Financial management Glossary
absorption costing A method of costing that, in addition to direct costs, assigns all, or a proportion of, production overhead costs to cost units by means of one or a number of overhead absorption rates. accounting The classification and recording of monetary transactions, the presentation and interpretationof the results of those transactions in order to assess performance over a period and the financial position at a given date, and the monetary projection of future activities arising from alternative planned courses of action. accounting adjustments Accounting entries that do not arise from the basic transactions of cash and invoices. Adjusting entries are made for depreciation, bad and doubtfuldebts, closing stocks, prepayments, and accruals. accounting period The time period covered by the accounting statements of an entity. accounting policies The specific accounting bases selected and consistently followed by an entity as being, in the opinion of the management, appropriate to its circumstances and best suited to present fairly its results and financial position. accounting standardAuthoritative statement of how particular types of transaction and other events should be reflected in financial statements. Compliance with accounting standards will normally be necessary for financial statements to give a true and fair view. accounts payable Also called trade creditors, is the money owed to suppliers for goods and services. accounts receivable Also called trade debtors, is themoney owed to entities by customers. accruals Allowances made for costs and expenses payable within one year of the balance sheet date but for which no invoices have yet been recorded. accruals concept The principle that revenues and costs are recognised as they are earned or incurred, and so matched with each other, and dealt with in the profit and loss account of the period to which they relate,irrespective of the period of receipt or payment. acid test Quick assets (current assets excluding stocks) divided by current liabilities measures the ability of the business to pay creditors in the short term.
activity based costing (ABC) An approach to costing and monitoring of activities which involves tracing resource consumption and costing final outputs. Resources are assigned toactivities and activities to cost objects based on consumption estimates. The latter utilise cost drivers to attach activity costs to outputs. activity based management (ABM) System of management which uses activity based cost information for a variety of purposes including cost reduction, cost modelling and customer profitability analysis. allocation The charging to a cost centre of those overheadswhich result solely from the existence of that cost centre. amortisation In the same way that depreciation applies to the charging of the cost of tangible fixed assets over their useful economic lives, amortisation is the systematic write-off of the cost of an intangible asset, relating particularly to the passage of time, for example leasehold premises. annual report and accounts A set ofstatements which may comprise a management report (in the case of companies, a directors’ report), an operating and financial review (OFR), and the financial statements of the entity. apportionment The charging to a cost centre of a fair share of an overhead on the basis of the benefit received by the cost centre in respect of the facilities provided by the overhead. asset A right or other access tofuture economic benefits controlled by an entity as a result of past transactions or events. attributable cost The cost per unit that could be avoided, on average, if a product or function were discontinued entirely without changing the supporting organisational structure. audit A systematic examination of the activities and status of an entity, based primarily on investigation and analysis of its...