For G2/G3 Principles of Accounts (Singapore)
GLOSSARY
Accounting Jargons Simplified To Layman Terms
A
the total depreciation of a non-
current asset to date. Appears as a deduction from the cost of the non- current asset account (to give net book value) in the non-current asset section of the statement of financial position.
retained earnings with a negative balance resulting from continued losses over the years.
an estimated amount of trade
receivables who might not be able to pay the amount due and so will reduce the value of trade receivables in the statement of financial position to reflect the realistic amount to be collected.
amounts deposited into a business’s bank account but which have not yet been recorded by the bank as credit entries, and not reflected in the bank statement.
another word for mathematical, used in reference to check that the total debits and credits agree in a trial balance.
resources a business owns or controls that are expected to provide future benefit.
approvals provided by designated personnel for all payments.
a method for providing financial data so that owners of the business and others interested in it would have useful information in order to help them assess the business’ performance for decision-making.
a 4-step process that begins when transactions are identified and recorded, and the cycle ends when adjusted values are closed to income summary after financial statements are prepared.
the business and the owner are two separate entities with all transactions recorded from the business’ viewpoint.
a relationship between the three elements that are a feature of all businesses, i.e. assets, liabilities and equity. The equation is: Assets = Equity + Liabilities.
the basic rules that are to be applied by all who prepare accounting records; also known as accounting concepts.
income is recorded in the financial period it is earned, regardless of when money is received. Expenses are recorded in the financial period they are incurred, regardless of when payment is made.
B
calculated net amount in an account and stating it as a debit or credit balance at the period’s end and start of the next.
payments automatically taken from a checking account at regular intervals, like monthly. These charges provide income to the bank for maintaining and operating the account.
money owing to the bank by an entity when the total withdrawals exceed the total deposits of funds in the entity’s bank account.
when a person or firm has legally declared that he/she or it is unable to repay debts.
the bank’s record of an entity’s account with the bank.
process by which differences between the business’ view of its bank account and the bank’s view of the business’ bank account are harmonized.
STATEMENT
a document prepared by businesses at regular intervals (say monthly) to check that their bank records agree with those provided by the bank.
c
the investment in the business made by owner(s) of the business. Known as capital for sole proprietors and share capital for private limited companies.
money spent to buy non-current assets and to get them ready for use, or to improve the non-current assets’ usage. The benefits derived from this expenditure can last several financial years.
a reduction in the amount paid by credit customers or amount paid to credit suppliers, when amounts owing are settled earlier than the agreed time limit.
where cash is received from the customer when goods or services are sold.
sales and purchase of goods and services that can only be settled by cash, bank transfer or cheque
financial activities involving the immediate use of money.
the business has issued a cheque to its supplier but the supplier has yet to present the cheque to the bank for payment.
the process of reducing the balance of an account to zero and transferring the balance to an appropriate account like income summary or capital.
goods unsold at the end of a financial year.
form of business entity owned by 50 or less owners (known as shareholders) where each shareholder buys shares to contribute capital to the business.
accounting processes or treatments that are carried out in the same manner year after year.
Values relevant to buying inventory and getting it ready for sale in a trading business.
the cost price of goods sold during a financial year.
the right-hand side of an account or the amount recorded in the credit column of a columnar account.
customers’ track records regarding their abilities to make payments promptly.
the type of account where the normal or positive balance is on the right-hand column of a columnar account or CR is written after the balance amount.
source document that reduces the amount owed due to previous overcharging or return of goods.
details regarding when payments for amounts owing (due to credit sales or purchases) must be made and any discounts given for early payments.
financial activities when the payment or receipt of money is delayed.
the automatic transfer of funds into a business’ bank account by the business’ customers.
determination of a customer’s ability to repay what is owing and whether the customer should be granted credit.
resources that are cash or can be quickly turned into cash and are of benefit to the business for less than one accounting period / financial year.
amounts owing by a business to external parties that must be settled within one accounting period / financial year.
the principal amount of a long-term bank loan that needs to be repaid within one financial year.
current assets in relation to current liabilities. The ratio is sometimes called the working capital ratio, and has an acceptable norm of 2:1.
how cash and cheques are secured in a locked storage.
government tax paid for importing goods from another country.
motivations and behaviours which influence customers’ purchasing decisions.
D
the left-hand side of an account or the amount recorded in the debit column of a columnar account.
the type of account where the normal or positive balance is on the left-hand column of a columnar account or DR is written after the balance amount.
source document that increases the amount owing due to previous undercharging or additional costs related to the original sale or purchase.
process of making choices and taking necessary actions as a result of accounting information that have been communicated to stakeholders.
measures the number of days a business takes to sell its inventory.
the business has deposited the cash or cheques with the bank but the bank has not processed these monies yet.
the cost of a non-current asset being apportioned to expenses over the non-current asset’s useful life.
individuals who are appointed by shareholders to manage the company on their behalf.
authority given to a bank by the business to make a payment from the business’ account on its behalf to another organisation. Usually for rent, utilities and insurance expenses
cash discount given to credit customers by the business to reduce the amount owing, and enable the customers to make early payments within a specified time.
cash discount received from credit suppliers by the business that reduce the amount payable to suppliers, and enable the business to pay early within a specified time.
a portion of a company’s retained earnings distributed to shareholders.
a cheque that a bank will not accept for payment because the payee does not have enough funds in their account to cover the amount being paid, or other inconsistencies and mistakes made on the cheque.
the process of making two concurrent entries (a debit and a credit) for every transaction.
the withdrawals of cash, goods or other assets from a sole proprietorship by its owner for personal use.
E
how well a business manages its inventory by maintaining a sufficient level to meet customer demand.
claim by the owners on the net assets of a business. Also understood as resources contributed by or due/owed to the owner(s) of the business.
costs incurred to operate a business to earn an income.
expenses incurred that have not yet been paid, but increases the expenses for the current accounting period even though the cash payment for the expense will not be made until a future period. Also known as accrued expenses.
F
a method of determining the cost of goods sold that assumes that the oldest inventory purchased will be sold first.
deliberate deception to obtain undue financial gain.
the delivery cost associated with getting purchased inventory items from the source to the business.
G
sales proceeds that are more than net book value of the non-current asset.
the main accounting record of a business. It includes individual accounts for all assets, liabilities, equity, revenue, and expenses. Information from the journal is sorted into the respective asset, liability, equity, revenue, and expense accounts that appear in the business’ financial statements.
assumption that a business will continue indefinitely unless sufficient proof is obtained that it will close down.
a transaction where the owner of a business takes goods from the business for private use, which would otherwise have been available for sale.
the amount by which net sales income exceeds the cost of sales.
gross profit in relation to net sales revenue (measured as a percentage).
I
the reduction in the selling price of inventory that is lower than its cost.
refers to the change in the estimated amounts owing from trade receivables that might be uncollectible.
the business’s earnings from its activities. Income can be categorised into revenue (main business activities) and other income (other business activities).
a temporary account to which all income and expense account balances are transferred at the end of an accounting period.
the usage of benefits from an expense that needs to be recognised in the financial statements even though payment was not made.
the inability of a business to meet its financial obligations.
the cost of borrowing money from a bank or financial institution.
amount agreed by the insurance company to cover the impairment loss on inventory, that has yet to be received.
an accountant is straightforward and honest in all professional and business relationships.
interest owed to lenders that is due to be paid within an accounting period.
internals controls are policies and procedures established to safeguard assets of the business /ensure business transactions are recorded accurately and comply with laws and regulations.
goods purchased by a business with the intention of resale
document that informs credit customers of the amount owed after the business has sold goods or provided services on credit.
J
a book of prime entry used to make the first record of transactions that have occurred. Also known as general journal.
an accounting entry recorded in a book called a journal.
L
amounts owed by a business to other businesses, organisations or individuals that must be repaid.
the liability of any shareholder for the debts of the company that is limited to the amount of their fully paid shares.
an orgalisation owned by 50 or less shareholders whose liability for the debts of the company is limited to their shareholding.
a form of business ownership that is owned by at least two partners whose liability for the debts of the partnership is limited to their investment in the partnership.
the ability of a business to convert current assets into cash to pay its current liabilities.
original/retail/sales price of goods without any trade discount.
a collection of individual ledger accounts.
any amounts borrowed for more than a financial year.
sales proceeds that are less than net book value of the non-current asset.
the rule that must be applied to the valuation of inventory.
M
measures how much gross profit a business earns for every dollar of its cost of sales.
requires the expenses incurred to be matched against income earned in the same period so as to determine the accurate profit for the period.
requires the disclosure of information which is considered to have an impact on decision-making process of the business.
the intentional misuse of business cash by employees for their personal or other unauthorised purposes.
in accounting, only transactions carried out by the business that can be measured in monetary values are recorded.
money borrowed using buildings or properties as collaterals.
N
a feature, attribute, or characteristic of the product.
represent the value of an entity’s assets minus its liabilities. It’s essentially what the owners would receive if all assets were sold and all debts paid.
remaining value of a non-current asset once the cost of the non-current asset has deducted total depreciation to date.
a term often used instead of working capital and calculated in the same way: i.e. current assets less current liabilities.
the estimated market price of inventory less any additional cost to sell the inventory.
the net amount expected to be collected from trade receivables after removing the amount estimated to be uncollectible.
resources owned by the business that are used for several accounting years to generate wealth for the business and not for resale.
financial obligations that are due to be repaid beyond one financial year.
O
not letting bias, conflict of interest or influence from others to override professional judgement.
accounting information must be supported by reliable and verifiable evidence so that financial statements will be free from opinions and biases.
out of date.
goods unsold at the beginning of a trading year. The amount will be the same as the ending nventory from the previous year.
units of ownership of a limited company that give shareholders voting rights and access to dividends.
term used on a statement of financial position to include expenses payables.
term used on a statement of financial position to include amount owing from the sale of non-current assets.
claim by the only owner on the net assets of the sole proprietorship.
P
a business’ internal document for processing payments of amounts owing to creditors. This document needs proper authorisation and accompanying source documents.
a cheque where the written date is in the future and the bank will only pay on or after this future date.
expenses paid in advance before services or benefits are used.
a company whose shares are not available to the general public and the name of the company includes the abbreviation Pte Ltd (private limited). Can only have up to 50 shareholders.
the difference between a business’ income and expenses.
profit for the period in relation to net sales revenue (measured as a percentage).
the ability of a business to generate excess income to cover its expenses.
where there are alternative accounting treatments available, the one chosen should not overstate profits and assets, and not understate losses and liabilities.
Q
measures a business’s ability to pay its short-term debts using quick assets, such as cash or equivalents, excluding inventory and prepayments.
R
measures the number of times a business sells and replaces its inventory.
measures the number of times a business collects payment from its credit customers.
source document to acknowledge payment received from customers by cash/cheque after business has sold goods or provided services.
depreciation amount calculated using net book value multiplied by depreciation rate. This method is also referred to as the diminishing balance method. Larger amount of depreciation charged in the earlier years that gradually become lesser.
a repayment to a customer who has overpaid, or a repayment made by a supplier who has been overpaid.
document that Informs credit supplier that payment by cheque has been made for a specific invoice.
money earned from letting out part of the shop/office space.
the value of a non-current asset at the end of its useful life — sometimes referred to as the scrap or salvage value.
accumulation of profits and losses that has not been distributed to shareholders since the start of the company’s operations.
measures how much profit a business earns for every dollar of equity invested by the owner or shareholders in the business.
income generated from the main activities of the business
costs to operate, repair and maintain the non-current assets in working condition.
S
the source document that provides information about goods sold on credit and the amount due.
a part of the double-entry system that is used to keep the personal accounts of trade receivables.
goods which are returned by customers.
sales revenue is the income earned by a trading business from selling its goods.
parties interested in using accounting information of a business to make decisions.
the amount expected to be obtained from the disposal of a non-current asset at the end of its useful life.
division of duties to prevent employees from using the assets of the business illegally for their own use. For example, separate cash handling and cash recording duties among different employees so that no single person has control over the entire cash process.
Business earns source of income from performing services.
the owners of a limited company.
claim by the shareholders on the net assets of a private limited company.
the amount of share capital that has been issued by a limited company.
a business owned by a single individual who provides the capital to start the business. This person also runs the business independently, keeping all the profits and bearing any losses.
business documents that provide information from which accounting records can be prepared. They provide evidence that business transactions have taken place.
is an instruction to the bank to pay a specific amount of money to a specific payee from the payer’s account on a regular basis.
parties that have an interest and well-being of a business.
reflects the income earned and expenses incurred for a period of time in order to calculate the profit or loss for the period. It informs stakeholders of the profitability of a business.
a statement that shows a business’ assets, liabilities and equity on a particular date which is generally prepared at the end of a financial period.
the accountant being a steward of the business manages its resources on behalf of the owner. The accountant sets up a system to collate, record, organise and report financial information to the business owner.
where the annual depreciation charge is calculated by taking the same portion of the cost of the non-current asset every year.
is the renting out of excess space of the business’ shop or office to another party for rent income.
parties who provide goods/other services to the business.
T
a compulsory contribution to the country’s revenue, levied by the government on business profits, or added to the cost of some goods, services, and transactions.
a person who occupies a rental property.
a reduction in the list price given as a reward for buying in bulk.
amounts collectible from credit customers.
COLLECTION PERIOD
measures the number of days a business takes to collect payment from its credit customers. Calculated through dividing average net trade receivables by net credit sales revenue or net credit service fee revenue, and multiplying by 365 days.
measures how efficiently a company collects its trade receivable. It indicates how many times a company’s receivables are converted into cash during a specific period, usually a year. A higher turnover ratio suggests that the company is effective in collecting its outstanding credit.
business earns income from selling goods.
a financial activity or event.
1. journal entries to close revenue, income and expense accounts to income summary.
2. journal entries to close income summary to capital or retained earnings, and close drawings to capital or dividends to retained earnings.
a list of all the ledger accounts and their balances at a point in time.
the principle that accounting records should be factually accurate and present a reasonable estimate of, or judgement about, the financial position of the business.
another term for net sales revenue – the amount earned from the provision of goods in an accounting period.
different goods may require special types of storage such as refrigeration.
U
In a sole proprietorship, the owner is liable for business debts and could lose both invested capital and personal assets if the business fails.
the number of years in which a non-current asset is expected to be used.
W
deterioration of non-current assets due to regular exposure to sun and rain.
the difference between total current asset and current liabilities. Funds available to run the business on a day-to-day basis.
to remove from the business’ accounting records. In accounting, it usually refers to the removal of a credit customer’s debt from the books due to insolvency, bankruptcy, death or being non-contactable despite numerous repeated attempts.
