Above-the-line entries refer to those listed above the horizontal line on a company's profit and loss account, reflecting normal business activities. This accounting practice is critical for understanding how a company's earnings are generated.
A comprehensive document detailing a business's accounting policies and procedures, often including account codes and a chart of accounts. Key aspects include methods for treating depreciation and other asset-related processes.
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.
The actuarial method is a technique employed in accounting, particularly lease and pension accounting, to allocate rentals and determine charges using principles of compound interest.
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.
The All-Inclusive Income Concept is a principle used in accounting to include all items of profit and loss in a statement to arrive at a figure of earnings. It is commonly used in the UK and the USA for a comprehensive view of an enterprise's financial performance.
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.
Appraisal is a method of depreciation that values an asset at the beginning of an accounting period and again at the end. Any diminution in value is charged as an expense to the profit and loss account.
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.
Bad debts recovered are those debts that were previously classified as bad and written off but later recovered either in part or in full. These recovered debts should be recorded back into the profit and loss account of the period, or relevant provisions.
Denotes entries printed below the horizontal line on a company's profit and loss account, indicating how the profit is distributed or where funds to finance the loss originate. It contrasts with above-the-line entries, which focus on ongoing operational activities.
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.
Carriage outwards refers to the delivery costs incurred when a business sends goods to customers. These costs are accounted for as an expense in the profit and loss account.
Final entries made at the end of an accounting period to close off the income and expense ledgers to the profit and loss account.
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.
A capital reserve created to ensure that funds are available for the redemption of debentures at maturity, limiting profits available for distribution but not providing actual redemption funds directly.
The percentage rate used in various methods of depreciation to determine the amount of depreciation that should be written off a fixed asset and charged against income or the profit and loss account.
A discount granted by a company to a client, for example for a bulk purchase or a prompt payment. It is shown as an expense in the profit and loss account.
A discount granted to a supplier for bulk purchases or prompt payment, usually recorded as a credit in the profit and loss account, reducing the overall expense.
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.
Doubtful debt refers to an amount owed to an organization by a debtor that is unlikely to be received. Organizations often create a provision for doubtful debts based on specific debts or general assumptions about debtor reliability.
A drawing account is an account within a proprietorship or partnership used to track the withdrawals made by an owner. Typically closed at year-end, its balance is transferred to the owner's equity account or profit and loss account.
EBIT, an abbreviation for Earnings Before Interest and Taxes, represents a company's profit as indicated on the profit and loss account before the deduction of interest and tax expenses. This figure is instrumental in calculating multiple financial ratios and facilitates more straightforward comparisons between companies.
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.
An expense account is crucial for recording the costs incurred by an organization, documenting specific expenditure headings before transferring totals to the profit and loss account. It can also refer to the allocated funds certain staff members can use for necessary expenditures.
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.
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.
A form of accounting in which assets are measured at their current market price, recognizing all changes in value within the profit and loss account, differing from traditional historical-cost accounting by recording unrealized gains.
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.
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.
A government grant is a financial award provided by a government body to an organization to support activities that are deemed socially or economically beneficial. These grants can be either revenue-based or capital-based and have specific accounting treatments according to Financial Reporting Standards.
A method of valuing units of stock or other assets based on the original cost incurred by the organization, charging the original cost against profits through various means such as FIFO or average cost, and reporting depreciation based on the original cost.
The income statement, also known as a profit and loss account, is a financial document that provides a summary of a company's revenues, expenses, and profits/losses over a specific period. Under both International Accounting Standards (IAS) and the Financial Reporting Standard Applicable in the UK and Republic of Ireland (FRS 102), the income statement plays a pivotal role in financial reporting.
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.
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.
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.
The Profit and Loss (P & L) account is a financial statement summarizing the revenues, costs, and expenses incurred during a specific period, typically a fiscal quarter or year.
The accounting concept that ensures the financial statements of a company are produced at regular intervals, providing consistency, comparability, and regular communication to stakeholders.
A permanent diminution in value refers to a fall in the value of an asset that is unlikely to be reversed over time. This reduction must be reflected in the balance sheet and necessitates adjustments through the profit and loss account.
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.
A Profit and Loss Appropriation Account is a financial statement showing how the net profits or losses have been dealt with in a given period.
Accounting records that are sufficient to show and explain an organization's transactions, enabling a company to disclose its financial position accurately and comply with statutory regulations.
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.
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.
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.
A transaction that is generally of a short-term nature and is only expected to benefit the current period. Revenue transactions appear in the profit and loss account of the period.
A financial statement showing the extent to which shareholders' equity has increased or decreased from all the gains and losses recognized during a specific period, excluding transactions with shareholders.
A method of translating foreign currency transactions by utilizing the exchange rate on the transaction date. Generally used for items not classified as foreign currency monetary items or those not measured at fair value.
Total comprehensive income is the sum of net profit shown in the profit and loss account (income statement) along with any other comprehensive income. Under the Financial Reporting Standard Applicable in the UK and Republic of Ireland (Section 5), it should be presented as part of a statement of comprehensive income (statement of total recognized gains and losses).
A trading account, crucial in financial accounting, involves comparing the cost of sales with the revenue generated to determine the gross profit within a profit and loss account.
A trial balance is a bookkeeping worksheet in which the balances of all ledgers are compiled into debit and credit columns. This process helps ensure the accuracy of the company’s financial records and is a critical step in the accounting cycle.
The presentation of a financial statement where debits and credits are displayed one above the other.
An in-depth exploration of the WorldCom scandal, one of the largest accounting fraud cases in history, which involved significant financial manipulations leading to inflated profits and assets.
The act of reducing the value of an asset or a debt to zero in a balance sheet, often due to obsolescence, expiration, or uncollectibility.
