Non-adjusting events are occurrences that take place between the balance-sheet date and the approval of financial statements by the board of directors. These events do not relate to conditions that existed at the balance-sheet date but necessitate disclosure if they are material to the financial statements.
Nonprofit accounting encompasses the accounting policies, procedures, and techniques employed by nonprofit organizations. It is different for governmental units compared to nongovernmental units such as colleges, hospitals, voluntary health and welfare organizations, and charities.
An organization that provides goods or services with a policy that no individual or group will share in any profits; where a surplus is generated, this must be used to further the goals of the organization. Examples are charities, political organizations, housing associations, and educational institutions.
Notes to the accounts, also known as notes to financial statements, provide detailed information and explanations that support and complement a company's financial statements. These notes help users understand and interpret the financial data and the company's overall performance and financial health.
Obsolescence refers to the decline in the value of an asset due to its age or reduced usefulness caused by technological advancements or market changes.
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.
An operating lease is a lease agreement that is not a finance lease, in which the lessor retains significant risks and rewards of ownership.
An operating statement is a financial report provided to management, detailing the performance of specific areas of operation over a selected budget period. It includes production levels, costs incurred, and revenues generated, and is compared with budgeted amounts and previous performances.
Any activities undertaken by an organization as part of its business, along with related undertakings, incidental activities, and arising events, typically included within routine operations.
Organization costs are the expenditures a business incurs during its formation. These costs include legal fees, business filing fees, and franchise acquisition costs. Capitalization and amortization of organization costs are important aspects for financial and tax reporting.
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.
A detailed explanation of Other Comprehensive Income (OCI), including its types, examples, related terms, and resources for further study.
The term 'over-and-short' is frequently used in accounting to indicate discrepancies between recorded amounts and actual amounts, usually involving cash or inventory.
Overheads, also known as burden in the USA, refer to the ongoing business expenses not directly attributed to creating a product or service. Understanding overheads is crucial for accurate financial reporting and cost management.
Paid-in capital represents the amount of money a company has received from shareholders in exchange for shares of stock, encompassing the funds received from stock issuance, premiums or discounts on stocks sold, stock donations, and the resale of treasury stock.
Penalties for repeated errors are imposed to discourage consistent inaccuracies in tax filings or financial reports. These penalties serve as a deterrent for habitual mistakes and ensure compliance with legal standards.
Period expenses, also known as period costs, are amounts based on the passage of time and are considered to occur within a specific accounting period, such as rent on a building.
Periodic stocktaking, also known as periodic inventory, refers to the counting or evaluating of stock held by an organization at the end of an accounting period. This process involves recording the physical number of goods on hand and is essential for determining accurate inventory levels and ensuring proper financial reporting.
Donations for political or charitable purposes made by an organization. Under the Companies Act, a disclosure of such a donation has to be made by companies that are not wholly owned subsidiaries and have given in aggregate more than £200 in the financial year.
Post-balance-sheet events, also known as subsequent events, are events or transactions that occur after the balance sheet date but before the financial statements are issued or available to be issued. These events sometimes impact the financial reporting and disclosures of the entity.
A preliminary announcement is an early notification of a company's yearly profit or loss, primarily mandated for listed companies under the London Stock Exchange Regulations. This announcement usually includes summarized profit and loss accounts and can extend to balance sheets.
Prepaid expenses refer to amounts that are paid prior to the period they cover, such as insurance and rent. These expenses are assets on the balance sheet and become tax deductible during the appropriate period.
A prior period adjustment is an accounting term used to describe a correction to an error in previously issued financial statements. These adjustments are necessary to accurately reflect the financial status of a company or organization.
Prior service cost refers to the obligations a company incurs for employee benefits under a pension plan related to service provided by the employee before a specific date.
Pro-forma financial statements are financial reports prepared in advance, containing estimates and projections to inform and guide decision-making.
Understanding the distinctions between professional income and trade income, especially in the context of taxation, essential for accurate financial reporting.
A Professional Valuation is an assessment of the value of an asset by a professionally qualified individual, utilized in a balance sheet or prospectus of a company.
A Profit and Loss Account is a financial statement that summarizes the revenues, costs, and expenses incurred during a specific period, leading to a company's net profit or loss.
Detailed examination of the various formats for profit and loss accounts as prescribed by the Companies Act, including required disclosures and considerations for international comparability.
The actuarial present value as of a specific date of all benefits attributed by the pension benefit formula to employee service performed before that date. It is measured using assumptions as to future compensation levels if the pension benefit formula is based on those future salary levels (e.g., pay-related, final-pay).
A projected financial statement, often known as a pro forma financial statement, is a financial report that outlines estimates of future revenues, expenses, and profits based on historical data, expected market trends, and planned business activities.
Property, Plant, and Equipment (PP&E) are tangible fixed assets used in operating a business. This category includes land, buildings, machinery, fixtures, and other types of equipment that are expected to be used over multiple accounting periods.
The prudence concept is an accounting principle that mandates a realistic view of business activity, emphasizing the inclusion of anticipated revenues and profits in the profit and loss account only upon realization.
A public benefit entity (PBE), also known as a not-for-profit organization, refers to an entity whose primary objective is to provide goods or services for community or societal benefits rather than for profit.
The Public Company Accounting Oversight Board (PCAOB) is a nonprofit corporation established by Congress to oversee the audits of public companies in order to protect investors and the public interest by promoting informative, accurate, and independent audit reports.
PCAOB oversees the conduct of auditors of public companies to ensure accurate and reliable financial reporting, enhancing investor confidence in the capital markets.
Purchase accounting, also known as acquisition accounting, is the method used in financial accounting to consolidate the financial statements of two companies when one company acquires another. It involves revaluing the acquired company's assets and liabilities to fair value and recognizing goodwill, if any, in the consolidated financial statements.
Preceding-Year Basis (PYB) is an accounting method used for reporting financial activities of one year in comparison with the preceding year. This approach allows businesses to analyze and compare financial performance over consecutive fiscal years.
The qualitative characteristics of accounting information ensure that financial reports are as useful and accurate as possible, governed by various standards and frameworks in different regions.
The term 'quarterly' commonly refers to events, processes, or publications occurring every three months, but it holds special significance in the contexts of business, finance, and securities.
A quasi-subsidiary is a company, trust, partnership, or other arrangement that does not fulfill the definition of a subsidiary undertaking but is directly or indirectly controlled by the reporting entity and provides similar benefits.
A realized gain represents the profit earned from the sale of an asset, calculated as the difference between the asset's selling price and its original purchase price. This gain, although realized, is not always immediately subject to taxation.
The recoverable amount represents the value of an asset that is treated as the greatest of its net realizable value and its value in use.
A related party is any person or entity that has a significant influence on a reporting entity, as defined in financial reporting standards. This influence does not necessarily equate to control. Proper identification and disclosure of related parties are crucial for financial transparency.
A related party transaction is an interaction between two parties where one party can exercise control or significant influence over the operating policies of the other, resulting from a special relationship such as between a business enterprise and its principal owners.
Related Party Transactions involve the transfer of assets, liabilities, or the performance of services between related parties, requiring specific disclosures and governance to ensure transparency and fairness.
The accounting principle that ensures financial information provided by a company is accurate, neutral, and free from material error, making it a faithful representation of the company's financial status.
A business segment for which information is required to be disclosed in financial reports, as dictated by accounting standards and regulations.
The currency used by an organization to present its financial statements. It serves as the basis for the organization's financial reporting and helps standardize financial data across different entities and regions.
The reporting date is the specific point in time at which an organization closes its books for an accounting period, summarizing financial activities over that period for reporting purposes.
A reporting period is the specific span of time covered by a financial statement. This time frame is crucial as it provides stakeholders with the necessary context to evaluate a company’s financial performance and position.
Research and development (R&D) costs involve expenditures towards innovative processes or product developments. Distinguished by Financial Reporting Standards, R&D costs can either be expensed immediately or capitalized to create intangible assets.
Reserve accounting refers to the allocation of funds to reserves rather than processing them through the profit and loss account. This method might be used in specific instances, such as making prior-period adjustments.
Reserve for Depreciation, also known as Accumulated Depreciation, is an accounting term used to describe the total amount of depreciation that has been expensed against an asset's value over time. It reflects the reduction in an asset’s book value due to wear and tear, age, or obsolescence.
The accrual of bad-debt expense based on the projected worthlessness of receivables or prior experience with uncollectible receivables. The reserve method is permitted only for some small banks and thrift institutions with assets of $500 million or less, while other accrual taxpayers must use the specific charge-off method.
An account used to indicate that a portion of retained earnings is not available for dividends but is earmarked for specific purposes.
Revaluation involves increasing the value of an asset to reflect its current market value, where the asset cost account is debited and the revaluation reserve is credited.
Revaluation of Fixed Assets refers to the process of re-assessing the value of a company's capital assets, either because they have increased in value or due to inflation rendering balance-sheet values unrealistic. This accounting practice is crucial for presenting accurate financial statements.
Revenue and Expense Accounts are fundamental components in accounting that track the income and expenditures of a business over a specific period. These accounts help determine the net profit or loss and are essential for financial reporting and analysis.
Revenue expenditure refers to the costs that are immediately written off to the income statement in the accounting period in which they are incurred. These expenditures are associated with the revenue generated within the same period.
The process of recording revenue in the accounts of an organization in the appropriate accounting period is known as revenue recognition. This principle determines the specific conditions under which income becomes realized as revenue.
A reverse premium, also known as a lease incentive, is a cash payment made by the lessor to the lessee to encourage the latter to enter into a lease agreement.
An in-depth overview of Sale and Repurchase Agreement (often referred to as repurchase agreement or repo) including definition, examples, FAQs, related terms, resources, and suggested readings.
A Sales Day Book is a specialized subsidiary ledger used by businesses to record all the credit sales transactions before they are posted to the general ledger. This helps businesses maintain a detailed record of their sales and enhances the accuracy of their financial reporting.
A committee led by Sir Francis Sandilands, established in 1975 by the UK Government to explore the appropriate methodologies for accounting the effects of inflation in company financial statements.
Legislation introduced in response to major corporate financial scandals to enhance corporate transparency and accountability.
The Sarbanes-Oxley Act of 2002, often referred to as Sarbox or SOX, is a landmark piece of U.S. legislation designed to enhance corporate governance, financial transparency, and auditing standards in response to a series of high-profile corporate scandals, including the infamous Enron scandal.
An abbreviation with differing definitions in the United Kingdom and the United States, crucial for understanding standardized auditing practices.
Scorekeeping is a crucial aspect of management accounting where the performance of managers and operators is monitored, recorded, and reported to relevant levels of management for evaluation and decision-making.
Securitization is the process of turning assets into securities by packaging asset cash flows into tradable financial instruments. It involves an originator, a special purpose vehicle, and investors.
Segment reporting is the presentation of financial information in an entity's annual report for different operational segments that meet specific criteria, ensuring transparency and insight into diverse business activities.
SG&A expenses are essential for the daily operations of a business but do not include production costs. These expenses are tracked on a company's profit and loss statement and cover a variety of areas such as sales salaries, advertising, office expenses, and more.
The Separate-Entity Concept is a fundamental principle in accounting that treats a business as distinct and separate from its owners and other entities, ensuring clear financial accountability and reporting.
A directive approved by the European Commission in 1983 and implemented in the UK by the Companies Act 1989, which governs consolidated financial statements prepared by corporate groups. Superseded by the Company Reporting Directive of 2006.
The Statement of Financial Accounting Concepts (SFAC) is a set of guidelines that provides a framework for the creation, presentation, and interpretation of financial reports prepared by the Financial Accounting Standards Board (FASB).
A share-based payment transaction involves the consideration for goods or services paid in equity instruments (like shares or share options) or payment based on their value. These can be equity-settled, cash-settled, or offer a choice between equity and cash, as per certain financial standards.
The Specific Identification inventory method considers the sale and cost of each item specifically. It is particularly useful for investors managing securities acquired at different costs, providing flexibility in reporting taxable income.
The Standard Interpretations Committee (SIC), now known as the International Financial Reporting Interpretations Committee (IFRIC), was established by the International Accounting Standards Committee (IASC) to provide interpretations of International Financial Reporting Standards (IFRS). These interpretations aimed to standardize the application of accounting standards across various regions and industries.
The Standard Interpretations Committee (SIC), also known as the IFRIC (International Financial Reporting Interpretations Committee), develops interpretations of accounting standards to address issues that are not specifically covered in International Financial Reporting Standards (IFRS).
The Standards Advisory Council, now known as the International Financial Reporting Standards (IFRS) Advisory Council, serves as a forum for organizations to advise the International Accounting Standards Board (IASB) on various priorities in the standard-setting process.
Stated value is an assigned value given to a corporation's stock for accounting purposes in lieu of par value.
A financial statement that provides detailed information about a company's cash inflows and outflows during a specific period. It is essential for assessing the liquidity, flexibility, and overall financial health of an organization.
A Statement of Change in Financial Position is a financial report that provides detailed information about a company's sources and applications of funds over a specific period.
The Statement of Changes in Equity (SOCE) is a financial document that outlines the changes in shareholders' equity over a reporting period. It highlights changes due to transactions with owners, profits, losses, and other comprehensive income.
A Statement of Changes in Financial Position details the sources and uses of an entity's financial resources during a specific period. It is commonly referred to as a Cash-Flow Statement.
The statement of comprehensive income, as defined by the IFRS and applicable FRS in the UK and Republic of Ireland, presents a complete picture of a company's financial performance beyond the traditional income statement.
A detailed report outlining the resources, liabilities, and capital accounts of a bank or financial institution as well as a summary of the status of assets, liabilities, and equity of a person or business organization.
The Statement of Financial Accounting Concepts (SFAC) is a series of reports issued by the Financial Accounting Standards Board (FASB) to outline the foundational concepts underpinning financial accounting and reporting in the United States.
The Statement of Financial Accounting Standards (SFAS) was a formal set of authoritative rules and guidelines issued by the Financial Accounting Standards Board (FASB) that governed accounting practices in the United States until 2009.
Statements detailing the financial accounting and reporting requirements established by the Financial Accounting Standards Board (FASB), forming part of the generally accepted accounting principles (GAAP) in the USA.
In accounting, the Statement of Financial Position is an important financial statement that provides a snapshot of a company's financial health at a specific point in time. It is often referred to as a balance sheet and is critical for understanding the assets, liabilities, and equity of a business.
A Statement of Income, also known as a Profit and Loss Statement, is a financial document that summarizes the revenues, costs, and expenses incurred during a specific period, often a fiscal quarter or year.
A financial statement that combines the income statement and the statement of retained earnings, detailing a company's profit, dividends, and equity changes during a period, as outlined by the Financial Reporting Standard Applicable in the UK and Republic of Ireland (FRS 102, Section 6).
A significant document issued by the Accounting Standards Board (ASB) intended to establish a conceptual framework for UK accounting standards, comprising seven key chapters and serving as the cornerstone for the Financial Reporting Standard Applicable in the UK and Republic of Ireland.
An older term for the statement of total recognized gains and losses, now commonly referred to as the statement of comprehensive income, which provides a comprehensive summary of all income and expenses recognized in a financial period.
The Statement of Recommended Practice (SORP) provides guidance on accounting standards and practices for specific industries and sectors.
A non-mandatory statement dealing with accounting topics relevant to a particular industry or sector in the UK, issued by recognized bodies within those industries and approved by the Financial Reporting Council (FRC).
Statements of Standard Accounting Practice (SSAPs) are formal standards for financial reporting and accounting, issued by recognized authorities to ensure consistency, transparency, and adherence to best practices across organizations.
Statements of Standard Accounting Practice (SSAPs) are a series of accounting standards issued by the Accounting Standards Committee between 1971 and 1990. These standards were utilized to ensure consistency and reliability in financial reporting practices.
Statutory accounts are mandatory financial statements that companies must prepare and file annually according to the legal requirements set by governing bodies, such as the Companies Act.
