A defining moment – some of the key terms of introductory accounting explained

These are my top 20 definitions for you to revise based upon the exam papers of the last few years. Each definition is usually worth 2 or possibly 3 marks. Exam Tip: Remember to apply your knowledge to questions & quote figures, details from the questions or give examples to fully demonstrate your knowledge.

Sales Revenue - The amount of income from selling goods and/or services usually calculated by multiplying quantity sold x selling price

Cost of Sales - The cost of goods actually sold in the current accounting period after adjusting purchases with opening and closing inventory, returns and carriage in

Gross Profit - The amount of profit after taking any direct expenses away from (primary) income of a business

Accrued Expenses - Business costs which are due but unpaid at the end of the current accounting period even though they have been used/consumed. These will increase expenses in the income statement and increase current liabilities in the balance sheet

Prepaid Expenses - An expense paid for in this accounting period even though it will not be used/consumed until the next accounting period. Will reduce expenses in the income statement and increase current assets in the balance sheet

Depreciation - Writing off the expense of a non-current asset over its expected lifetime in line with the accruals concept

Non-Current Assets - An asset purchased which is not for resale and was bought to generate future profits for a business. Usually kept for over 12 months e.g. Buildings

Current Assets - An asset which is expected to be turned into cash within the next 12 months e.g. Inventory

Current Liabilities - The amount of liabilities which need to be paid within the next 12 months e.g. Trade Payables

Non-Current Liabilities - The amount of liabilities which need to be paid back in the long term (i.e. over 12 months) for example Mortgage

Net Current Assets - This shows how much funds a firm has after using its short term assets (Current Assets) to pay off its short term debts (Current Liabilities). A negative figure indicates cash flow problems.

Capital – the amount of the owner’s investment which will be equal to assets minus liabilities

Unpresented Cheques - A cheque written and entered in the cash book that has not yet been processed by the bank and therefore not shown on the bank statement

Outstanding Lodgement - Funds that have been debited in the cash book but have not yet been added to our bank account and therefore not shown on the bank statement

Dishonoured Cheque - A cheque on which payment has been refused payment by the bank usually due to insufficient funds.

Standing Order - A business instructs their bank to make a regular and fixed payment usually in exchange for goods/services provided

Direct Debit – Where authority has been given to a 3^rd party (name) to take funds from their account. The amount may vary or be fixed and dates may vary or be fixed

Cheque – A cheque (quote the number if possible) is given to a party (you/them) who will then present this to the bank for payment.

Credit Transfer – Funds have been transferred electronically from one party (name them) into our bank account

Bad Debt – a trade receivable account which is not expected to be paid. We therefore reduce the trade receivables and write it off as a bad debt expense.

Remember to apply it to the question wherever possible!

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