Comparative figures are provided in financial statements for previous years of an organization, allowing for comparison and sometimes requiring adjustment if accounting policies have changed.
A compensating error is an accounting error that is balanced out by another error, making the errors cancel each other out so that the trial balance does not reveal the mistake.
The presentation of financial statement information by the entity without the accountant's audit or assurance as to conformity with Generally Accepted Accounting Principles (GAAP).
A complete audit is an extensive examination of a company's system of internal controls and the details of its books of account, including subsidiary records and supporting documents.
The principle that the financial information provided by a company should not omit anything material, ensuring the financial statements are comprehensive and useful for decision-making.
A compound journal entry is an accounting entry that affects more than one account, allowing for multiple debits and/or credits in a single transaction. It is commonly used for complex transactions in double-entry bookkeeping.
The Comprehensive Annual Financial Report (CAFR) is the official annual report of a government entity, encompassing a wide array of financial statements and disclosures.
A document setting out the basic accounting concepts informing International Accounting Standards and International Financial Reporting Standards, serving as a guide in the preparation and presentation of financial statements.
Consistency refers to the use of the same accounting procedures by an accounting entity from period to period. Consistently applying similar measurement concepts and procedures for related items within the company's financial statements across different periods simplifies comparisons and projections.
Originally one of the four fundamental accounting concepts, the consistency concept mandates uniform treatment of like items within and across accounting periods, ensuring consistent application of accounting policies.
Consolidated accounts are financial statements that present the assets, liabilities, equity, income, expenses, and cash flows of a parent company and its subsidiaries as if the entire group were a single entity.
A Consolidated Balance Sheet, or Consolidated Statement of Financial Position, summarizes the financial status of a parent company and its subsidiaries as a single economic entity.
A consolidated financial statement brings together all assets, liabilities, and other operating accounts of a parent company and its subsidiaries, providing an integrated view of the entire corporate group’s financial status.
A consolidated income and expenditure account amalgamates the financial information from individual income and expenditure accounts of a group of organizations into a single, comprehensive financial document, adjusted for any necessary consolidation adjustments.
The combined profit of a group of organizations presented in the consolidated profit and loss account. Any intra-group items should be eliminated by consolidation.
The Consolidated Statement of Cash Flows - A Key Financial Document Showing Combined Cash Flow Activities in Entities for Investors
The consolidated statement of financial position, often referred to as the consolidated balance sheet, provides a snapshot of a parent and its subsidiaries’ financial situation at a specific point in time.
The process of combining and adjusting financial information from the individual financial statements of a parent undertaking and its subsidiaries to prepare consolidated financial statements, which present financial information for the group as a single economic entity.
Constant Purchasing Power Accounting (CPPA) involves adjusting financial statements to account for changes in the purchasing power of money over time due to inflation or deflation. This method adjusts for the distortions caused by inflation, ensuring that financial information remains accurate and comparable.
Contingencies in accounting refer to potential gains and losses that are known to exist at the balance-sheet date. These outcomes will only be known after one or more future events occur or do not occur. The way these contingencies are handled in financial statements depends on their nature, and specific accounting standards provide the required guidance.
A contingent loss is an economic loss that may occur in the future depending on the outcome of a specific event, typically related to a contingent liability.
A contra account is an account used in a general ledger to reduce the value of a related account. These entries are used to adhere to accounting principles such as matching and conservatism.
A financial statement that presents income using the marginal costing layout, emphasizing the distinction between variable and fixed costs, and aids in understanding the profitability of products based on contribution margins.
Control refers to the ability of one entity to direct the financial and operating policies of another entity or to obtain the economic benefits from an asset. This term is central to the consolidation of financial statements and the conceptual framework for financial reporting.
Control risk, also known as internal control risk, refers to the possibility that misstatements in a company's financial statements will not be prevented or detected on a timely basis by the internal control system. It is an essential component of audit risk and requires an in-depth assessment during the auditing process.
In accounting, a convention refers to a general agreement, customary practice, or accepted norm that is followed by accountants in the preparation and presentation of financial statements. Accounting conventions aim to provide consistency and comparability across financial statements.
The use of various techniques to assess whether a company is likely to go into liquidation, utilizing models such as Altman's Z score and Argenti's failure model based on financial statements.
A correcting entry is an accounting entry made to fix an error in a previously recorded transaction to ensure that the financial statements accurately reflect the financial position and performance of a business.
The Cost Method is an accounting technique used by a parent company for investments in subsidiary companies, particularly when ownership is less than 20% of the outstanding voting common stock.
An essential metric in accounting, Cost of Goods Sold (COGS) represents the direct costs associated with the production of goods sold by a company. This value is critical in determining the business's gross profit and provides insights into the efficiency and cost management of production processes.
Cost of Goods Sold (COGS) represents the direct costs attributed to the production of goods sold by a company. COGS include the cost of materials, direct labor, and manufacturing overhead.
A term used in accounting to indicate an entry made on the right-hand side of an account ledger, typically representing a decrease in assets or an increase in liabilities and equity.
A credit entry is made on the right-hand side of an account, representing an increase in a liability, revenue, or equity item, or a decrease in an asset or expense.
Current Cash Equivalent (CCE) is a financial concept that refers to the amount of cash or cash-equivalent assets that a company holds, which can be quickly converted into cash without significant loss of value.
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-cost depreciation is a depreciation charge calculated on the current cost of an asset rather than its historical cost. It adjusts for changes in the value of assets over time to ensure financial statements reflect more accurate asset values.
Current-value accounting is a method that values assets based on their current market value, taking into account changes in specific prices rather than general price levels. This technique is essential for providing a more precise and timely reflection of an entity's financial situation.
The date on which an accounting period ends and the accounts of a business are ruled off. It ensures the accuracy and integrity of financial statements, providing a true and fair view of the business's performance and position.
In accounting, a debit (DR) refers to any entry recording an addition to an asset or expense account, or a reduction from a liability or equity account.
A debit balance is the balance of an account where the total debit entries exceed the total credit entries. This typically indicates expenditures or assets on a company's financial statements.
An essential accounting term used in double-entry bookkeeping to record increases in assets or expenses and decreases in liabilities, revenues, or equity.
The declining balance method is a commonly used depreciation technique in accounting where an asset loses value by a fixed percentage each year, reflecting the reality that assets tend to lose more value early in their useful lives.
Deferred income, also known as unearned revenue or deferred revenue, refers to payments received by a business for goods or services that have yet to be delivered or completed.
Deposits in transit are checks or money that have been sent to a bank but have not yet been processed and recorded in the bank account or the monthly statement. These deposits need to be accounted for during bank reconciliation.
A fixed asset that is subject to depreciation to account for its loss in value over time. Depreciation is a systematic process of expensing the cost of tangible assets over their useful lives.
Depreciation refers to the reduction in the value of an asset over time, particularly due to wear and tear. It is utilized in accounting to allocate the cost of a tangible asset over its useful life.
The removal from the balance sheet of assets and liabilities that had previously been recognized in the financial statements of a company.
A disclaimer of opinion is a statement made by an auditor indicating that they could not obtain sufficient evidence to form an opinion on the financial statements due to a significant limitation on the scope of the audit.
Disclosure involves the provision of financial and non-financial information to stakeholders interested in the economic activities of an organization. It is standard practice for transparency and accountability in modern businesses.
Discontinued operations refer to components of a business that have been sold or permanently closed down, and their financial results are separated from continuing operations for reporting purposes.
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.
Dividends in arrears are dividends that have been declared but remain unpaid by the due date. These unpaid dividends must be disclosed in the notes to the financial statements to inform investors and stakeholders.
In the USA, a method of expressing the value of an inventory in monetary values rather than units. Each homogeneous group of inventory items is converted into base-year prices using appropriate price indices. The difference between opening and closing inventories is measured in monetary terms of the change during the accounting period.
An outdated accounting method used to present financial statements in certain public utilities and railways prior to privatization.
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.
The profit a company generates that is available for distribution as dividends to the holders of ordinary shares.
An earnings report is a document that details the financial performance of a publicly held company over a specific period, typically issued monthly or quarterly. It may be an internal report and does not necessarily have to be the annual report.
An ‘Emphasis of Matter’ paragraph was an optional part in an auditor's report, used to draw attention to important matters in financial statements without modifying the overall audit opinion. The practice was revised by the Auditing Practices Board in 1993.
End-of-Year (EOY) represents the completion of the accounting period, typically the fiscal year, where businesses close their books and prepare year-end financial statements and reports.
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.
A qualification by an auditor that indicates the financial statements provide a true and fair view, with exceptions noted due to limitations of scope or disagreements in treatment or disclosure that do not warrant an adverse opinion.
Costs or income that affect a company's profit and loss account and need special disclosure due to their unusual size or incidence, despite falling within ordinary activities.
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.
The extent of the errors that an auditor expects to find when performing substantive tests on a population or a sample of it.
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 external audit is a review of the financial statements or operations of a company conducted by an independent auditor. It serves as a key measure for shareholders to ensure the accuracy and reliability of financial information.
Extraordinary items are costs or income that affect a company's profit and loss account but do not derive from the ordinary activities of the company. These items are unusual, infrequent, and not expected to recur.
The requirement that financial statements should not be misleading. 'Fair presentation' ensures that financial reports provide a true and fair view of the company's financial position in accordance with accounting standards.
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.
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.
The lodging of financial statements of a company with the Registrar of Companies. There are penalties for late filing. Companies that meet the statutory definition of a small company or a medium-sized company are permitted to file abbreviated accounts.
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 financial period, also known as an accounting period, is a specific timeframe within which financial performance is measured and reported for both businesses and individuals. This span is essential for preparing periodic financial statements and evaluating profitability, financial position, and cash flows.
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 Reporting Release (FRR) is a pronouncement made by the Securities and Exchange Commission (SEC) in the United States on matters of financial reporting policy.
The Financial Reporting Review Panel (FRRP) is an operating body of the UK Financial Reporting Council, tasked with investigating departures from the accounting requirements of the Companies Acts and empowered to take legal action to rectify such departures. It focuses on the financial reports of public companies and large private companies.
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.
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.
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 refers to the currency of another country, which is not used in the preparation of an organization’s domestic accounts. This term is important in financial reporting for organizations with international transactions or operations.
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.
A forensic accountant is a professional who applies accounting principles, theories, and discipline to uncover facts and hypotheses relevant to legal disputes. They integrate investigative and accounting skills to analyze financial statements and numbers.
Form 10-K is a comprehensive report filed annually with the Securities and Exchange Commission (SEC) by publicly traded companies in the United States. It includes audited financial statements and additional detailed information that generally exceeds the data offered in the annual report to stockholders.
Form 10-Q is a quarterly report required by the U.S. Securities and Exchange Commission (SEC) that gives a comprehensive overview of the company’s financial performance during the quarter.
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 Framework for the Preparation and Presentation of Financial Statements, also known as the Conceptual Framework for Financial Reporting, provides the foundation for setting accounting standards and deciding how to resolve accounting issues.
FRS 102 sets the standard for accounting principles and practices for small to medium-sized enterprises in the UK and Republic of Ireland, aiming to simplify reporting requirements and enhance financial transparency.
Full consolidation is a method in which 100% of each item of all subsidiary undertakings is incorporated into the consolidated financial statements of a group, even when the parent company does not own 100% of a subsidiary.
Fundamental analysis involves evaluating a company's financial statements, health, competitors, and markets to assess the intrinsic value of its stock. This method helps determine whether a stock is undervalued or overvalued.
A material mistake or omission from the accounts of a business, which is not a recurring adjustment or the correction of an accounting estimate made in a prior period.
A funds flow statement provides a detailed analysis of the changes in a company's working capital during a specific period, detailing the sources and applications of funds.
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.
General purpose financial statements are annual accounts and reports prepared by companies to serve the needs of a wide range of users, often regarded as compromise documents.
Generally Accepted Accounting Principles (GAAP) are a common set of accounting principles, standards, and procedures that companies must follow when they compile their financial statements. GAAP is a combination of authoritative standards set by policy boards and common accounting procedures accepted across the industry.
US GAAP refers to the accounting rules, standards, and concepts that guide US accountants in measuring, recording, and reporting financial transactions.
Generally Accepted Auditing Standards (GAAS) are a set of systematic guidelines used by auditors when conducting audits on companies' financial statements. These standards ensure the accuracy, consistency, and verifiability of auditors' actions and reports.
A fundamental accounting concept that assumes an enterprise will continue its operations for the foreseeable future. It is integral in financial reporting and valuation of assets and liabilities.
Goodwill is an intangible asset reflecting a business's customer connections, reputation, and similar factors. It is the difference between the value of the separable net assets of a business and the total value of the business.
A special reserve used for accounting purposes to handle the write-off of goodwill from the balance sheet. This reserve has a particular debit balance and serves as a tool for managing potential overvaluations in the goodwill asset.
