Katrin Costa, BAS Agent Bookkeeping, Processing, Budgets, ATO Liabilities, Due Dates Glossary of Terms

Glossary of Terms

Cairns Precision Bookkeeping in the field of financial record keeping, so not surprisingly we know “the lingo”.

Over the years, we’ve found many of our clients are confused by unfamiliar accounting terminology.

For the benefit of clients and other visitors to this website, here’s a select glossary covering some key bookkeeping and accountancy terms you may encounter from time to time…

A

Accountant – A Person qualified in the preparation and reporting of financial transactions (see CPA)

Accounting – Recording and reporting of financial transactions, including the origination of the transaction, its recognition, processing, and summarised  in the Financial Statements

Account Payable – Amount owed to a Creditor/Supplier for delivered goods or providing services

Account Receivable – Monies owed to a Debtor for an uncollected amount, generally from a completed transaction of sales or services provided to a Customer or Client

Accrual Basis –  Is a Method of Accounting that recognises Revenue when earned, instead of when collected. Expenses are recognized when incurred as well rather than when paid.

Accumulated Depreciation – Total Depreciation pertaining to an Asset or group of assets from the time the assets were placed in services until the date of the Financial Statement or tax return.

Amortization – Gradual and periodic reduction or is the process of decreasing, or accounting of any amount or asset over a period,  the cost of an intangible asset

ASIC – Australian Securities and Investments Commission

Auditor – A person who audits financial accounts and records kept by others

B

Bad Debt – All or portion of an Account, loan, or outstanding receivable considered to be non collectible or possibly a write off

Balance – The sum of debit entries minus the sum of credit entries in an account

Balance Sheet – Usually accompanied by appropriate disclosures that describe the basis of accounting method used in its preparation and presentation of a specified date the entity’s assets, liabilities and the equity of its owners

Bankruptcy – Legal process, governed by federal statute, whereby the debts of an insolvent person are liquidated after being satisfied to the greatest extent possible by the Debtors Assets

BAS – Business Activity Statement

Board of Directors – Individuals responsible for overseeing the affairs of an entity, including the election of its officers. The board of a corporation that issues stock is elected by stockholders

Budget – Is a quantified financial plan for a forth coming accounting period, a plan that serves as an estimate of future cost, revenues or both.

C

Capital Gain – Portion of the total gain recognised on the sale or exchange of a non inventory asset which is not taxed as ordinary income.

Capital Gains Tax (CGT) – is the tax you pay on a capital gain. It is not a separate tax, just part of your income tax. The most common way you make a capital gain (or capital loss) is by selling assets such as real estate, shares or managed fund investments.

Compound Interest– arises when, interest is added to the principal, and from that moment on, the interest that has been added also earns interest which increases the investment incrementally

Conservatism – An investment strategy targeting a long-term capital appreciation with low risk; moderate; cautious approach; show possible losses but wait for actual profits

Consistency – Accounting postulate which stipulates that, except as otherwise noted in the Financial Statement, the same accounting policies and procedures have been followed from period to period by an organization in the preparation and presentation of its financial statements.

Consolidated Financial Statements – Combined Financial Statements of a parent company and one or more of its subsidiaries as one economic unit.

Consolidation – Is a business combination of two or more entities that occurs when the entities transfer all of their net assets to a new entity created for that purpose

Contra Account – is considered to be an offset to another account. Generally established to reduce the other account to amounts that can be collected

CPA – Certified Public Accountant

Credit Agreement – Arrangement in which one entity borrows or takes possession in the present by promising to pay in the future.

Credit Balance – The remaining amount after one of a series of bookkeeping entries, this amount can be representing a liability or income to the entity

Creditor – Is a party; a person, organization, company, or government, which has a claim on the services of a second party, it is a person or institution to whom money is owed to

Current Asset – Is one can reasonably expect to convert into cash, sell, or consume in operations within a single operating cycle, or within a year if more than one cycle is completed each year.

Current Liability – Is a company’s debts or obligations, which are due within one year. Current liabilities appear on the company’s balance sheet and include short term debt, accounts payable, accrued liabilities and other debts.

Current Value – Is the  value of an asset at the present time, as compared with the asset’s historical cost, the amount determined by discounting the future revenue stream of an asset using the compound interest principle

D

Debit – an item of debt recoded in the books

Debt – an amount owed to

Debtor – entity owing money to someone else

Default – occurs when financial obligations are not met

Disclosure – making unknown facts known

Discretionary Trust – is where the Trustee has the legal right and is authorised to decide what investments and over what time frame the investment will be held

Dividends – Corporations who pay a certain amount to their earnings to the investor

Depreciation – the decrease in value of assets, which is the fair value depreciation, and the allocation of the cost of assets to periods in which the assets are used under the matching principle for calculation the depreciation

E

Earning Assets – an income producing investment which had been purchased by the business, organization or individual, such include rental properties, dividends, other interest

Earning Potential – possible upside in earnings generated by each share outstanding of a particular stock

Equivalent – equal or interchangeable in value, quantity, significance or having the same or a similar effect or meaning; having a particular property in common

F

Fair Value – estimated value of all assets and liabilities of an acquired company used to consolidate the financial statements of both companies

Fact -The usual test for a statement of fact is verifiability, that is whether it can be proven to correspond to experience. Standard reference works are often used to check facts. Scientific facts are verified by repeatable experiments; is something that has really occurred or is actually the case

Fee Income – revenue taken by financial institutions; generated from account-related charges to customers i.e. overdraft charges, penalties for late fees or non- sufficient funds fees

Fibonacci Numbers/line – Leonardo Fibonacci was an Italian mathematician, he was born in the 12th century, today known as “Fibonacci numbers” were his discovery                                                                        e.g. 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, etc.

G

Gain – an asset or property which had an increase in value, a gain which arose out of the purchase price and the current value of the asset

Gapping – is a trading strategy in which the participant borrows short and lends long, the lender achieves an overall better interest rate as short rates are generally speaking lower than long rates

Garbatrage –  is an increase in price and trading volume in a specific sector of the economy that occurs as a result of a recent takeover, the sentiment towards the sector initiates a change

H

Hedge Fund– is an aggressively managed portfolio of investments that uses advanced investment strategies, such as leveraged, long, short and derivative positions in both domestic and international markets, with the purpose of generating high returns

Hire Purchase

For a hire purchase agreement entered into on or after 1 July 2012

All components of the supply made under a hire purchase agreement entered into on or after 1 July 2012 are taxable regardless of whether the credit component is separately disclosed. Any associated fees and charges, such as late payment fees incurred under the terms of the hire purchase arrangement, will also be subject to GST

I

IAS – Installment Activity Statement

IBSM – Integrated Business System Manager

Impaired Asset – a company asset that is worth less on the market than the value listed on the company’s balance sheet, resulting gin a write-down of that same asset account to the stated market price

Intangible Asset – Unable to be touched or grasped; not having physical presence: “cyberspace or anything else so intangible”; no physical existence such as trademarks and patents

J

Joint Venture – when numerous parties agree to develop a business agreement/idea in which a new entity and new assets are contributing towards creating new business, for an agreed time frame

Judgement – A court order to the loser of a lawsuit to pay the winner a specified sum of money. If someone has been harmed in some way, they will seek to resolve the dispute in court and collect damages by filing a lawsuit. Judgments are usually monetary, but can also be non-monetary

Junior Accountant – An entry-level position in an accounting department. A college degree in accounting is usually a prerequisite for this position. Other desirable attributes include mathematical aptitude and analytical ability

K

Karl Marx – A philosopher and economist famous for his ideas about capitalism and communism. Born in Prussia in 1818, Marx, in conjunction with Friedrich Engels, published “The Communist Manifesto” in 1848, which explains history as a class struggle between workers and owners of capital and sees a classless, communist society as an inevitable result of this struggle. Later in his life he wrote “Das Kapital,” which discussed the labor theory of value.

Kellogg School O Management – business school at Northwestern University. The Kellogg School of Management provides both full- and part-time programs as well as an executive curriculum at both the master’s and doctorate levels. The school has partnerships with learning institutions in several other countries, including China, India, Hong Kong, Israel and Germany

Key Employee – is an employee with a major ownership and/or decision-making role in the business. Key employees are usually highly compensated. They may also receive special benefits as an incentive both to join the company and to stay with the company

Key Rate – is a specific interest rate that determines bank lending rates and the cost of credit for borrowers. The two key interest rates in the United States are the discount rate and the Federal Funds rate

L

Land Value – is the value of a piece of property, including both the value of the land itself as well as any improvements that have been made to it. Land values increase when demand for land exceeds the supply of available land, or if a particular piece of land has intrinsic value greater than neighboring areas (e.g. oil can be found on the land)

Legal Liability – the legal bound obligation to pay debts

Liability – is a hindrance or places an individual or group in a disadvantage, or someone who is responsible for something, or a situation that increases the chance of something occurring (i.e. it is a cause)

 

M

Merger – is an aspect of corporate strategy, corporate finance and managment dealing with the buying, selling, dividing and combining of different companies and similar entitiesthat can help an enterprise grow rapidly in its sector or location of origin, or a new field or new location, without creating a subsidiary, other child entity or using a joint venture.

 

N

 

O

 

P

Public Liability – part of the law which focuses on civil wrong doings

 

Q

 

R

 

S

Subsidiaries – Serving to assist or supplement; auxiliary.  is secondary in importance or subordinateor can be relating to, or of the nature of a subsidy.

 

T

Tangible Asset – include both; fixed assets, such as machinery, buildings and land, and current assets, such as inventory. 

 

U

 

V

 

W

 

X

Xero – Cloud based accounting program

 

Z

Zero-sum game – An occurrence in which one participant’s gain is resulting solely from another participant’s equivalent loss. The net change in total wealth among participants is zero; the wealth is just shifted from one to another.

 

Disclaimer: Part of the above information has been taken from http://www.investopedia.com/dictionary/