The direct charge-off method is an accounting technique used to write off specific bad debts when they are deemed uncollectible.
Labor and materials that can be identified physically in the product produced. Direct costs for an apartment building, for example, are construction materials and labor; indirect costs include architect's fees, interest during construction, insurance, and builder's overhead and profit allowance.
An hour spent working on a product, service, or cost unit produced by an organization by those operators whose time can be directly traced to the production. Direct labour hours are sometimes used as a basis for absorbing manufacturing overheads to the cost unit in absorption costing.
Direct Materials Quantity Variance measures the efficiency of material usage by comparing the actual quantity used to the standard quantity expected for the output achieved.
Loss from a disaster in an area declared by the President as warranting federal assistance.
Discontinued operations refer to the sale, disposal, or planned sale in the near future of a business segment, such as a product line or class of customers. The financial results of these operations are reported separately in the income statement.
In the realm of accounting, a 'discount' refers to a variety of reductions applied to amounts due or outstanding, impacting both operational transactions and financial statements.
Disposal value, also known as residual value or salvage value, is the estimated amount that an owner expects to obtain from the sale of an asset at the end of its useful life.
A Disposals Account is used in accounting to record the removal of a fixed asset from the ledger, capturing its original cost, accumulated depreciation, and the amount received upon disposal.
A dividend in specie refers to a type of dividend that is paid out in forms other than cash. Typically, this can include the distribution of assets, shares, property, or any other physical items that represent the value payable to shareholders.
Donated surplus, also known as donated capital, refers to the contributions of cash, property, or the firm's own stock freely given to the company. It is a component of shareholders' equity that arises when such contributions are made by stakeholders without the expectation of anything in return.
A dormant company is an entity that has had no significant accounting transactions during the accounting period in question and therefore is exempt from certain financial and auditing obligations.
The double-declining-balance method of depreciation involves applying twice the straight-line rate to the depreciable balance of an asset.
Double-entry accounting, also known as double-entry bookkeeping, is a system of financial records used in business whereby equal debits and credits are recorded for each transaction, ensuring the accounting equation (Assets = Liabilities + Owner's Equity) remains balanced.
A method of recording the transactions of a business in a set of accounts such that every transaction has a dual aspect and therefore needs to be recorded in at least two accounts.
Drawings refer to the withdrawal of assets, typically cash or goods, from an unincorporated business by its owner. This concept is essential in differentiating between unincorporated businesses and corporations, and comprehending how owners can access business assets.
In accounting, an endorsement refers to the act of signing the back of a negotiable instrument, such as a check, to transfer ownership or authorize payment.
Entrepreneurial profit refers to the compensation for the expertise and successful effort of a skilled businessperson, encompassing the portion of profit exceeding the normal profit for typically competent management.
An entry is a record made in a book of account, register, or computer file of a financial transaction, event, proceeding, etc. Entries are fundamental in the accounting process, ensuring that all financial activities are accurately recorded and tracked.
Comprehensive overview of the various categories of environmental costs and their implications for businesses in ensuring environmental stewardship.
Equal-Instalment Depreciation, also known as the straight-line method, is a simple and commonly used depreciation method where an asset's cost is evenly spread over its useful life.
Equity represents a beneficial interest in an asset, net asset value, or shareholders' interest in a company. It is a critical component in personal finance, corporate finance, and accounting.
EV can stand for Enterprise Value, Economic Value, or Expected Value, each significant within their respective contexts in finance and accounting.
A gain or loss resulting from an exchange-rate fluctuation arising from the conversion of other currencies into the domestic currency.
The net realizable value of an asset, representing its market price at the balance sheet date, less the selling expenses.
The Expectations Gap, often referred to as the audit expectations gap, highlights the divergence between what the public perceives auditors are responsible for and what auditors actually are responsible for within the scope of their engagements.
Expenditure refers to the costs or expenses incurred by an organization. These may be capital expenditure or revenue expenditure. It encompasses both the outlay of money and the acknowledgment of liabilities.
An expense is a business cost incurred in operating and maintaining property, used in profit-directed business activities and calculated as the cost of goods and services used. Expenses can be currently deductible costs, distinct from capital expenditures that must be depreciated or amortized over the property's useful life.
A draft document issued for public comment and discussion before the final release of a financial reporting standard by a regulatory or standard-setting body like the Financial Reporting Council.
FIFO Cost, short for First-In-First-Out Cost, is an inventory valuation method where the costs of the earliest items purchased are the first to be recognized in financial statements. This method is widely used in accounting to manage inventory and calculate the cost of goods sold.
A finance lease transfers substantially all the risks and rewards of ownership of an asset to the lessee. In accounting, it is akin to the lessee owning the asset. This entry describes the implications and guidelines involved in finance leases.
Financial accounting is the branch of accounting concerned with classifying, measuring, and recording the transactions of a business, ultimately presenting the performance and financial position of a business through standardized financial statements.
A financial asset is either cash, a contractual right to receive cash, the right to exchange a financial instrument with another entity under potentially favourable terms, or an equity instrument of another entity.
The financial position of a firm reflects the status of its assets, liabilities, and equity accounts as of a certain time. This is depicted on its financial statement and is also known as financial condition.
A Financial Reporting Exposure Draft (FRED) is a draft published by standard-setting authorities containing proposed changes to financial reporting standards before they are finalized.
Financial Reporting Standards (FRS) provide guidelines and regulations on how financial statements should be prepared and presented. These standards ensure consistency, reliability, and comparability of financial reports across different entities, fostering transparency and trust in financial information.
Finished goods are products that have completed the manufacturing process and are ready for distribution to customers.
A method of inventory valuation in which cost of goods sold is charged with the cost of raw materials, semi-finished goods, and finished goods purchased 'first.' Under FIFO, the inventory contains the most recently purchased materials, and in times of rapid inflation, FIFO can inflate profits.
A fixed cost (also known as a fixed expense) is an item of expenditure that remains unchanged in total, irrespective of changes in the levels of production or sales. Examples include business rates, rent, and some salaries.
Fixed overhead costs are the elements of the indirect costs of an organization's product that, in total, remain unchanged irrespective of changes in the levels of production or sales. Examples include administrative salaries, sales personnel salaries, and factory rent.
Fixed Overhead Volume Variance is a metric used in standard costing systems to quantify the difference between actual and budgeted production levels, valued at the standard fixed overhead absorption rate per unit. It measures the over- or under-recovery of fixed overheads due to the variance in actual activity levels from what was budgeted.
A comprehensive listing of a company's fixed assets, detailing each asset's location, cost, revaluation, estimated net value, useful economic life, depreciation method, accumulated depreciation, and net book value.
A fixture is an item that was initially personal property but has become real property due to its attachment to a building or land in such a way that removal would damage the property.
In accounting and finance, 'float' refers to various concepts including delayed money processing, publicly held stock proportions, contingency fund allocation, and processes related to financial transactions and securities.
In accounting, 'footing' refers to the process of totaling a column of numbers to ensure accuracy in financial statements. This fundamental task is essential in maintaining the integrity of financial data.
An explanatory narrative and numerical data that follows the financial statements of a company and is integrally related to them.
Foreign Currency Translation is the process of expressing amounts denominated in one currency in terms of another currency using the exchange rate between the currencies. Assets and liabilities are translated at the current exchange rate as of the balance sheet date, while income statement items are typically translated at the weighted-average exchange rate for the period.
Understanding the concept of 'franked' in accounting, particularly within the context of dividends, and its implications on tax liabilities.
Full absorption costing, also known as absorption costing, is a method of accounting that captures all direct and indirect manufacturing expenses when determining the cost of the final product.
The Full Costing Method is an extensive approach in accounting that includes all the costs associated with producing a product or service, encompassing both direct costs and overheads allocated to the cost unit.
A term used in accounting to describe a fixed asset to which all allowable depreciation has been charged according to accounting or tax laws. The asset is carried on the books at its residual value, although its market value may be higher or lower.
Functional Authority refers to the ability of staff members to initiate and veto actions in their area of expertise, allowing decisions to be directly implemented by those with specialized knowledge. Common areas include accounting, labor relations, and employment testing.
A Funds Flow Statement describes how a business has raised and used its funds over a specific period, detailing sources like trading profits, issues of shares, and sales of fixed assets, and uses like trading losses, dividends paid, and repayment of borrowings.
Furniture, Fixtures, and Equipment (FF&E) are tangible assets that businesses use to enrich their operations. Unlike real property, these items are typically moveable and are not permanently affixed to buildings.
A gain refers to an increase in value, measured by the difference between the adjusted tax basis and the selling price. It is a key concept in accounting and finance, encapsulating various types, such as capital gain, realized gain, and recognized gain.
Gain Contingency refers to a potential or pending development that may result in a future gain to the company, such as a successful lawsuit against another company.
A general expense refers to costs incurred during business operations that do not fall under categories such as selling, administrative, or cost of goods sold (COGS). These are typically miscellaneous expenses essential for running a business but not directly tied to core operational sectors.
The General Ledger (GL) is a key component of an organization's accounting system, serving as a comprehensive record of all financial transactions made over the life of an organization.
A Goods Received Note (GRN) is an important document used in the accounting and inventory management process, signifying the receipt of goods by a business.
The term 'gross' can refer to the highest amount of sales or income before deductions, or to a quantity in merchandise, specifically 12 dozen or 144 items.
The gross dividend refers to the total amount a company distributes to its shareholders before any withholding taxes or other deductions.
The gross equity method is a way of accounting for associated undertakings whereby the investor displays its proportionate share of the investee's aggregate gross assets and liabilities on the balance sheet. Additionally, the related share of turnover is noted in the profit and loss account.
Gross margin represents the percentage of total sales revenue that a company retains after incurring the direct costs associated with producing the goods and services it sells. It is a critical metric for assessing a company's financial health and operational efficiency.
In the context of installment sales, the Gross Profit Ratio is the proportion of gross profit (gain) to the contract price, used to determine the taxable gain from periodic receipts from the buyer.
Gross receipts refer to the total income a business receives from all sources before deductions or allowances.
Group accounts, also known as group financial statements or consolidated financial statements, provide a comprehensive overview of the financial status of a parent company and its subsidiaries.
In tax law, the assumption that an asset acquired at any point in the taxable year was placed in service halfway through the year.
Hard dollars refer to actual payments made by customers or investors, in contrast to soft money, which may include tax-deductible amounts or funds that don't need to be paid in full. This term is also associated with hard money, which are loans provided with stricter terms.
The accounting principle under which assets are recorded and carried in the books of account at their original purchase cost.
Horizontal Analysis is a time series analysis of financial statements that covers more than one accounting period to examine the percentage change in an account over time.
Human Information Processing (HIP) refers to the cognitive processes involved in thinking, remembering, interpreting, and making decisions. Understanding HIP is important for accountants as it provides insights into how people use information in decision-making, which can inform the selection of the most appropriate information and formats for financial reporting.
Hybrid Accounting Methods are those accounting practices that incorporate elements from both cash and accrual accounting methods to better reflect a taxpayer's income. Used when authorized by the Treasury Regulations, and if consistently applied.
An impersonal account is a type of ledger account that does not bear the name of an individual and includes nominal accounts and real accounts.
The imprest system is a bookkeeping system where a fixed amount of money is reserved for minor expenses and is periodically replenished.
Imputed value, or imputed income, refers to a logical or implicit value that is not recorded in any account. This involves assigning a value to goods, services, or investments that are not explicitly quantified.
The term 'in arrears' refers to the status of payments that are overdue. In financial terms, it commonly indicates that the last payment was made at the end of a period rather than in advance. It can also mean that payments are in default, indicating non-compliance with the agreed payment schedule.
The term 'in transit' refers to goods or cash that have been sent from one part of an entity to another and are currently in the process of being transported. This concept is integral to accounting as funds or goods in transit need to be carefully monitored and recorded to ensure accurate financial reporting.
An income standard in standard costing refers to the predetermined level of income expected to be generated by an item to be sold. It is often applied to a budgeted quantity to determine the budgeted revenue.
An income-generating unit (IGU) is a distinct segment within a business or an investment that is capable of generating revenue independently. Understanding IGUs is crucial for effective financial reporting and valuation.
Incomplete records in accounting refer to situations where some details are missing, such as unrecorded or partially recorded transactions. Completing these records usually involves examining the cash book and deducing missing items.
Independence in accounting is a state of having no bias, neutrality, and being objective regarding the client or another party while executing the audit function. This ensures the integrity and objectivity of the audit process.
An indirect cost centre refers to a division or department within an organization that incurs costs but does not directly generate revenue. These centres typically support the production of goods or services.
Indirect materials are those materials that do not feature in the final product but are necessary to carry out the production process. Examples include machine oil, cleaning materials, and consumable materials.
Inherent goodwill refers to the non-quantifiable value a business possesses, often through reputation, customer loyalty, and other intangible factors, that is organically developed over time.
Input tax is the Value Added Tax (VAT) paid by a taxable person when purchasing goods or services from a VAT-registered trader. It is used to offset the output tax to determine the final VAT payable to tax authorities.
The Institute of Internal Auditors (IIA) is a professional association founded in 1945 in the USA dedicated to the advancement of internal auditing standards and practices. Known for its journal, *The Internal Auditor*, the IIA also operates a British and Irish branch, now the Chartered Institute of Internal Auditors.
Costs incurred in drilling, testing, completing, and reworking oil and gas wells, such as labor, core analysis, fracturing, drill stem testing, engineering, fuel, geologists' expenses; as well as abandonment losses, management fees, delay rentals, and similar expenses.
Intangible property represents possessions that hold real value but do not have a physical presence. Examples include stock certificates, bonds, promissory notes, and franchises.
A ledger account credited with interest receivable until received, after which it is moved to the bank and credited to the profit and loss account for the period.
Internally generated goodwill, also known as inherent or non-purchased goodwill, refers to the presumed value present in an existing business that has not been evidenced by a purchase transaction. According to Section 18 of the Financial Reporting Standard applicable in the UK and Republic of Ireland, and International Accounting Standard 38, such goodwill should not be recognized on the balance sheet.
International Financial Reporting Standards (IFRS) are a set of accounting rules that standardize how businesses report their financial outcomes globally, ensuring transparency, accountability, and efficiency in financial markets.
The IFRS Foundation oversees the activities of the International Accounting Standards Board (IASB) and the International Financial Reporting Interpretations Committee, and aims to develop globally accepted financial reporting standards.
Inventory shortage, also known as shrinkage, refers to the unexplained difference between the physical count of inventory and the amount recorded in accounting records. This discrepancy can be due to various factors, ranging from normal evaporation of a liquid to theft.
Inventory turnover, also known as stock turnover, is a ratio that measures the frequency with which items of stock are used or sold annually.
An invoice is a detailed bill sent from a seller to a buyer, outlining the products or services provided, prices, payment terms, and due dates.
Irrecoverable Input VAT refers to the Value-Added Tax (VAT) paid on items acquired to produce exempt supplies and cannot be reclaimed or offset against output tax.
The common cost incurred in a production process that results in multiple products, typically allocated based on relative selling prices.
A journal is a book of prime entry used in accounting to record transfers from one account to another. These entries are not recorded in other primary entry books like the sales day book or the cash book.
A journal entry is a detailed record of a business transaction in accounting, consisting of debits and credits and supporting a specific accounting period.
A journal voucher is a document that provides detailed information and justification for a financial transaction requiring a journal entry in the accounting records. It is an essential element of an organization's internal control system.
