Terms Introduced in the Chapter

The end products of the accounting process — the trading and profit and loss account and the balance sheet — that report a firm's performance and financial posit …

A statement (not an account) that shows the assets, liabilities and capital of a business at a particular date; its two sides alwa …

The excess of net sales over the cost of goods sold (opening stock + net purchases + direct expenses − closing stock), found …

The excess of the cost of goods sold over net sales — the debit balance of the trading account when purchases plus direct …

Gross profit plus other incomes less all indirect expenses; the credit-side surplus of the profit and loss account, transferred …

The excess of indirect expenses and losses over gross profit and other incomes; the debit balance of the profit and loss account, …

Journal entries passed at the year-end to transfer the balances of all revenue and expense accounts to the trading and pr …

The journal entry made at the start of a new accounting year to bring forward the balances of assets, liabilities and capital from the …

An outlay whose benefit extends over more than one accounting year, such as buying a fixed asset; it is shown in the balance sheet …

An outlay whose benefit is consumed within the current accounting year, such as rent or salaries; it is transferred to the trading and …

Receipts that create an obligation to return money (additional capital, a loan) or arise from the sale of a fixed asset; they are …

Receipts arising from the normal operations of the business, such as sales and interest on investment, that do not creat …

Assets held on a long-term basis for use in the business rather than for resale, e.g. land, building, plant and machinery, f …

Assets that are in the form of cash or are expected to be converted into cash within one year — cash, bank, debtors, bills receivable, …

Liabilities expected to be paid within one year, usually out of current assets — creditors, bills payable, bank overdraft, short-term loa …

The excess of assets over liabilities due to outsiders — the amount the proprietor has invested, increased by profits and reduced …

A written promise (bill of exchange or promissory note) received by the firm entitling it to receive a stated sum on a future …

A written acceptance by the firm to pay a stated sum on a future date; a curr …

A facility that lets the firm withdraw more than its bank balance; it is a credit balance in the bank account and is shown a …

The value of goods remaining unsold at the end of the accounting year; shown on the credit side of the trading account and as a current as …

Opening stock + net purchases + direct expenses − closing stock; the cost of the goods actually sold …

Goods returned by the firm to its suppliers (return outwards); deducted from purchases in the …

Another name for purchases return — goods sent back to suppliers, deducted f …

Goods returned by customers to the firm (return inwards); deducted from sales in the …

Another name for sales return — goods returned by customers, deducte …

The revenue earned from selling the goods the business deals in, whether for cash or on credit; shown net of returns on the credit side …

Freight/transport cost incurred to bring purchased goods to the place of business; a direct expense debited to …

Freight/transport cost incurred on despatching goods to customers; an indirect (selling) expense debited to the pro …

Transport charges on goods; freight inwards (on purchases) is a direct expense, freight outwards (on sales) is …

Expenses incurred in running the factory, such as factory rent, lighting, power and fuel; direct expenses charged to …

Small miscellaneous/sundry expenses of the business clubbed together and debited to the profit …

Remuneration paid to office, administrative and warehouse staff; an indirect expense debited to the profi …

Payment for the use of premises; office/godown rent is an indirect expense, while factory rent is a direct expense of …

The systematic charge for the wear and tear or fall in value of a fixed asset over its useful life; an indirect expense of the p …

Amounts owed by debtors that have become irrecoverable; written off as an expense in the profit and loss account. (Listed by the b …

The reduction a firm grants to its customers for prompt payment; an indirect expense debited to the profi …

The reduction a firm receives from its suppliers for prompt payment; an indirect income credited to the prof …

Money in hand available for immediate use; the most liquid of all cu …

The balance of money the firm holds in its bank account; a liquid cu …

For a sole proprietor, a personal (not business) charge — treated like drawings and deducted from capital i …

Interest allowed to the proprietor on the capital invested; where charged, it is an expense that increases …

Interest charged to the proprietor on amounts withdrawn for personal use; it reduces the …

Grouping is putting items of similar nature under a common head (e.g. current assets); marshalling is arranging assets and liabilities in a definite order — either …

The two accepted ways of marshalling a balance sheet: permanence lists the most permanent item first, liquidity lists the most liquid item first — eac …