of principle Double entries are recorded but in the wrong category of accounts. Error of original entry Entries are made to both the debit and credit sides of with the same incorrect amount Expenditures cash disbursements and liabilities incurred for the cost of goods delivered or services rendered Expense resources used up resulting from the operation of a business

F
Financial performance a measure of how well a business can use assets from its primary mode of business and generate revenues Financial position the state of and the relationships among the various financial data found on a business' balance sheet. Financial statements a formal record of the financial activities of a business For GCE O/N levels, the key financial statements are Profit and Loss Statement and Balance Sheet. Fixed assets assets that will be used for a number of years in the operation of a business Float a specified amount of petty cash at the start of the period

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G
Gain on disposal of fixed assets revenue that result when a fixed asset is sold for more than book value General journal a journal with two amount columns in which all kinds of entries can be recorded General ledger a ledger that contains all accounts needed to prepare financial statements Goodwill the value of a business in excess of the net worth of the business Going concern assumption that business will continue indefinitely Gross profit the difference between revenue and the cost of goods sold, before deducting operating expenses Gross profit margin measures the gross profit earned from every dollar of sales Goods and Service Tax, GST (Singapore) a broad-based value added tax levied on import of goods, as well as nearly all supplies of goods and services see Value Added Tax Gross profit on sales the revenue remaining after cost of goods sold has been deducted

H
Historical cost concept states that all business transactions are recorded at the cost at the time it took place.

I
Income statement a financial statement showing the revenue and expenses during the accounting period Incomplete records the recording of transactions which does not observe the double-entry rules. Impress system is a system for controlling petty cash. The petty cashier is given an amount in advance of expenditure. Under the Imprest system, the chief cashier replenishes the cash such that the petty cash box always has the same amount of float at the start of each period Insurance on purchases an expense in under the Trading account to cover possible losses, damages or theft while goods are being brought to the business Intangible assets assets of a non-physical nature that brings economical benefits for a business Interest an amount paid for the use of money for a period of time Interest on capital given to compensate partners who contribute money into the business Interest on drawings amounts owed to the business by the partners for withdrawal of funds or goods for personal use, given to compensate for the opportunity cost of the business to generate profits Interest expense the interest accrued on money borrowed Interest income the interest earned on money loaned Inventory see Stock Invoice a form containing the description of the goods or services sold, the quantity, and the price

J
Journal a book for recording transactions, also known as book of original entry or day books Journal entry the act of recording transactions in a journal

L
Ledger a group of accounts Liability an amount owed by a business List price a business's printed or catalog price Long-term assets see Fixed assets Long-term liabilities amounts owing for more than a year Loss on fixed assets the loss that results when a fixed asset is sold for less than book value Lower of cost or net realisable value using the lower of cost or market value to determine the cost of closing stock

M
Market value the price at which a share of stock may be sold on the stock market Markup the amount added to the cost of goods to establish the selling price Matching principle The appropriate expenses should be matched to all the revenue to determine profits in a given accounting period. Materiality concept how each transaction is captured and dealt with in the accounting records depends on its significance and impact

GCE O/N LEVEL PRINCIPLES OF ACCOUNTS KEY TERMS & DEFINITION

PRINCIPLESOFACCOUNTS.COM.SG Monetary assumption or money measurement only transactions quantifiable/ expressed in monetary terms are recorded. Mutual agency the right of all partners to contract for a partnership

N
Net book value of a fixed asset the original cost of a fixed asset minus accumulated depreciation Net income the difference between total revenue and total expenses when total revenue is greater Net loss the difference between total revenue and total expenses when total expenses are greater Net purchases total purchases less purchases discount and purchases returns and drawings from owners Net sales total sales less sales discount and sales returns and allowances Normal balance the side of the account that is increased Net realisable value the market value of an asset

O
Objectivity concept the methods used to prepare financial reports should be free from personal bias and based on verifiable evidence Operating expenses the payments necessary to operate a business on a day-to-day basis Other revenue revenue from activities other than normal business operations Owner's equity the amount remaining after the value of all liabilities is subtracted from the value of all assets

P
Partnership a business in which two or more persons combine their assets and skills Partnership agreement a written agreement setting forth the conditions under which a partnership is to operate Partner Salary given to compensate a partner managing the business and forgoing the opportunity for employment elsewhere Petty cash an amount of cash kept on hand and used for making small payments Petty cash voucher a form showing proof of a petty cash payment Postdated cheque a cheque with a future date on it Posting transferring information from a journal entry to a ledger account Prepaid expenses expenses paid in one accounting period but not reported as expenses until a later accounting period Profit and loss statement see Income statement Provision for Doubtful debts allowance made amounts expected to be uncollectible from debtors at a given date Provision for Depreciation the total amount of depreciation expense that has been recorded since the purchase of a fixed asset, also known as Accumulated depreciation Purchase invoice an invoice used as a source document for recording a purchase on credit transaction Purchases journal a special journal used to record only purchases of goods on credit Purchases return credit allowed for the purchase price of returned goods, resulting in a decrease in trade debtors

Q
Quick ratio the number of times liquid assets cover the current liabilities. A safe ratio should be at least 1:1

R
Rate of return of capital measures the net profit earned for every dollar invested by the owner Rate earned on average total assets the relationship between net income and average total assets Rate of stock turnover the number of times the average amount of goods is sold during a specific period of time Ratio a comparison between two numbers showing how many times one number exceeds the other Receipt a business form giving written acknowledgement for cash received Residual value see Estimated salvage value Reducing balance method multiplying the book value of the fixed asset by a constant depreciation rate at the end of each accounting period

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Revaluation method depreciation is calculated as the difference between the value of the asset at the end of the period and the value of the asset at the beginning of the period. Revenue income generated from the operation of a business Revenue expenditure for day-to-day running of the business. Such expenses benefit the business within a given period. This expense appears in the Profit and loss statement Reversing entry an entry made at the beginning of one accounting period to reverse an adjusting entry made in the previous accounting period

S
Salary the money paid for employee services Sales ledger control account see Debtors control account Sales invoice an invoice used as a source document for recording a sale on credit Sales journal a special journal used to record only sales of goods on credit Sales return credit allowed a customer for the sales price of returned goods, resulting in a decrease in the debtors account Salvage/Scrap value the amount an owner expects to receive when a fixed asset is disposed Service business a business that performs an activity for a fee Sole proprietorship a business owned by one person Source document a business paper from which information is obtained for a journal entry. Example: bank statement, cheque counterfoil, credit note, debit note, payment voucher, invoice and receipt Special journal a journal used to record only one kind of transaction. These are Purchase Journal, Sales Journal, Returns Outwards Journal and Return Inwards Journals are special journals Standing order a written, signed, and dated order from the business ordering a bank, to pay money to a third party to make regular payments by a given date. GIRO is a common form of standing order (in Singapore) Statement of affairs shows the assets and liabilities of the firm at a particular period Stock the amount of goods on hand Stock turnover see Rate of Stockturn Straight-line method of depreciation charging an equal amount of depreciation expense for a fixed asset in each year of useful life Subsidiary ledger a ledger that is summarized in a single general ledger account Sundry expenses items which do not occur frequently enough to warrant record in their own accounts

T
T account an accounting device used to analyze transactions Trade discount a reduction in the list price granted to customers to encourage bulk purchases Transaction a business activity that changes assets, liabilities, or owner's equity Trial balance a proof of the equality of debits and credits in a general ledger

U
Unearned revenue revenue received in one accounting period but not earned until the next accounting period Useful life the number of years fixed assets is expected to be used

V
Value Added Tax is a tax on spending on goods and services. The tax base of such a tax is the money spent on consumption. Vendor a business from which goods is purchased or supplies or other assets are bought Voucher a business form used to show an authorised person's approval for a cash payment

W
Wages see Salary Withdrawals see Drawings Working capital the amount of total current assets less total current liabilities Writing off an account canceling the balance of a customer account because the customer does not pay

GCE O/N LEVEL PRINCIPLES OF ACCOUNTS KEY TERMS & DEFINITION

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