Glossary

A | B | C | D | E | F | G | H | I | J | K | L | M | N | O | P | Q | R | S | T | U | V | W | X | Y | Z

A

Accounting A discipline dealing with the provision of information for interested parties about an entity’s financial performance, its assets and its liabilities.

Absorption The sharing out of a production cost centre’s total overhead among individual units of production.

Absorption costing An accounting method that attempts to charge all direct costs and all production costs of an entity to specific units of production.

Account An explanation, history, record or report of a specified action, course of event or transaction usually translated into financial terms.

Accountancy The profession of accounting.

Accounting equation A mathematical statement expressed in qualitative terms demonstrating that the assets owned by an entity are financed by a combination of capital contributed by the owners of the entity and by borrowings obtained from various sources.

Accounting profit The difference between revenue income and revenue expenditure.

Accounting rate of return A capital investment appraisal method that expresses the profit earned by a project as a percentage of the capital employed to support that project.

Accounting rule A conventional procedure or practice commonly adopted by the compilers and preparers of financial statements.

Accounting scandal The sharing out of a production cost centre’s total overhead among individual units of production.

Accounting standard A term for an authoritative statement specifying the treatment and disclosure of certain events and transactions in the preparation and publication of accounting statements.

Accounting Standards Board A subsidiary company of the Financial Reporting Council responsible for formulating Financial Reporting Standards.

Accounting Standards Committee A committee set up in 1970 known initially as the Accounting Standards Steering Committee. Its objectives were to define accounting concepts, narrow areas of difference in financial accounting and reporting, and to codify generally accepted best practice. The Committee was disbanded in 1990.

Accounting Standards Steering Committee The original name for the Accounting Standards Committee.

Accounting system A formal procedure that helps an accountant identify the financial performance of an entity, and estimate the amount owing to it and by it, at the end of a defined period of time.

Accounting technician Someone who assists professional accountants in the compilation and presentation of accounting information.

Accretion approach The recognition of revenue in the profit and loss account at the time that the production process takes place.

Accrual An amount owing by an entity for a service provided by another entity in an earlier accounting period due for payment in a subsequent accounting period.

Accumulated depreciation The total amount of depreciation written off a fixed asset over a number of accounting periods.

Accumulated fund The term used to describe the Capital Account of a not-for-profit entity.

Acid test ratio The relationship of current assets (excluding stocks) to current liabilities expressed as a factor.

Acquisition The purchase of or a substantial investment in another entity or one that gives a controlling interest.

Activity based cost management A term sometimes used for activity based management.

Activity based costing A method of absorbing an entity’s total overhead into units of production requiring the identification of the major activities carried out by the entity, isolating the total overhead attached to each of those activities, and then dividing the overhead by the main factor driving that activity.

Activity based management A modern management control technique that aims to identity the cost that causes or drives each main activity undertaken by an entity. The various activities carried out by an entity are first isolated, and the main cause and cost of each activity then determined. This procedure enables a cost driver rate per activity to be calculated.

Administration overhead Those indirect costs that relate to the general management of an entity.

Administrator A person appointed to help prevent a company that is either insolvent or approaching it from being wound up, i.e. closed down.

Advanced manufacturing technology A modern method of production incorporating highly automated and sophisticated computerized design and operational systems.

Allocation The charging of whole items of cost either to a responsibility centre or a cost unit.

Angle of incidence The area formed at the point where the sales revenue curve cuts the total cost curve.

Annual report and accounts A set of documents published annually by a company in accordance with statutory, professional, and capital market requirements.

Apportionment The sharing of costs among responsibility centres or cost units.

Appropriation account An account that records how the net profit earned for a particular accounting period has been shared out.

Asset A tangible or intangible possession or resource owned by an entity.

Associated company A company in which another company owns between 20% and 50% of the voting shares.

Assumption A term sometimes used in accounting to describe an accounting rule or an accounting practice.

Attainable standard A standard set in such a way that some allowance is made for delays and inefficiencies that may occur during the production process.

Audit An examination and assessment of the activities, controls, records and systems that underpin accounting information and reports.

Auditor An individual or an entity that carries out an audit.

Auditors' report A report prepared by an external party confirming or otherwise that the accounts of an entity represent a true and fair view of the state of affairs of the entity at a certain date and of the profit for the year, and that the accounts have been properly prepared in accordance with the appropriate legislation.

Authorized share capital The total amount of share capital permitted to be raised by a company.

Average price A method of valuing materials transferred to production during a particular accounting period using an average price (either based on price alone or on a combination of price and weight) paid for the materials.

Avoidable cost A cost that will not be incurred by taking a particular decision.

Axiom A term sometimes used in accounting to describe an accounting rule or an accounting practice.

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B

Bad debt An amount owed to an entity at the end of an accounting period that is highly unlikely to be received from a debtor.

Balance sheet A statement listing all of the various balances on each account in a book-keeping system when all the accounts have been closed off at the end of a particular accounting period.

Balanced scorecard A comprehensive collection of financial and non-financial data and information supplied to the managers of an entity in order to help them achieve the entity’s objectives.

Bank loan A medium-term form of finance obtained from a commercial bank or other similar financial institution. The loan may be secured on the entity’s assets and the interest charged may be variable.

Bank overdraft A short-term form of finance obtained normally from a commercial bank that allows customers to spend more money than there is their account.

Bankruptcy A formal legal procedure arising when individuals cannot settle their debts as they become due. The procedure allows them to make arrangements with their creditors and thereafter to have a fresh start.

Basic cost standard A standard cost that is left unchanged over a long period of time.

Behavioural consideration The incorporation into decision-making of a consequence that may be influenced by human behaviour.

Better budgeting A term used to describe the attempts being made to bring traditional budgeting techniques up to date in order to complement modern information technology, organizational, managerial, and production developments.

Bill of exchange A negotiable instrument drawn by one party on another party that may be paid immediately or at some future time. The entity holding the bill can either use it to settle a debt due to a third party or cash can be raised by discounting the bill.

Book of account A collection of different types of closely related accounts normally kept within one bound volume.

Book-keeper Someone who is responsible for an entity’s book-keeping system.

Book-keeping A discipline involving the recording of financial events in a series of separate and specified accounts. Such accounts may be kept manually within separate books of account or they may be kept on a computerized basis.

Boundary rule A conventional accounting rule that restricts the range and scope of data collected.

Break-even A term used in marginal costing to describe the point when the contribution an entity has made is equal to the entity’s fixed costs. The break-even point or position may be measured in sales value terms or on activity basis, e.g. the number of units sold or as a percentage of the production capacity.

Break-even char tA graphical representation of the relationship between sales, variable costs and fixed costs depicting the point where the sales revenue equals the total costs, i.e. the break-even position.

Budget A quantitative statement prepared in advance of a defined period of time translated into financial terms as part of a system that replicates an entity’s profit and loss account, balance sheet, and cash flow statement.

Budget period The accounting period for which budgets are prepared.

Budget procedure The process involved in operating a budgeting and budgetary control system.

Budget process The preparation of budgets for individual cost centres or other responsibility cost centres, and the consolidation of them into the master budget.

Budgetary control A means of achieving the financial control of an entity whereby the actual results for a defined period of time are compared with the budgeted results, any differences (or variances) being noted, and some corrective action taken to bring the actual activities back into line with the budgeted ones if such variances need to be dealt with.

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C

Called up share capital The amount of share capital that shareholders had originally promised to contribute that has now been paid up or is due for payment if it is still outstanding.

Capacity ratio A ratio used in standard costing to compare the actual hours worked with the budgeted hours.

Capital An amount of cash or other resources invested by an owner in an entity.

Capital expenditure Expenditure that is likely to provide a benefit for more than one accounting period.

Capital gearing ratio An investment ratio that compares the borrowing made by a company with the finance contributed by the shareholders.

Capital investment The purchase by an entity of a fixed asset or the investment in a long-term project.

Capital investment appraisal An exercise involving a wide-ranging analysis of all the factors to be taken into account when considering an investment in a capital project.

Capital market A broad term covering the arrangements for financial investment, the buying and selling of shares, and the procurement of loans. Such markets may not necessarily have a physical presence, although the buying and selling of shares usually does, e.g. through the Stock Exchange located in the City of London.

Capital reserve An account containing details of income that cannot be paid to shareholders in the form of a dividend.

Cash Physical amounts of money, and current account balances and short-term deposits held by a financial institution.

Cash flow accounting A method of accounting that requires transactions to be entered in the books of account and entered in the financial statements only when the cash has either been paid or received.

Cash flow statement One of the main financial statements prepared for an entity showing where the cash has come from and where it has gone to during a particular accounting period.

Chairman’s statement A non-statutory report by the Chairman of a company published in its annual report and accounts containing a qualitative and quantitative summary of the company’s activities and financial results for the year.

Chartered accountant A member of either the Institute of Chartered Accountants in England and Wales, the Institute of Chartered Accountants in Ireland, or the Institute of Chartered Accountants in Scotland. It should be noted that the other three professional accountancy bodies (the Association of Chartered Certified Accountants, the Chartered Institute of Management Accountants, and the Chartered Institute of Public Finance and Accountancy) all now hold a Royal Charter but it is not customary to refer to their members as Chartered Accountants.

Closure cost The cost of closing down an entity or a part of one.

Commercial paper A short-term form of finance whereby a company draws up in writing acknowledgement of a loan. As the document does not name a specific individual, the individual holding the commercial paper receives the money for it when it matures (usually within nine months).

Commission A book-keeping error caused by entering a particular transaction in the wrong account but in the correct section of the ledger.

Committed cost A cost that will be incurred as a result of taking a particular decision.

Committee on Accounting for Smaller Entities One of the Accounting Standard Board's committees responsible for dealing with the financial accounting and reporting issues of smaller entities.

Company A business entity that has a legal existence separate from those individuals who own and manage it.

Company Law and Reporting Committee A statutory body proposed by the Government that would be responsible for keeping company law under review.

Comparability An accounting rule that requires accounting information to be presented in such a way that changes in the way that the financial statements are presented in different accounting periods and between different entities are clear to the user.

Compensating A book-keeping error caused by making an error on the debit side of an account and an identical error on the credit side of another (or the same) account.

Complementary product A product closely associated with another product, the purchase of one encouraging consumers to buy the other, e.g. fish and chips.

Comprehensibility An accounting rule that permits accounting information to be presented on the assumption that the users of such information have a reasonable knowledge and understanding, and a willingness to find out something about the way that accounts are prepared and presented.

Concept A term sometimes used in accounting to describe an accounting rule or an accounting practice.

Conceptual framework A theoretical model devised to establish a series of conceptually sound practical accounting rules.

Consistency rule An accounting rule that requires accounting rules to be interpreted similarly at different times and in different periods unless in the meantime the circumstances have changed significantly.

Consolidation A process that involves the putting together all of the financial statements of companies and other undertakings that form part of a group.

Continuous weighted average A method of pricing materials used in production based on the prices paid and the amounts used during a particular accounting period.

Contribution The difference between sales revenue and the total variable cost attributable to those sales.

Contribution analysis An examination of the impact changes in sales revenue, variable costs, fixed costs or profit may have on the contribution made by an entity.

Contribution graph A graphical representation of the relationship between sales, variable costs and fixed costs illustrating the contribution made by the entity.

Control A procedure whereby an entity monitors its actual financial progress against the plans established for it in an early period and the correction of them if this is thought necessary.

Convention A term sometimes used in accounting to describe an accounting rule or an accounting practice.

Convertible unsecured loan stock A form of long-term borrowing whereby lenders may be permitted to convert their loans into ordinary shares of a company.

Corporate governance A voluntary code of conduct that company directors are expected to follow in managing a company. The code contains expectations and provisions that are more extensive than any statutory, professional, or capital market requirements.

Corporate planning Another term for long-term planning.

Corporation tax The term given to the type of taxation charged on the profits of companies.

Cost accounting The compilation, adaptation and reporting of cost data and information for managerial planning, control and decision-making purposes.

Cost book-keeping The process of collecting, recording, extracting and summarizing of cost data for stock valuation and product costing purposes.

Cost centre A clearly defined area of managerial responsibility to which costs that relate to that centre are charged.

Cost classification The break down of costs into separate groups of similar categories and sub-categories.

Cost driver The main factor that causes costs to be incurred by a particular activity.

Cost of goods sold The difference between the opening stock and purchases less any closing stock.

Cost of sales An undefined term used in the Companies Act 1985 usually assumed to be the difference between opening stocks plus purchases less closing stocks, although many companies also include production expenses as a cost of sale. It is also sometimes referred to as the cost of goods sold.

Cost pool The cost of an identifiable and major activity carried out by an entity.

Cost recovery A recognition by an entity that while the marginal cost technique is useful in the short-term, in the long-term the entity must earn sufficient revenue to cover its fixed costs.

Cost-based price The price of goods and services based on the cost of making and selling them. The cost may be defined in several ways, e.g. variable cost, total production cost, total cost, or total cost plus an allowance for profit.

Costing An activity that involves calculating how much it costs to make and sell a product or a service.

Credit A Latin expression used in book-keeping meaning to give, or the value of something given.

Credit sales A medium-term form of finance where the borrower agrees to pay for goods on an instalment basis, the legal ownership of which passes to the buyer when the agreement is signed.

Creditor Someone who is owed money by an entity.

Critical events approach The recognition of revenue in the profit and loss account at the time when the most critical even in the production and selling process has occurred.

Cumulative preference shares Shares issued by a company, the owners of which have some priority on the liquidation of the company. Cumulative preference shareholders are entitled to a fixed level of dividend for a particular accounting period. If the dividend cannot be paid for that period then the dividend accumulates until at such time that it can be paid.

Current asset An amount owed to an entity due to be received within the next twelve months.

Current assets ratio The relationship of current assets to current liabilities normally expressed as a factor.

Current liability An amount owing by an entity due to be paid within the next twelve months.

Customer An individual or an entity that buys goods or services from another entity.

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D

Debenture A long-term loan obtained by a company usually at a fixed rate of interest that may by unsecured or secured on the assets of the company generally or on specific ones.

Debit A Latin expression used in book-keeping meaning to receive, or the value of something received.

Debt An amount owing to an entity.

Debtor Someone who owes money to an entity.

Decision-making The process taken by an individual to determine a particular course of action.

Depreciation A proportion of the cost or revalued amount of a fixed asset charged to the profit and loss account for the benefit provided by that fixed asset during a particular accounting period.

Direct cost A cost that can easily and economically be identified either with an individual unit of production or with a responsibility centre.

Direct expense An expense (other than for labour and materials) that can easily and economically be identified either with an individual unit of production or with a responsibility centre.

Direct labour A labour cost can easily and economically be identified either with an individual unit of production or with a responsibility centre.

Direct labour cost method A method of absorbing overhead into individual units of production in a particular production cost centre, the overhead being divided by that cost centre’s direct labour cost.

Direct labour efficiency variance A standard costing variance showing the difference between the actual hours worked and the hours that should have been worked for the actual production valued at the standard hourly rate.

Direct labour hours method A method of absorbing overhead into individual units of production in a particular production cost centre, the overhead being divided by the direct labour hours worked in that cost centre.

Direct labour rate variance A standard costing variance showing the difference between the actual rate and the standard rate for the actual number of hours worked.

Direct labour total variance A standard costing variance showing the difference between actual direct labour cost and the direct labour hours that should have been worked for the actual number of units produced valued at the standard hourly rate.

Direct material The cost of raw materials and components that can easily and economically be identified either with individual units of production or with a responsibility centre.

Direct materials cost method A method of absorbing overhead into individual units of production in a particular production cost centre, the overhead being divided by that cost centre’s direct material cost.

Direct materials price variance A standard costing variance showing the difference between the actual cost and the standard cost of the actual materials used in production.

Direct materials total variance A standard costing variance showing the difference between the actual cost of materials used in production and the standard quantity of the actual production valued at the standard cost.

Direct materials usage variance A standard costing variance showing the difference between the actual quantity of materials used in production and the standard quantity valued at the standard cost.

Direct method A method of preparing a cash flow statement showing a summary of all the cash receipts and all the cash payments of an entity for a particular period.

Director A senior employee of a company appointed by the shareholders to manage the company on a day-today basis.

Directors' report A report prepared by the directors of a company and included in its annual report and accounts disclosing certain statutory and non-statutory requirements of the company’s activities and financial affairs during the year.

Disclosure The communication of information about an entity’s affairs to interested parties.

Discount The adjustment of future net cash flows to allow for the time value of money. Normally a discount rate is used that reflects what it costs an entity to borrow money or what it expects to earn on its investments.

Discounted payback An estimate of how long it will take before the cost of a capital investment project is covered by the future net cash flows arising from that project discounted at an appropriate rate.

Discounts allowed Cash discounts granted by an entity to customers who settle their debts promptly.

Discounts received Cash discounts given to an entity for the prompt payments of amounts owing to external suppliers.

Disposal The sale of a substantial investment in another entity.

Dividend The amount of profit paid out by a company to its shareholders.

Dividend cover An investment ratio that relates the ordinary dividend paid and payable by a company to the amount of profit for the year available for distribution to ordinary shareholders.

Dividend yield An investment ratio that measures the dividend received from a company against the actual cost of the investment.

Double-entry book-keeping A method of book-keeping that involves entering each transaction twice within the book-keeping system so as to capture the giving and receiving effect of each transaction.

Doubtful debt An amount owing to an entity at the end of an accounting period that is unlikely to be received.

Drawings Cash and other resources taken out of an entity by the owners for their own personal use as their share of the profit.

Dual aspect rule An accounting rule recording data in the books of account that captures the giving and receiving effect of every transaction.

Dysfunctional behaviour Action taken by employees that may be in their own best interest although it is not necessarily in the best interest of their employer.

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E

Earnings per share An investment ratio that relates the amount of profit available for distribution to ordinary shareholders to the number of ordinary shares issued.

Efficiency ratio A ratio that shows how well an entity has been managed during a defined period of time. This term is also used in standard costing to compare the work that has been produced (measured in standard hours) with the actual hours worked.

Elements of cost The composition of costs classified on a direct and indirect basis including an addition for profit that then enables the selling price of goods and services to be determined.

Employees A user group who work for a particular entity normally in return for either a wage or a salary.

Entity Any type of profit-making or non-profit-making organization regardless of size or composition or whether it is in the private sector or the public sector. In the context of business, an individual may also be regarded as an entity.

Entity rule An accounting rule that restricts the collection of data to that of the entity itself.

Environmental accounting The collection, recording, classification, extraction and summary of information relating to the natural environment.

Environmental reporting The disclosure to interested parties of information relating to the natural environment.

Equity dividend A share of the company’s profits payable to the ordinary shareholders.

Ethical rule An accounting rule that places a moral imperative on the collectors, preparers and presenters of accounting data and information.

Eurobond loan capital A form of long-term unsecured borrowing obtained in the Euro market redeemed at its face value.

European Union An economic and political union of 25 European countries.

Expectations gap An assumption made by the general public that accounting does more than it does or can reasonably be expected to do.

Expenditure Costs charged to the profit and loss account during a particular period of account that may or may not be settled in cash during that period.

External price The price charged for goods and services to an external customer.

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F

Factoring A short-term form of finance obtained by an entity either by handing over its debtors to another entity or by borrowing money on the strength of its debtor position.

Filing The submission of a company’s annual report and accounts to the Registrar of Companies.

Final dividend The amount of profit paid out by a company in respect of a particular accounting period once the profit for that period has been determined and after allowing for any interim dividend.

Financial accounting A major branch of accounting involving the collection, recording and extraction of financial information, and the summary of it in the form of a periodic profit and loss account, a balance sheet and a cash flow statement in accordance with legal, professional, and capital market requirements.

Financial Accounting Standards Board A short-term form of finance obtained by an entity either by handing over its debtors to another entity or by borrowing money on the strength of its debtor position.

Financial investment A specific term used in cash flow accounting meaning loans received from, and paid back, to other entities. It may also be used in a wider sense to describe the investment of money in the capital markets.

Financial management A fairly new branch of accounting that deals with the acquisition of financial resources and the management of them.

Financial reporting The communication of a wide range of financial and other data to interested parties.

Financial Reporting Council A non-governmental body that co-ordinates and supervises the practice of financial accounting and reporting in the United Kingdom.

Financial Reporting Review Panel A subsidiary company of the Financial Reporting Council responsible for examining apparent departures from the accounting requirements of the 1985 Companies Act and applicable accounting standards.

Financial reporting standard A modern term for an authoritative statement specifying the treatment and disclosure of certain events and transactions in the preparation and publication of accounting statements. Such statements are now issued by the Accounting Standards Board.

Financial Sector and Other Special Industries Committee One of the Accounting Standard Board’s committees responsible for dealing with the financial accounting and reporting issues relating to specific industries.

Financial statement A general term usually referring to the profit and loss account, the balance sheet, or the cash flow statement. The term may also be used to describe other written documents containing details of the financial performance of an entity.

Financing A term used in cash flow accounting to describe the receipts and payments of principal amounts of cash (such as for shares and loans) received from or paid to an external source.

Finished goods Products that have fully completed their manufacturing process and that are ready for sale to customers.

First-in, first-out price A method of pricing materials used in production based on the oldest price being used the first, then the next oldest price, and so on.

Fixed asset A tangible or intangible item of capital expenditure purchased with the intention of being used by the entity for more than one accounting period.

Fixed assets turnover ratio The relationship between the sales or turnover for a specified period and the gross or net book value of the fixed assets during or at the end of that period.

Fixed budget A budget that is not changed once it has been prepared. If it is used for budgetary control purposes the actual results are compared with such a budget, no account being taken of the actual activity level being different from the budgeted level.

Fixed cost A cost that tends to remain unchanged regardless of the level of activity undertaken.

Fixed overhead Indirect costs that tend to remain constant irrespective of the level of activity.

Fixed production capacity variance A standard costing variance showing the difference between the budgeted fixed production overhead expenditure and the actual hours worked valued at the fixed production overhead absorption rate.

Fixed production overhead efficiency variance A standard costing variance showing the difference between the actual hours worked and the standard hours for the actual production valued at the fixed production overhead absorption rate.

Fixed production overhead expenditure variance A standard costing variance showing the difference between the actual fixed production overhead and the budgeted fixed production overhead.

Fixed production overhead total variance A standard costing variance showing the difference between the actual fixed production overhead incurred and the standard hours of the actual production valued at the fixed production overhead absorption rate.

Fixed production overhead volume variance A standard costing variance showing the difference between the budgeted fixed production overhead expenditure and the standard hours worked for the actual production valued at the fixed production overhead absorption rate.

Flexible budget A fixed budget used for budgetary control purposes but one that is amended if the actual level of activity is different from the budget level.

Fully paid share capital The total amount of share capital received by a company after it has issued some shares.

Functional budget A budget prepared for any type of responsibility centre.

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G

Going concern rule An accounting rule that requires financial statements to be prepared on the assumption that the entity will continue in existence for the foreseeable future.

Government A user group responsible for exercising overall control and direction of a country. The Government sector is usually broken down into central government and local government. Central government is responsible for legislation, administers certain functions on a national basis, but delegates some services to be administered by local government.

Gross book value The total cost or revalued amount of a fixed asset.

Gross profit The difference between the sales revenue and the cost of goods sold.

Gross profit ratio The relationship of the gross profit made for a specified period and the sales or turnover achieved during that period.

Group A combination of two or more companies or other undertakings that have a close relationship either in terms of control or ownership.

Group balance sheet A combined balance sheet that includes all the balance sheets of companies and other undertakings that form part of a group.

Group cash flow statement A combined cash flow statement that includes all the cash flow statements of companies and other undertakings that form part of a group.

Group profit and loss account A combined profit and loss account that includes all the profit and loss accounts of companies and other undertakings that form part of a group.

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H

Hire purchase A medium-term form of finance where the borrower agrees to pay for goods on an instalment basis, the legal ownership of which passes to the borrower only when the goods have been paid for.

Historic cost accounting A conventional and wide-spread method of accounting that requires data to be recorded in the book-keeping system and in the financial statements at their original cost or their original selling price.

Historic cost rule An accounting rule that requires data to be recorded in books of account at their original purchase cost or original selling price.

Horizontal analysis A line-by-line comparison of an entity’s profit and loss accounts and balance sheets over a number of accounting periods.

Horizontal format A method of presenting financial statements in a columnar format with some information shown on the left-hand side of a page and other information shown on the right-hand side.

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I

Ideal standard A standard set in such a way that it can only be achieved if all the circumstances surrounding it are favourable.

Income Cash received or due to be received during a particular period of account that reflects the business activity of and for that period.

Incremental cost A form of costing that classifies costs into their fixed and variable elements in order to calculate the extra cost of making and selling an additional batch of units.

Index The relation of one factor to the base of another factor, the base factor normally being 100.

Indirect cost An expense that cannot easily and economically be identified either with an individual unit of production or with a responsibility centre.

Indirect expense An expense other than for labour or material cannot easily and economically be identified either with an individual unit of production or with a responsibility centre.

Indirect labour cost A labour cost that cannot easily and economically be identified either with an individual unit of production or with a responsibility centre.

Indirect material cost The cost of raw materials and components cost that cannot easily and economically be identified either with an individual unit of production or with a responsibility centre.

Indirect method A method of preparing a cash flow statement requiring each of the items in the profit and loss account and the balance sheet to be converted from an accruals and prepayments basis to a cash flow basis.

Inflation An economic phenomenon whereby during different accounting periods more money has to be exchanged for the same amount of goods purchased or sold, or for a particular service provided or received.

Insolvency A situation whereby an entity is unable to settle its debts as they become due.

Insolvency practitioner A specialist who advises insolvent entities about how to deal with their financial difficulties and possible bankruptcy and liquidation procedures that may eventually be required.

Interim dividend The amount of profit paid out by a company in anticipation of the profit expected to be earned during a particular accounting period.

Interim report A financial report issued by a company part way through a financial year.

Internal price A term sometimes used instead of the more usual transfer price.

Internal rate of return The rate of return required by a capital investment project for the net present value of the project to equal its original cost.

International Accounting Standard The name for accounting standards that used to be issued by the International Accounting Standards Committee.

International Accounting Standards Board A world-wide organization responsible for issuing accounting standards that are expected to be adopted by member countries.

International Accounting Standards Committee The organization that used to be responsible for issuing international accounting standards.

International Accounting Standards Committee Foundation The parent body of the International Accounting Standards Body.

International Financial Reporting Standards Accounting standards issued by the International Accounting Standards Board.

Interpretation A detailed analysis and explanation of the financial performance of an entity incorporating the information contained within a set of financial accounts.

Introductory material A collection of miscellaneous material usually found in the first few pages of a company’s annual report and accounts.

Inventory The American term for raw material stock, components, work-in-progress, and finished goods held in store.

Investment A transaction that involves purchasing a stake in another entity. Such an investment should not give the purchaser a controlling or majority share holding interest since it then becomes an acquisition.

Investment centre A clearly defined area of managerial responsibility, the manager of which is responsible for investment decisions as well as for those costs and revenues relating to that centre.

Investment ratio A ratio that helps to determine whether an investment in a particular entity is likely to be profitable and safe.

Investors A user group containing individuals who invest their money in various types of entities, especially companies.

Issued share capital The total amount of share capital that has been issued by a company.

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J

Just-in-time production A method of operating production facilities in such a way that production only takes place when customers place an order.

Just-in-time purchasing A method of purchasing goods that involves ordering materials only when customers place an order. When the goods are received they go straight into production and they are not kept in the stores even for a short time.

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K

Key factor Another term for a limiting factor.

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L

Leasing A medium-term form of borrowing where the borrower rents an asset, the ownership of which remains with the lender.

Ledger An old fashioned term meaning a bound or loose-leaf book containing a number of accounts.

Lenders A user group containing individuals who loan their money to other entities, especially to companies.

Level of activity The output of an entity measured either in percentage or in output terms.

Liability An amount owned by an entity to parties external to the entity.

Limited liability A procedure recognized in law whereby an investment in a company (and in some forms of partnership) is limited to the agreed contribution.

Limiting factor A factor that restricts an entity from maximizing the sales of one or more products as a result of a restricted amount of resources being available, e.g. finance, labour, and materials.

Liquid resources A term used in cash flow accounting to describe current asset investments.

Liquidation A formal procedure whereby a company is closed down and it then ceases to exist.

Liquidity The extent to which an entity’s current assets exceed its current liabilities.

Liquidity ratio A ratio that shows what proportion of an entity’s assets can be readily turned into cash in the short term.

Loan Money borrowed by an entity either on a long-term or a short-term basis.

Loan capital A form of long-term borrowing such as a debenture.

Loss The difference between revenue expenditure and revenue income.

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M

Machine hours method A method of absorbing overhead into individual units of production, the overhead being divided by the number of machine hours used.

Make or buy decision A decision whether to make a product or component internally or whether to purchase it from an external supplier.

Management accounting A major branch of accounting primarily concerned with providing financial and other information to parties internal to an entity for planning, control, and decision-making purposes.

Manufacturing An economic sector or business entity involved in purchasing raw materials and component parts, converting them into finished goods, and then selling them to customers.

Manufacturing cost The total cost of making products consisting of direct labour, direct materials, other direct expenses, and a share of the manufacturing overhead.

Manufacturing overhead The total cost of indirect labour, indirect materials, and other indirect expenses associated with manufacturing products.

Manufacturing profit An amount added to the cost of manufacturing goods in order to be able to compare more fairly an entity’s selling prices with those of its competitors.

Margin of safety The difference between the level of activity achieved and the level of activity required to break-even.

Marginal cost equation A relationship expressed in equation format stating that the sales revenue of an entity less its variable costs equals its fixed costs plus profit (or less loss).

Marginal costing A form of costing that classifies costs into their fixed and variable cost elements thus enabling the extra cost of making and selling one more unit to be calculated. The term is commonly applied to the extra cost of making an additional batch of units although strictly speaking in such circumstances the term incremental costing should be used.

Market-based price A transfer price based on what other entities are charging for similar goods and services.

Mark-up ratio The relationship of the gross profit made for a specified period and the cost of goods sold incurred in making that profit.

Master budget A combination of a budgeted profit and loss account, a budgeted balance sheet, and a budgeted cash flow statement.

Matching rule An accounting rule that requires cash received and cash paid during a particular accounting period to be adjusted so as to reflect the economic activity that has actually taken place during that period.

Materiality rule An accounting rule that permits other accounting rules to be ignored if the impact of a particular transaction or event is not of any great significance.

Materials Those raw materials and components parts used in manufacturing a product.

Measurement rule A conventional accounting rule that indicates how accounting data should be recorded.

Money measurement rule An accounting rule that requires data to be translated into monetary data before they are included in an accounting system.

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N

Net book value The total cost or revalued amounts of a fixed asset less the total accumulated depreciation relating to that asset.

Net current assets The difference between current assets and current liabilities.

Net debt The difference between borrowings and liquid resources.

Net loss The difference between the total of all the revenue expenditures and the total of all the revenue incomes when the expenses exceed the incomes.

Net operating expenses A term describing all the revenue expenses of a company for a particular accounting period except those included in cost of sales.

Net present value The return made on a capital investment project when the discounted future net cash flows arising from the project exceed the original cost of the project.

Net profit The difference between the total of all the revenue incomes and the total of all the revenue expenditure when the revenues exceed the expenses.

Net profit ratio The relationship of the net profit made for a specified period and the sale achieved during that period.

Non-accountant A student, manager or any other individual whose primary interest and involvement is a discipline other than accounting.

Non-avoidable cost A cost that will still be incurred if a particular decision is taken.

Non-production overhead Indirect cost incurred as a result of activities that do not relate closely to the production process, such as general administrative services, research and development expenditure, and selling and distribution costs.

Non-recourse factoring A short-term form of finance obtained by an entity obtained by selling its debtors to another entity.

Non-relevant cost A cost that will not be affected by a particular decision.

Notes to the accounts Required profit and loss, balance sheet, and cash flow information disclosed in formal notes to the accounts instead of in the body of the financial statements themselves.

Not-for-profit An entity whose main objective is not to make a profit.

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O

Objectivity rule An accounting rule that requires the compilers and preparers of accounting data and information to ignore personal considerations and prejudices when interpreting other accounting rules.

Omission A book-keeping error caused by omitting a transaction entirely from the ledger accounting system.

Operating activities Those activities related to the business affairs of an entity that normally are included in a profit and loss account.

Operating and financial review A non-statutory report included in a company’s annual report and accounts published in accordance with good corporate governance requirements outlining and summarizing its operating activities and financial affairs for the year.

Operating expenses The cost of operating a company during a year but excluding finance costs such as interest received and paid.

Operational format A method of preparing a profit and loss account in accordance with the Companies Act 1985 in such a way that the turnover, the cost of sales, distribution costs and administrative expenses are all shown separately.

Opportunity cost The benefit foregone or lost as a result of taking a particular decision.

Ordinary shares Shares issued by a company that have no priority over other shares and borrowings when a company is liquidated and that do not contain any provision for any fixed or stated amount of dividend.

Original error A book-keeping error caused by entering a transaction incorrectly on the both the debit side and the credit side of the respective accounts.

Overhead An indirect cost often used to describe the total of certain categories of indirect costs.

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P

Participating interest A general term used to describe an associated company and other similar types of entities.

Partnership A business entity owned by two or more individuals.

Payback An estimate of how long it will take before the cost of a capital investment project is covered by the future net cash flows arising from that project.

Performance measurement An investigation into the financial viability, efficiency, and effectiveness of an entity.

Periodic summary A summary included in a company’s annual report and accounts containing information for a period longer than a calendar year.

Periodicity rule An accounting rule that requires financial statements to be prepared at the end of a defined and regular period of time.

Permissive system A method of financial reporting based on a broad framework of law that allows the legal requirements to be adapted or ignored in circumstances where they would be inappropriate.

Petty cash Physical cash retained by an entity in order to pay for small items of goods and services.

Planning The drawing-up of some future course of action by an entity for a defined period of time especially with reference to its financial performance.

Postulate A term sometimes used in accounting to describe an accounting rule or an accounting practice.

Predetermined absorption rate An absorption rate calculated in advance of an actual accounting period based on the production cost centre’s budgeted total overhead and the budgeted activity level (such as number of units, direct material, direct labour, prime cost, direct labour hours, or machine hours).

Preference shares Shares issued by a company that have some priority on the liquidation of the company and on which a fixed level of dividend is paid.

Prepayment An amount paid by an entity to a supplier in one accounting period that reflects a service that will be provided in a subsequent accounting period.

Prescriptive system A method of financial reporting based on a highly detailed legal system that allows little or no room for individual discretion.

Price/earnings ratio An investment ratio that compares the market price of an ordinary share with the earnings or profit made by each share.

Pricing decision The determination of an appropriate level at which to fix the selling or transfer price of goods and services.

Prime cost The total cost of direct labour, direct materials, and other direct expenses.

Prime cost method A method of absorbing overhead into individual units of production, the overhead being divided by the cost centre’s prime cost.

Principle A book-keeping error caused by entering a transaction in the wrong type of account. The term is also used to describe a traditional accounting rule or an accounting practice.

Private Companies Committee A body proposed by the Government to advise the Company Law and Reporting Commission and the Standards Board on company law and reporting matters affecting private companies.

Private company A company that does not permit the general public to buy and sell its shares.

Probability testing A mathematical technique that involves calculating the expected value of a particular project or proposal by attaching a degree of probability to various possibilities.

Procedure A term sometimes used in accounting to describe an accounting rule or an accounting practice.

Product Goods and services offered for sale in the market place by an entity.

Product life cycle costing The collection, recording, extraction and summary of costs relating to a particular product covering the period from the time that it was first conceived to the point when it ceases to be manufactured.

Production overhead Indirect costs that arise from manufacturing and producing goods.

Production service cost centre A production cost centre that provides a service to both production cost centres and to other production service cost centres.

Production volume ratio A ratio used in standard costing to compare the work produced measured in standard hours with the budgeted hours.

Professional requirement Information established jointly by the accountancy profession, the capital markers, and the Government that companies must disclose in their annual report and accounts.

Profit The difference between revenue income and revenue expenditure.

Profit centre A clearly defined area of managerial responsibility to which both costs and revenues are charged.

Profit/volume chart A pictorial representation of the relationship between sales revenue and the total profit (or loss) made by an entity.

Profitability The extent to which an entity’s revenue income exceeds its revenue expenditure during a particular accounting period.

Profitability ratio A ratio that helps to explain the profitability of an entity during a defined period of time.

Profit-making An entity whose primary objective is to make a profit.

Provision An amount set aside, usually out of retained profit, for a specific purpose or for some future intended action.

Prudence rule An accounting rule that requires the most conservative approach to be adopted in cases where there is some doubt about the application of other accounting rules.

Public A user group not directly connected to any particular entity.

Public company A company whose shares can be bought and sold by the general public through a recognized stock exchange.

Public Sector and Not-for profit Committee One of the Accounting Standard Board’s committees responsible for advising the Board on financial accounting and reporting issues affecting the public sector.

Purchases Tangible items purchased by an entity primarily with the intention of selling them to customers.

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Q

Qualified accountant A restricted term usually meaning an accountant who is a member of one of the six major professional accountancy bodies.

Quantitative rule An accounting rule that restricts the collection of data to that which can be easily quantified.

Quasi-governmental Central government services delegated by the Government operated by entities independently of the Government.

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R

Ratio The relationship between one item and another item in a set of financial statements.

Ratio analysis An investigation into the financial performance of an entity using a series of ratios.

Realization rule An accounting rule that requires data to be entered in the books of account when the legal title to goods bought and sold has been transferred from one entity to another entity.

Receiver A person appointed to take control of a company in financial difficulties in order to ensure that amounts owing to creditors and lenders are safeguarded.

Reciprocal service cost The cost of a services provided by production service cost centres to other production service cost centres.

Recourse factoring A short-term form of finance obtained by an entity as a loan based on the total amount of its debtor balances.

Reducing balance A method of calculating the periodic depreciation of a fixed asset whereby in the first period of account the original cost (or the revalued amount) is reduced by an agreed depreciation rate and then in the second period of account, the net amount (i.e. the original cost/revalued amount less the accumulated depreciation) is used to calculate the depreciation charge for that period, the process being repeated in the third and subsequent periods of account.

Registrar of Companies A Government official employed at Companies House either in Cardiff or Edinburgh responsible for receiving and filing the accounts of companies.

Relevance rule An accounting rule that requires preparers of financial statements to exclude information from the accounts if it is unlikely to give a true and fair view of the information being presented.

Relevant cost A cost that will be affected by taking a particular decision. The term is also used to describe relevant incomes.

Reliability rule An accounting rule that requires accounting information to be presented on the basis that it reflects the substance of the underlying information, that it is free from deliberate bias and material error, and that a cautious approach is adopted about future events.

Remuneration report A report prepared by a company’s remuneration committee set up according to corporate governance requirements. It contains details of the directors’ remuneration packages. The report may be found in the company’s annual report and accounts.

Reporting Review Panel A body proposed by the Government as a replacement for the Financial Reporting Review Panel.

Research and development overhead Those indirect costs that relate to new ways of producing goods and services and for the improvement of existing ones.

Reserve An amount set aside, usually out of retained profit, for no specific or set purpose.

Residual income The amount of profit that a segment has made after charging a notional amount of interest based on the business’s investment in that segment.

Resource accounting A form of accruals and prepayments accounting adopted by the Government similar to that used in the private sector.

Responsibility accounting An accounting and organizational management system that specifies the boundaries of managerial responsibility and the duties within them. Within such boundaries managers are allowed to operate as autonomously as possible.

Responsibility centre A defined area of managerial responsibility for which an individual has almost complete responsibility. There are three main types of responsibility centres cost centres, profit centres and investment centres.

Return on capital employed ratio The relationship between the profit made by an entity during a defined period of time and the amount of capital required to make that profit.

Return on investment ratio A ratio that expresses the relationship of profit made by a segment of an entity to the investment in that segment. The ratio is similar to the return on capital employed ratio.

Return on investments The amount received as a result of investing in particular ventures.

Revenue Sources of income that are charged to the profit and loss account during the period that they have been received or are due to be received for that period.

Revenue allocation approach The recognition of revenue at various production, distribution and selling stages during the life cycle of products and services.

Revenue expenditure Expenditure that is expected to provide a benefit for only one specific accounting period.

Revenue recognition A term given to describe the circumstances when income from sales and other incomes may be included in an entity’s profit and loss account.

Revenue reserve An account containing details of income available for distribution to shareholders.

Reversal of entry A double-entry book-keeping error caused by entering a transaction in one account as a debit entry and in another account as a credit entry respectively when the reverse entries should apply.

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S

Sales Goods sold to customers during a particular accounting period.

Sales total variance The difference between actual profit based on the standard cost of the actual quantity sold and the standard profit for the budgeted quantity.

Sales variances Variances showing the difference between the actual sales revenue and the standard or budgeted sales revenue analysed into price and volume variances. A volume variance is sometimes also analysed into mix and quantity variances.

Sales volume profit variance The difference between the actual quantity of units sold and the budgeted quantity valued at the standard profit per unit.

Secondary body A professional accountancy organization other than one of the six major professional accountancy bodies.

Securities and Exchange Commission A United States body established to administer security regulation.

Segment A part of a whole. It usually refers to some part of the workings of an entity.

Selling and distribution overhead Those indirect costs that relate to the cost of selling goods and services and the delivery of them to customers.

Selling price The amount at which goods and services are sold to customers.

Selling price variance The difference between the actual profit based on the standard cost of the actual quantity sold and the actual quantity sold valued at the standard profit per unit. Alternatively, the difference between the actual selling price and the standard selling price per unit multiplied by the actual number of units sold.

Service An economic sector a business entity that offers advice and assistance of a non-tangible nature to entities and to individuals.

Service entity An entity whose primary objective is to provide a service to its clients or customers rather than to supply them with a tangible product.

Servicing of finance The cost of borrowing money.

Share The term used to describe and to measure the ownership of a company.

Share capital The amount of money contributed to a company by its owners (the shareholders).

Share premium The amount that shareholders have paid for their shares is in excess of the nominal value of the shares.

Shareholder The owner or part-owner of a company.

Shareholder information Additional, largely non-statutory administrative information, included usually at the end of a company’s annual report and accounts that is of particular importance to shareholders since it may require some action on their part.

Shareholders’ funds The total amount of a company owned by shareholders consisting of the issued share capital, the capital account balances and the revenue account balances.

Shut-down decision A problem requiring some action to be taken whether to close down an entity or a segment of it.

Social accounting The collection, recording, classification, extraction and summary of information relating to the social environment.

Social organization An entity that carries out a wide range of voluntary cultural, educational and recreational activities.

Social reporting The reporting of information relating to the social environment to interested parties.

Sole trader Any type of business entity owned by one individual.

Source and application of funds statement An earlier version of a cash flow statement showing the source of an entity’s funds and how those funds have (or will) be applied, the term ‘funds’ being defined as ‘working capital’.

Sources of authority Statutory bodies and professional entities responsible for determining what information should be disclosed by companies to interested parties.

Special order A one-off order placed by a customer requiring favourable and exceptional treatment.

Special purpose entity An arrangement permitted by United States’ accounting principles that enables companies to set up other types of entities thereby enabling certain matters not to be disclosed in the company’s balance sheet.

Specific units method A method of absorbing overhead into individual units of production, the overhead being divided by the number of units produced in the cost centres.

Standard The amount or level set for the performance of a particular activity.

Standard cost The budgeted or planned cost of material, labour, or overheads expected to be paid during a given accounting period.

Standard cost operating statement A statement reconciling the budgeted profit for a specified accounting period with the actual profit showing in detail the various sales and cost variances.

Standard costing A control method involving the preparation of detailed cost and sales budgets. Such budgets are then compared with the actual results for a specific account period and any significant variances between the actual and the budgeted results are investigated. Unexpected trends are corrected if they are not acceptable or they cannot be accommodated.

Standard costing period The period of time for which standard costs are prepared.

Standard hour The amount of work that can be achieved in an hour given that standard working conditions will be maintained.

Standard quantity The amount of material that ought to have been used in production for the actual number of units produced.

Standards Board A replacement for the Accounting Standards Committee proposed by the Government.

Statement of total recognized gains and losses A statement showing all the gains and losses that a company has made during a year including those not normally taken to the profit and loss account.

Statements of Standard Accounting Practice The statements issued the Accounting Standards Committee containing its recommendations and requirements.

Statutory requirements The information laid down in law that companies must disclose in their annual report and accounts.

Stewardship The keeping and safeguarding of someone else’s financial affairs.

Stock Goods held by an entity that have not yet been sold or otherwise used by the entity. They may include raw materials, consumable stores, component parts, work-in-progress, and finished goods.

Stock Exchange requirements The information required by the Stock Exchange to be disclosed by companies in their annual report and accounts.

Stock turnover ratio The relationship between the cost of goods sold for a specified period and the stock held during or at the end of that period.

Stock valuation An exercise requiring the estimation of the value of any raw materials, consumable stores, component parts, work-in-progress, and finished goods at the end of a defined period of time.

Straight-line depreciation A method of calculating the periodic depreciation of a fixed asset whereby the original cost (or the revalued amount) is reduced by its estimated residual value and then divided by the estimated life of the asset.

Strategic management accounting An advanced form of management accounting that attempts to include information about an entity’s competitors in the reports prepared for the internal management of the entity.

Strategic planning Another term for long-term planning.

Sub-budget period The breakdown of the main budget period into shorter periods of time.

Subsidiary A company holding more than 50% of the voting shares of another company or of one that it is in a position to control.

Sunk cost A cost that has already been incurred as a result of a previous decision.

Suppliers A user group of entities who supply goods and services to other entities.

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T

Tangible asset An asset that has a physical presence.

Target costing A cost control technique that lays down the maximum amount that a particular product should cost. The cost determined by deducting a required profit margin from the price that the product is expected to sell at in a competitive market.

Tax avoidance The minimization of tax due to the Government in strict accordance with the allowances built into the taxation system.

Tax evasion The deliberate understatement of tax lawfully owing to the Government.

Taxation The calculation and agreement of the amount of tax due to the Government whether by individuals or by business entities.

Total absorption costing An accounting method that attempts to charge all the costs of an entity (including administration overhead, research and development overhead, and selling and distribution overhead) to specific units of production.

Total cost of sales Total production cost plus administration overhead, research and development overhead, and selling and distribution overhead.

Total production overhead Those indirect production costs that cannot easily and economically be identified with specific units of production or processes.

Total quality management A management philosophy that aims to ensure that any action is always done correctly the first time around and that the quality of what is achieved is determined by a strict adherence to the original specification.

Trade credit A short-term form of finance obtained by buying goods and services that do not require immediate payment.

Trade creditor A supplier of goods and services to an entity owed money by that entity.

Trade creditor payment period A ratio that relates the amount owed to trade creditors by an entity at the end of a specified period in relation to the cost of purchases bought on credit during that period.

Trade debtor An amount owed to an entity by a customer for the sale of goods.

Trade debtor collection period ratio A ratio that relates the amount of trade debtors owed to an entity at the end of a specified period in relation to the sales sold on credit during that period.

Trade discount A special allowance deducted from the normal selling price of goods and services.

Trading entity A business entity that purchases finished goods and then sells them to customers usually at a profit without normally any further work being done on those goods.

Transfer price The price charged to another unit within the same entity for the supply of goods and services. The price may be based on a number of factors such as the market price or on various types of internal costs, e.g. marginal cost or total cost.

Trend analysis An appraisal of an entity’s profit and loss accounts and balance sheets for a specified period requiring one period’s results to be given a base of 100 and the other period results for each line in the accounts to be then converted into factors that relate to that base period of 100.

Trial balance A statement compiled at the end of an accounting period listing in adjacent columns all the debit balances and all the credit balances throughout the ledger account system.

True and fair view A requirement that accounting statements should be presented in such a way the users of such statements do not get a biased or a distorted impression of the basic facts and conditions presented in the statements.

Turnover Net sales exclusive of value added tax of goods and services supplied to customers external to an entity.

Type of expenditure format A method of preparing a profit and loss account in accordance with the Companies Act 1985 in order to calculate the operating profit disclosing separately turnover, own work capitalized, other operating income, raw materials and consumables, other external charges, staff costs, depreciation, and other operating charges.

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U

Undertaking A term used to describe any other type of entity in which a company may have a controlling interest or if it has more than 50% of the voting rights.

Unit cost The cost of making an individual unit.

United States Generally Accepted Accounting PrinciplesThe accounting rules that companies in the United States of America are expected to follow.

Unsecured loan stock A form of long-term borrowing (such as a debenture) not secured on any particular asset or assets.

Urgent Issues Task Force One of the Accounting Standard Board’s committees that investigates cases where a Financial Reporting Standard appears either to have been ignored or is not being followed.

User group A cohesive group of individuals or entities that may be interested in receiving information about an entity’s financial performance.

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V

Value added The difference between the selling price of a product and the cost of externally purchased materials and services.

Value chain The various stages in the life of a product when its value is increased, i.e. when value is added to it.

Value chain analysis An examination of value chain activities in order to undertake them more efficiently, effectively and economically.

Variable cost A cost that tends to vary directly and proportionally with the level of activity.

Variable overhead Indirect costs that will tend to change in direct proportion to changes in the activity level.

Variable production overhead efficiency variance The difference between the actual hours worked and the hours that should have been worked for the actual production valued at the variable production overhead absorption rate.

Variable production overhead expenditure variance The difference between the actual variable production overhead incurred and the actual hours worked valued at the variable production overhead absorption rate.

Variable production overhead total variance The difference between the actual variable overhead incurred and the standard hours that ought to have been worked for the actual output valued at the variable production overhead absorption rate.

Variance The difference between the actual cost and the budgeted or standard cost of a particular activity, or the actual sales revenue and the budgeted or standard sales revenue.

Variance analysis An investigation into the causes of variances.

Vertical analysis The conversion of an entity’s profit and loss account and balance sheet (normally for a number of accounting periods) so that the amount of each item in the accounts is represented as a percentage of the total amount.

Vertical format A method of presenting financial statements in adjacent columns on a line-by-line basis from the top of a page to the bottom.

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W

Working capital The net current assets normally available for the day-to-day activities of an entity.

Work-in-progress The cost of incomplete work incurred in manufacturing a product or a process during a particular accounting period.

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