Abridged accounts are a simplified form of annual accounts allowed under the EU Accounting Directive (2014) for entities qualifying as small companies. These accounts exclude certain detailed financial information from both the balance sheet and profit and loss statement, provided this exclusion is unanimously agreed upon by shareholders.
The Accounting Equation forms the foundation of the balance sheet and illustrates how assets, liabilities, and equity are interrelated, ensuring that the balance sheet remains balanced.
Accounts receivable (AR) refers to the balance of money owed to a firm for goods or services delivered or used but not yet paid for by customers. It is an essential component of a company’s balance sheet and is considered a current asset.
An accrual is an accounting estimate of a liability for expenses not yet invoiced or requested for payment at the time the accounts are prepared, presenting a more accurate financial snapshot.
An accrued expense is a cost that has been incurred but not yet paid. These are obligations that a company must pay out in the future for services or goods that have already been received.
Accumulated depletion is a contra-asset account associated with depletable natural resources like mines. It reflects the total usage or reduction in value of these resources over time.
Accumulated depreciation represents the total depreciation expense that has been recorded against a fixed asset since its acquisition or establishment on the balance sheet.
The acid-test ratio, also known as the quick ratio, is a liquidity metric that assesses a company's ability to cover its short-term liabilities with its most liquid assets.
An Adjusted Trial Balance is a key accounting tool that lists all general ledger accounts and their balances after accounting adjustments have been made, such as prepayments and accruals, serving as a foundational element for preparing the final financial statements.
Adjusting entries are made at the balance-sheet date under an accrual accounting system to ensure that the income and expenditure of a business are included in the correct period. Examples include adjustments for depreciation, prepayments, accruals, and closing stock.
Annual accounts, also known as annual financial statements, are comprehensive reports on a company's financial position and performance over a fiscal year. These accounts include the balance sheet, income statement, statement of changes in equity, and cash flow statement.
Annual accounts, also known as annual reports, are comprehensive financial statements of an organization typically published annually and required by law for incorporated bodies in the UK.
Accounts prepared under the double-entry bookkeeping system, where the retained earnings figure on the profit and loss account matches the increase in net worth on the balance sheet, subject to changes like capital injections.
Asset classification refers to the systematic categorization of assets on a balance sheet, distinguishing between fixed and current assets as mandated by the Companies Act and Financial Reporting Standard (FRS 102) in the UK and Republic of Ireland.
Asset deficiency is a financial condition where a company's liabilities exceed its assets, raising concerns about the organization's financial viability.
Asset valuation involves determining the current worth of an organization's assets, considering various valuation methods including revaluation and present value calculations.
The total value of a company's assets less its liabilities, divided by the number of ordinary shares in issue. This represents the theoretical amount attributable to each share if the company was wound up.
The balance sheet, also known as the statement of financial position, is a vital financial statement that outlines a company's total assets and liabilities at a specific point in time, providing a snapshot of its financial health.
Also known as the accounting equation, the balance sheet equation is the foundational formula that forms the basis of double-entry bookkeeping: Assets = Liabilities + Equity. This equation ensures that a company's financial statements are balanced, indicating that all resources (assets) owned by the company are financed either by borrowing (liabilities) or by investing funds (owner’s equity).
Methods of presenting a balance sheet as set out in the Companies Act. Details the two formats available, vertical and horizontal, with specific disclosure requirements.
Balance sheet reserves are amounts set aside in pension plans and other insurance contracts, expressed as liabilities on the company's balance sheet, to ensure future benefit payments to policy owners.
Bills Receivable refers to a category of current assets on a company’s balance sheet, representing promissory notes or bills of exchange held by the company until their maturity.
Book value represents the net asset value of a company, calculated as the total assets minus intangible assets and liabilities. It provides a historical measure of value and is frequently compared to market value to gauge intangible assets' and management's effectiveness.
Book-keeping is the meticulous recording and organization of a business's financial transactions. It provides a foundation for critical financial statements such as the profit and loss account and the balance sheet.
Brands, as intangible assets, play a crucial role in a company's strategic differentiation and financial performance. The accounting treatment of brands varies globally and has evolved to address the complexity in valuing and amortizing these assets.
Capital Employed is the total amount of capital that a company uses to generate profits and includes shareholder's equity and long-term debt, or the sum of fixed and net current assets. This metric is pivotal in ratio analysis for assessing the efficiency and profitability of a company's capital investments.
Capital expenditure, often referred to as capital costs or capital investment, pertains to substantial expenses incurred by an organization for purchasing or enhancing fixed assets. These costs are capitalized on the balance sheet and depreciated over the asset's useful life.
Capital paid in excess of par value refers to the amount of money shareholders have invested in a company that exceeds the par value of the issued shares. This extra amount is often reflected on the equity section of the balance sheet and signifies additional capital that the company can use for growth and operations.
In the USA, capital surplus refers to the difference between the par value of a share and its issue price. It is the equivalent of a share premium in the UK.
Capitalized value represents the value at which an asset is recorded in the balance sheet of a company or organization. It is also the capital equivalent of an asset that yields a regular income, calculated at the prevailing rate of interest.
Carriage Inwards, also known as Freight Inwards, refers to the delivery costs incurred by a business when purchasing goods. If these costs are associated with fixed assets, they can be capitalized and included in the cost of the asset on the balance sheet.
The balance-sheet value of an asset or liability, representing the amount at which it is reported on the financial statements.
Cash at Bank refers to the total amount of money held in bank accounts by an individual or company. This can be in the form of current accounts or deposit accounts and is reflected in the balance sheet under current assets.
A cashbook is an accounting book used to record all cash receipts and cash disbursements, and its balance ties closely to the cash account in the general ledger, which is reflected on the balance sheet.
A Certified Financial Statement is a set of financial documents including the balance sheet, income statement, and possibly other related financial reports, that a Certified Public Accountant (CPA) has audited and attested to. These statements confirm that the financial records present fairly, in all material respects, the financial position and performance of a company in accordance with applicable accounting principles.
Circulating assets, also known as current assets, are the assets that a company expects to convert into cash, sell, or consume within one year or its operating cycle, whichever is longer.
The debit or credit balance on a ledger at the end of an accounting period, which will appear on the balance sheet at that date and be carried forward to the next accounting period.
Closing stock refers to the inventory remaining within an organization at the end of an accounting period, including raw materials, work in progress, or finished goods. It plays a crucial role in determining the profitability and financial status of a company.
The Closing-Rate Method, also known as the Net-Investment Method, involves restating balance sheet figures into another currency using the closing rate of exchange for all assets and liabilities as of the balance-sheet date.
Contra accounts are used in financial accounting to offset balances between accounts, often simplifying the settlement process and providing clearer financial statements.
Credit Watch is a term used by bond rating agencies to indicate that a company's credit is under review and its rating is subject to change. The implication is that if the rating is changed, it will typically be lowered, usually due to an event that adversely affects the income statement or balance sheet.
Creditors are individuals or entities to whom an organization or an individual owes money, such as unpaid suppliers of raw materials. Effective management of creditor payments is essential for maintaining credit periods and securing prompt-payment discounts.
A current asset refers to cash, accounts receivable, inventory, and other assets that are likely to be converted into cash, sold, exchanged, or expensed in the normal course of business, usually within a year.
Current assets, also known as circulating assets, circulating capital, or floating assets, are the assets of an organization that form part of the working capital and are constantly changing their form as they circulate from cash to goods and back to cash again.
Current liabilities are amounts owed by a business to other organizations and individuals that should be paid within one year from the balance-sheet date, including trade creditors, bills of exchange payable, and short-term loans.
In accounting, current liabilities are obligations of a company that are expected to be settled within one year or within the operating cycle, whichever is longer. Current liabilities are used to gauge a company’s short-term liquidity and are listed on the balance sheet.
Current Replacement Cost refers to the expense involved in replacing an asset or the services it provides, calculated at the balance-sheet date. Determining this cost can be challenging, especially if the asset is obsolete.
Current Value Accounting (CVA) is a method aimed at providing an income statement and balance sheet in terms of current dollars, enhancing the quality of financial information during times of inflation.
Debtors refer to individuals or entities that owe money to an organization, often due to sales of goods or services. This concept is significant in accounting as it affects the balance sheet and requires careful management to ensure accurate financial reporting.
A statement in which the directors of a company announce that a dividend of a certain amount is recommended to be paid to the shareholders, and the liability is recognized when declared.
Deferred Credit represents income received or recorded before it is earned, and it adheres to the accruals concept by being carried forward on the balance sheet until it is matched with the period in which it is earned.
Deferred liability refers to financial obligations that a company incurs but will not pay until a future period. It represents money that has been received for goods or services not yet delivered, and thus is classified as a liability until the delivery is made.
Deleveraging is the process by which an entity reduces its level of debt by rapidly selling off assets or paying down loans, often in response to financial stress or in pursuit of a stronger balance sheet.
A depreciation reserve, also known as accumulated depreciation, is the total depreciation charged against all productive assets as stated on the balance sheet. It allows for realistic reduction in the value of productive assets and facilitates tax-free recovery of the original investment in assets.
The removal from the balance sheet of assets and liabilities that had previously been recognized in the financial statements of a company.
Dividends Payable are dividends that have been declared by a company but not yet paid. They appear as an appropriation in the profit and loss account and as a current liability in the balance sheet.
Total debt owed by a firm, including the capitalized value of lease payments, providing a comprehensive overview of a company's financial obligations.
Effective Net Worth is the sum of a firm's net worth and its subordinated debt, providing a more comprehensive view of financial health from the perspective of senior creditors.
Ending Inventory refers to the stock held by a business at the end of a financial period. It plays a crucial role in calculating the Cost of Goods Sold (COGS) on the Profit and Loss statement, as well as appearing on the Balance Sheet.
The Entity View is a fundamental concept in accounting that emphasizes the importance of the business or organization as a separate entity from its owners. This view is based on the accounting equation where the sum of the assets is equal to the claims on these assets by owners and others.
The net realizable value of an asset, representing its market price at the balance sheet date, less the selling expenses.
An extended trial balance provides a detailed verification of the balances extracted from the ledger by adding columns for adjustments, accruals, and prepayments, ultimately clarifying entries for the profit and loss account and balance sheet.
A fictitious asset is an asset listed on a company's balance sheet that does not actually exist or has no real value. Such assets may appear due to error or as part of deliberate fraudulent activities.
Final Accounts are comprehensive financial statements produced at the end of a company's financial year, representing its overall financial status and performance over the period. They contrast with interim accounts produced during the financial year.
A final dividend is a dividend declared at the company's annual general meeting (AGM) upon the recommendation of the company’s directors. It represents the distribution of profits that is subject to shareholders' approval and appears as a current liability on the balance sheet until paid.
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 expense is an outlay of funds recorded in a company's financial records, rather than cost records. Common examples include interest paid on borrowed funds and directors' fees.
A financial report consists of a firm's financial statements that provide information about its financial performance and position over a specific period.
A financial statement is a written record of the financial status of an individual, association, or business organization. It includes a balance sheet, an income statement (or operating statement or profit and loss statement), and may also include a statement of changes in working capital, net worth, and cash flow.
Financial statements are annual statements summarizing a company's activities over the last financial year, providing a comprehensive overview of its financial health and performance.
Fixed assets are long-term assets used in the operations of a business, such as land, buildings, machinery, and equipment. These assets are essential for production and business operations and are classified in various ways on the balance sheet.
The method of presenting financial statements chosen by an organization. Incorporated bodies must use the formats prescribed by relevant legislative and regulatory frameworks, such as the Companies Act, for their balance sheet and profit and loss account.
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.
Held-for-sale is a classification of non-current assets introduced by the International Accounting Standard 5 (IAS 5), Non-current Assets Held for Sale and Discontinued Operations. Assets classified as held-for-sale must be available for sale in their present condition and the sale is expected to be completed within one year.
A heritage asset is a tangible asset deemed historically, artistically, or scientifically significant, often recognized for its cultural or knowledge contribution and distinctive accounting treatment.
A hidden asset or reserve refers to asset value that is understated on the balance sheet of a company due to accounting conventions or deliberate action by management.
The presentation of a financial statement in which the debits are given on one side of the statement and the credits on the other. In the case of a balance sheet, the fixed assets and current assets would be shown on the left-hand side of the statement, and the capital and liabilities on the right-hand side.
Human Resource Accounting attempts to recognize and quantify an organization's human resources in monetary terms, placing value on factors such as the age, experience, and future earnings power of employees.
Interim financial statements are financial reports issued for periods shorter than a full fiscal year, often used by companies to report on financial health and performance at interim intervals.
An interim statement is a financial report of a public corporation covering only a portion of a fiscal year, typically issued quarterly to provide an update on financial performance.
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.
Inventory includes the raw materials, work-in-progress, and finished goods that a company has on hand at any given time. Effective inventory management is crucial for maintaining liquidity and profitability.
Detailed overview of investment properties, including definitions, examples, FAQs, related terms, and resources for further study.
A liability is an obligation that a company needs to settle in the future, generally in the form of economic benefits such as money. Liabilities often result from past transactions and play a crucial role in a company's financial health by representing what it owes.
The method of presenting an asset in the balance sheet where the asset linked to financing is shown gross, with the financing deducted within a single asset caption.
The Liquidity Index measures a company's liquidity by calculating the number of days it would take for current assets to be converted into cash, providing insights into financial stability and operational efficiency.
Long-term debtors refer to individuals or entities that owe money to an organization but are not expected to make payment within the near future, typically beyond a 12-month period.
Long-term liabilities are financial obligations of a company that are due more than one year in the future. Examples include bonds payable, long-term loans, and lease obligations.
Machinery and plant refer to various types of equipment and fixtures used for manufacturing and industrial purposes. These assets are key components in business operations, typically classified under fixed assets on the balance sheet.
Marketable securities are assets on a corporation's balance sheet that can be readily converted into cash, reflecting their liquidity. They include government securities, banker's acceptances, and commercial paper.
The master budget is the final coordinated overall budget for an organization, which includes functional budgets, the capital budget, the cash-flow budget, and the budgeted profit and loss account and balance sheet for a specific period.
Negative Net Worth, also referred to as Deficit Net Worth, occurs when an individual's or a company's liabilities exceed their assets. This financial condition indicates that the value of obligations outweighs the owned resources.
Net Book Value (NBV) represents the value at which an asset appears in the books of an organization, accounting for depreciation since purchase or revaluation.
Net worth represents the total value of an organization after deducting its liabilities from its assets. This financial metric is crucial for assessing the financial health and stability of an entity.
An accounting method where one amount is deducted from another. It helps to reflect a more accurate financial position by deducting provisions or allowances from gross figures.
A noncurrent asset is an asset that is not expected to be converted into cash, sold, or exchanged within the normal operating cycle of the firm, usually one year. Examples include fixed assets such as real estate, machinery, and other equipment.
Off the balance sheet (OBS) refers to financial transactions where the property involved does not appear on the company’s balance sheet. This technique is often used to keep debt-to-equity ratios lower and manage financial reporting more favorably.
Operating ratios are financial metrics used to measure and analyze a company's operational efficiency by relating various income and expense figures from the profit and loss statement to each other and to balance sheet figures.
Other Comprehensive Income (OCI) represents gains and losses that are not included in net income on the income statement but are reported in the equity section of the balance sheet.
Owners' Equity refers to the beneficial interest in an organization held by its owners. It is the sum of its total assets less its total liabilities.
