TRIM SIZE: 215MM W X 255MM DEEP

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1 2_60_06583_AIA-6Eaakey Page 1108 Friday, August 26, :07 PM Administrative expenses budget: Estimates of the administrative expenses for the budget period (p. 520). Ageing of accounts receivable: The process of classifying accounts receivable on the basis of the length of time they have been outstanding and probability of collection; also a basis for determining the amount of the allowance for doubtful debts (p. 748). Agricultural produce: The harvested product of an entity s biological assets (p. 881). Allotment: The process whereby directors of the company allocate shares to those who have applied. Alternatively, an account recording an amount receivable on shares once allotment has been made (p. 663). Allowance for doubtful debts: The estimated amount of accounts receivable expected to be uncollectable (p. 747). Amortisation: The periodic allocation of the cost of intangible assets and natural resources to the periods benefiting from their use (pp. 879, 884). Annual financial report: The income statement, balance sheet and cash flow statement, appropriate notes and a directors declaration presented to a company s shareholders at the end of the financial year. Also includes a statement of changes in equity to comply with accounting standards (p. 948). Annual leave: Paid leave per year granted to all employees under industrial awards and employment contracts (p. 918). Annual report: A set of financial statements issued at the end of an entity s accounting period (p. 71). Application: The process whereby prospective shareholders apply to the company for an allocation of shares. Alternatively, an account recording an amount of money receivable by the company on application for shares (p. 662). Area of interest: An individual geological area whereby the presence of a mineral deposit or oil or natural gas field is considered favourable or has been proven to exist (p. 879). Assets: Resources controlled by the entity as a result of past events and from which future economic benefits are expected to flow to the entity (pp. 36, 716). Assurance services: Independent professional review services that improve the quality of information, or its context, for decision makers (p. 17). Attainable standards: Performance targets that can be achieved with a reasonably efficient effort (p. 562). Audit: An examination by an independent accountant of the financial statements and supporting documents of an entity (p. 17). Australian business number (ABN): An eleven-digit number given to each business entity which has registered for the goods and services tax (GST) in Australia (p. 69). Average collection period: Number of days taken to collect amounts due from receivables for credit sales (p. 758). Average cost: An inventory costing method in which an average unit cost is calculated by dividing the total cost of goods available for sale by the total number of units available for sale. Moving average (perpetual inventory system) and weighted average (periodic inventory system) are variations of the average cost method (p. 791). Avoidable expenses: Expenses or costs that can be eliminated if a department or a product is discontinued (p. 555). Bad debts expense: The expense resulting when allowance is made for estimated uncollectable accounts (p. 747). Balance sheet: A financial statement listing the assets, liabilities and equity of a business entity as at a specific date (p. 34). Balanced scorecard: A measurementbased management system which aligns business activities with the vision and strategies of an organisation, and which uses measures to monitor performance in achieving these strategies over time (p. 563). Bank reconciliation statement: A statement prepared to reconcile the balance reported on the bank statement with the bank balance as shown in the entity s records (p. 434). Bank statement: A statement prepared by the bank that provides the detail of activity that has taken place in a current account for the period covered by the statement (p. 432). Beginning inventory: Goods or stock on hand at the beginning of an accounting period that are available for sale to customers in the normal course of business (p. 257). Bill of exchange: An unconditional order in writing, addressed by one person or entity to another, requiring the person or entity to whom it is addressed to pay a certain sum of money to a designated person or order on a determinable future date (pp. 744, 762). Bill receivable: A receivable evidenced by a formal written promise or order to pay (p. 744). Bills payable: Obligations evidenced by a formal written promise or order to pay a certain amount on a set date (p. 913). Biological assets: Living animals and plants (p. 881). Book of original entry: See Journal. Book value: See Carrying amount. Borrowing costs: Interest costs and other costs incurred in connection with the borrowing of funds (p. 830). Break-even point: The sales volume at which total income and total costs are equal resulting in no profit or loss (p. 476). Budget: A quantitative plan showing how resources are expected to be acquired and used during a specified time period (p. 498). Budget performance report: A report showing a comparison of the actual and budgeted performance with an emphasis on variances (p. 525). Budgeting: Preparing a plan for the future operating activities of a business entity (p. 19). Budgeting period: The time period a budget covers; this is typically 1 year but can be up to 5 years (p. 498). 1108

2 2_60_06583_AIA-6Eaakey Page 1109 Friday, August 26, :07 PM Call: An amount of money receivable on shares which have been allotted but not fully paid up (p. 660). Capital budgeting: The planning and financing of capital investments, such as replacement of equipment, expansion of production facilities, and introduction of new products (pp. 593, 849). Capital expenditure budget: A budget detailing the acquisition of non-current assets planned for a future period (p. 521). Carrying amount (book value): The amount at which an asset is recorded in the accounts at a particular date. For a depreciable asset, carrying amount means the net amount after deducting accumulated depreciation from cost or revalued amount (pp. 141, 835, 866). Cash: Money and any negotiable instrument such as a cheque, postal note, credit card duplicate or electronic transfer that a bank will accept for immediate deposit in a bank account (p. 426), i.e. cash on hand and cash equivalents (p. 987). Cash budget: A projection of future cash receipts and cash payments over a period of time disclosing cash position at the end of that time (pp. 443, 509). Cash discount: An incentive offered to the buyer to induce early payment of a credit sale; also known as a settlement discount (p. 246). Cash equivalents: Short-term highly liquid investments that are readily convertible to cash at an entity s option and which are subject to an insignificant risk of changes in value (p. 987). Cash flow efficiency: The efficiency with which the entity generates cash from its income, profits and assets (p. 1070). Cash flow statement: A financial statement which reports the cash flows in and out of an entity. The cash flows are classified into operating, investing and financing activities (p. 39). Cash-generating unit: The smallest identifiable group of assets that generates cash inflows from continuing use, which are independent of cash inflows from other groups of assets (p. 871). Cash payments journal: A special journal used to record all cash payments by an entity (p. 305). Cash receipts journal: A special journal used to record transactions involving the receipt of cash by an entity (p. 301). Cash sufficiency: The adequacy of the cash flows to meet the entity s cash needs for long-term debt payments, dividends, and acquisition of noncurrent assets (p. 1070). Certificate of registration: The initial legal document registering a company (p. 657). Certified practising accountant (CPA): An accountant who has met the qualifications and experience requirements for membership of CPA Australia (p. 16). Chart of accounts: A schedule listing the titles of all accounts contained in the ledger together with an appropriate numbering system for the accounts (p. 78). Chartered accountant (CA): An accountant who has met the qualifications and experience requirements for membership of the Institute of Chartered Accountants in Australia (p. 16). Closing entries: Journal entries made at the end of an accounting period to reduce income, expense and drawings accounts to a zero balance and transfer the net balance to the capital account in a sole trader or partnership business or, in the case of a company, to the retained earnings accounts (p. 187). Collateral: Something of value that is acceptable to a lender as security for a loan (p. 923). Commercial bills: Bills of exchange used in obtaining short-term finance; also known as accommodation bills (p. 914). Committed fixed costs: Fixed costs that are required even if the operation is shut down temporarily (p. 470). Common size statements: Financial statements in which the amount of each item reported in the statement is stated as a percentage of some specific base amount also reported in the same statement (p. 1059). Company (or corporation): A form of business structure incorporated to operate as a business entity under the Corporations Act 2001 throughout Australia (p. 30). Company limited by guarantee: A public company whose members undertake to contribute a guaranteed amount if the company is wound up (p. 654). Comparability: That quality of financial information which exists when users are able to discern and evaluate similarities and differences between transactions and events, at one time and over time, for one entity or a number of entities (p. 714). Comparative statements: Financial statements for the current year and previous years presented together to facilitate the analysis of changes in statement items (p. 1057). Composite-rate depreciation: A depreciation method under which a single average depreciation rate is applied to the cost of a functional group of assets (p. 877). Compound journal entry: A journal entry involving three or more accounts (p. 85). Concise report: A summarised set of financial reports plus directors and auditor s reports sent to shareholders as an alternative to the full annual financial report (p. 949). Consignee: An entity or individual holding goods on consignment; does not own the goods held (p. 785). Consignment: A marketing arrangement whereby merchandise is transferred from one entity (the consignor) to another (the consignee or agent) in order that the consignee may sell the goods on behalf of the consignor; however, title and control of the goods remain with the consignor (p. 785). Consignor: An individual or entity that ships goods on consignment. Title to the goods is retained by the consignor until the goods are sold by the consignee, at which time title passes to the purchaser (p. 785). 1109

3 2_60_06583_AIA-6Eaakey Page 1110 Friday, August 26, :07 PM Consistency: The notion that once a particular accounting method is adopted it should not be changed from period to period unless a different method provides more useful information (p. 715). Constitution: A document containing the rules for managing a company, particularly in terms of relationships and dealings between directors and shareholders, which are adopted by a company as an alternative to the replaceable rules in the Corporations Act 2001 (p. 657). Constructive obligation: When the past practices of an entity, its published policies or a specific current statement indicate that it will accept responsibility for certain actions, so it becomes reasonable for others to assume the entity will fulfil those responsibilities (p. 907). Contingent liability: A possible liability arising from a past event that will become an actual liability by the occurrence or non-occurrence of one or more uncertain future events that are not completely within the control of the entity, or a liability which does not satisfy the recognition criteria (pp. 767, 910). Contra account: An account that is deducted from a related account (p. 139). Contribution margin: The sales revenue less all variable costs (or unit selling price less unit variable cost) (p. 473). Contribution margin ratio: The contribution margin expressed as a percentage of sales (p. 473). Contribution margin variance analysis: A technique used to evaluate the difference between the actual contribution margin for a period and the budgeted contribution margin for the same period (p. 483). Control: In relation to an asset, the capacity of an entity to receive future economic benefits in pursuing its objectives and to deny or regulate the access of others to those benefits (p. 716). Control account: A general ledger account that is supported by the detail of a subsidiary ledger (p. 293). Controllable income, costs/expenses or investments: Income, costs/expenses or investments that can be regulated or influenced at a particular level of management during a specified time period (p. 543). Conversion costs: The combined costs of direct labour and factory overhead incurred by a job or processing centre in the process of converting raw materials into finished goods (pp. 358, 399). Copyright: An exclusive right to reproduce and sell an artistic or published work (p. 885). Cost: An economic sacrifice of resources made in exchange for a product or service (p. 352); the amount of cash or cash equivalents paid or the fair value of the other consideration given to acquire an asset at the time of its acquisition or construction (p. 828). Cost accounting: The aspect of accounting that deals with the collection, allocation and control of the cost of producing a product or providing a service (p. 19); a specialised form of accounting that enables an entity to measure, record and report product costs using a perpetual inventory system (p. 388). Cost accounting system: An accounting system which records cost data in separate ledger accounts which are integrated into the general ledger (p. 388). Cost behaviour: How a cost will react to changes in the level of some activity, e.g. production or sales, within an entity (pp. 359, 468). Cost driver: A measure of business activity that incurs overhead costs (p. 397). Cost function: The relationship between a cost as a dependent variable and some measure of the level of business activity as an independent variable (p. 468). Cost object: Any activity for which separate cost measurement is performed; examples are a department or segment, or a product (p. 548). Cost of capital: An entity s cost of obtaining funds in the form of borrowings or equity (p. 598). Cost of goods manufactured statement: A detailed statement of manufacturing costs reported on the income statement of a manufacturing entity (p. 361). Cost of production report: The control document used in process costing to account for the manufacturing costs of units in a processing centre (p. 402). Cost of sales: An amount that is deducted from sales in the income statement and is a measure of the cost of the inventory sold during the accounting period (p. 241). Cost of sales budget: An estimate of the cost of sales required for the budget period (p. 519). Cost volume profit (CVP) analysis: A management analysis technique used to evaluate how costs and profits are affected by changes in the level of business activity (p. 468). Cost volume profit chart: A graphic display of the break-even point as well as the profit or loss for a range of activity (p. 477). Coupon rate (nominal or stated rate): The interest rate stated as a percentage of nominal value and used to determine the interest paid periodically to the debenture holder (p. 924). Credit: An amount entered on the righthand side or in the credit column of an account (p. 72). Credit card: A plastic card which enables the holder to obtain credit up to a predetermined limit from the issuer of the card for the purchase of goods and services (p. 760). Credit department: The organisational unit responsible for the credit and collection policies of the business (p. 756). Credit period: The period of time granted for the payment of an account (p. 246). Credit terms: The agreement made between buyer and seller concerning the sale of goods on credit (p. 246). 1110

4 2_60_06583_AIA-6Eaakey Page 1111 Friday, August 26, :07 PM Creditors: People or business entities to whom debts are owed; alternatively, another name for the Accounts Payable account (pp. 36, 75). Crossadding: Adding or subtracting horizontally across a worksheet (p. 159). Cumulative preference shares: Preference shares on which undeclared dividends accumulate before any dividend can be paid to ordinary shares (p. 671). Current assets: Cash and other types of assets that are held mainly for sale, or are reasonably expected to be converted to cash, sold or consumed by a business entity within its operating cycle (if this is discernible) or are expected to be realised within 12 months after the entity s reporting date (p. 154). Current cost: For an asset, the amount of cash or cash equivalents that would be paid if the same or equivalent asset was acquired currently (p. 726). Current liabilities: Obligations of the entity that are reasonably expected to be settled in the entity s normal operating cycle, or are held for the purpose of being traded, or are due to be settled within 12 months of the reporting date (pp. 155, 912). Current replacement cost: The cost that an entity would incur to acquire an asset on the reporting date (p. 800). DDP (delivered duty paid): A shipping/ delivery term meaning the seller bears all the costs of delivering the goods to the buyer (p. 249). Debentures (or bonds): A liability representing a written promise to pay a principal amount at a specified time, as well as interest on the principal at a specified rate per period (p. 923). Debit: An amount entered on the left-hand side or in the debit column of an account (p. 72). Debit card: A plastic card used in the electronic funds transfer point of sale (EFTPOS) system, where funds are debited to the card user s account at the bank and transferred instantaneously to the credit of the account of the seller of the goods or services (p. 761). Debtors: People or business entities from whom debts are owed; alternatively, another name for the Accounts Receivable account (pp. 37, 74). Decision: The making of a choice between two or more alternatives (p. 5). Decision making: Making a choice among alternative courses of action (p. 584). Decision model: A formalised method for evaluating alternative courses of action (p. 585). Defeasance: An arrangement whereby the terms and conditions of a debt are avoided or defeated (p. 926). Deferrals: Assets that represent expenses paid in advance, and revenues received in advance that represent liabilities until the revenues can be recognised as earned (p. 134). Departmental (segmental) accounting: Accounting procedures required to evaluate the financial performance of individual segments or departments within an organisation (p. 545). Departmental contribution: The revenues of a department less its cost of sales and direct expenses (p. 553). Departmental gross profit: The revenues of a department less its cost of sales (p. 546). Departmental profit: The revenues of a department less its cost of sales, its direct expenses, and an allocated portion of indirect expenses (p. 548). Depreciable amount: The historical cost of a depreciable asset, or other revalued amount substituted for historical cost in the accounting records, less, in either case, the residual value (p. 834). Depreciable asset: A non-current asset having a limited useful life (p. 833). Depreciation: An allocation of a depreciable asset s depreciable amount to reflect the consumption or loss of its future economic benefits through usage, wear and tear and obsolescence (pp. 139, 833). Development: The application of research knowledge to a plan or design for the production of new materials, products, processes, systems or services before commercial production (p. 883). Differential analysis (incremental analysis): A decision model used to evaluate the differences in relevant incomes and costs between alternative courses of action (p. 585). Differential cost: The difference between the relevant costs of two alternatives (p. 585). Differential income: The difference between the relevant incomes of two alternatives (p. 586). Diminishing-balance depreciation: A depreciation method that results in a decreasing depreciation charge over the useful life of the asset, by applying a predetermined depreciation rate to the carrying amount of the asset (p. 836). Direct cost (expenses): Cost or expenses traceable to a specific cost object (p. 548). Direct costing: An inventory valuation method where only variable manufacturing costs are charged as product costs (compare Absorption costing) (p. 359). Direct labour budget: A projection of the direct labour needs of a budget period based on the expected production level (p. 516). Direct labour cost: Represents the wages paid to employees whose time and costs can be traced to specific products (p. 356). Direct materials budget: A projection of the direct materials that must be purchased to satisfy the production requirements of a budget period (p. 516). Direct materials cost: The cost of raw materials directly traceable to the finished product (p. 356). Direct write-off method: The recognition of bad debts expense at the time an account receivable is deemed to be uncollectable (p. 753). Disclosing entity: An entity, which may or may not be incorporated, which has enhanced disclosure securities (p. 950). Discount (in relation to bills of exchange): Interest deducted in advance, in practice at the effective interest rate or yield (pp. 766, 914). 1111

5 2_60_06583_AIA-6Eaakey Page 1112 Friday, August 26, :07 PM Discount (on debentures): The amount by which the issue price of a debenture is below the nominal value (p. 924). Discount allowed: An expense which results from cash discounts taken by customers on the sale of inventory (p. 246). Discount period: The period of time in which a cash discount may be subtracted from the invoice price before payment or receipt (p. 246); the period of time for which interest on a discounted bill is charged (p. 766). Discount received: Income which results from cash discounts taken by an entity on goods purchased for resale (p. 246). Discounted cash flows: Capital budgeting method used to compare the cost of an investment with the present value of the net cash flows from it in the future (p. 594). Discretionary fixed costs: Fixed costs that can be changed or discontinued by management if enough time is available (p. 469). Dishonoured bill: A bill the drawer has failed to pay on its maturity date (p. 765). Dishonoured cheques: Cheques that are included in a customer s deposit but are not paid by the drawer s bank because of lack of sufficient funds or some other irregularity (p. 434). Dividends: Distributions of cash or other assets or a company s own shares to its shareholders (pp. 218, 669, 721). Dividends in arrears: Dividends on cumulative preference shares that are not declared in the year in which they are due (p. 671). Double-entry accounting: The accounting system where every transaction affects two (or more) components of the accounting equation (p. 47). Drawings: The withdrawal of assets from the business entity by its owner(s) (p. 38). Economic entity: A group of entities comprising a controlling entity and one or more controlled entities operating together to achieve objectives consistent with those of the controlling entity (p. 711). Economic resources: Resources which are scarce and which are traded in the marketplace at a price (p. 6). Economic substance: Accounting transactions and events are reported on the basis of economic reality rather than legal form (p. 42). Effectiveness: A measure of how well an entity attains its goals (p. 32). Efficiency: Maintaining a satisfactory relationship between an entity s resource inputs and its outputs of products or services (p. 32). Electronic spreadsheet: A spreadsheet used to analyse business data and solve everyday business problems (p. 319). Employee benefits: All forms of consideration that employees accumulate as a result of rendering services to their employer; these considerations include wages and salaries (including all monetary and non-monetary fringe benefits), annual leave, sick leave, maternity leave, longservice leave, superannuation, and post-employment benefits (p. 916). Ending inventory: Goods or stock on hand at the end of an accounting period that are available for sale to customers in the ordinary course of the business (p. 257). Entering or journalising: The process of recording a transaction in the journal (p. 84). Equity: The residual interest in the assets of the entity after deducting all its liabilities (pp. 36, 717). Equivalent units: A measure in process costing of how many equivalent whole units of output are represented by the units finished plus the units partly finished (p. 401). Expense allocation: A systematic and rational process used to apportion indirect costs or expenses to departments (p. 548). Expenses: Decreases in economic benefits during the accounting period in the form of outflows or depletions of assets or incurrences of liabilities that result in decreases in equity, other than those relating to distributions to equity participants (pp. 37, 77, 352, 719). Expenses to sales ratio: A ratio that reflects the portion of each sales dollar needed to meet expenses (p. 268). Expired cost: The cost of an asset used up in producing revenue; an expense (p. 131). External transactions: Transactions involving parties outside the business entity (p. 68). EXW (ex works): A shipping/delivery term meaning freight costs incurred from the point of shipment are paid by the buyer (p. 249). Factor: A business or financial institution which buys accounts receivable for a fee, and then collects the cash from those accounts (the receivables) (p. 759). Factoring: The selling (purchase) of accounts receivable to (by) a factor business (p. 759). Factory overhead budget: A projection of the factory overhead cost items required to support the expected production level (p. 518). Factory overhead cost: All factory costs except direct materials and direct labour required in the production process (p. 357). Fair value: The amount for which an asset could be exchanged between knowledgeable, willing parties in an arm s-length transaction (pp. 623, 726, 828, 866). Finance and other expenses budget: Estimates of financial and other expenses for a budget period (p. 520). Finance expenses: Expenses incurred in relation to the financing of the entity, collecting debts and running the credit department (p. 241). Finance lease: A lease agreement whereby substantially all the benefits and risks of ownership of the leased property are transferred from the lessor to the lessee (pp. 832, 928). Financial accounting: That part of accounting which provides information to external users to help them assess the entity s financial performance, financial position, financing and 1112

6 2_60_06583_AIA-6Eaakey Page 1113 Friday, August 26, :07 PM investing activities, and solvency (p. 14). Financial budgets: The parts of the master budget that show the funding and financing needed for the planned operations (p. 503). Financial capital: Capital is synonymous with the net assets or equity of the entity, measured either in terms of the actual number of calculated dollars by subtracting the total of liabilities from assets, or in terms of the purchasing power of the dollar amount recorded as equity. Profit exists only after the entity has maintained its capital, measured as either the dollar value of equity at the beginning of the period or the purchasing power of those dollars in the equity at the beginning of the period (p. 726). Financial position: The economic condition of a reporting entity, with regard to its control over economic resources, financial structure, capacity for adaptation, and solvency (pp. 33, 711). Financial stability: An entity s ability to continue operating in the future and to satisfy its long-term cash obligations (p. 1067). Financial stability ratios: Ratios used to analyse the ability of an entity to continue operations in the long term and to satisfy long-term commitments while having sufficient working capital (p. 931). Financing activities: Activities relating to the raising of funds for an entity to carry out its operating and investing activities, i.e. equity and borrowings which are not part of the definition of cash (pp. 34, 989). Finished goods: The cost of the products that have been manufactured completely and are ready for sale (p. 354). First-in, first-out (FIFO): A cost flow assumption in inventory costing that assumes the first units purchased were the first units sold. The cost of ending inventory is assumed to be the cost of the most recently purchased units (p. 789). Fixed (static) budget: A budget prepared for only one level of activity (p. 557). Fixed costs: Production costs that remain constant in total amount over a wide range of production levels (p. 359). Flexible budget: A series of budgets prepared for a range of activity levels (p. 557). Franchise: A right granted by a company or government body to conduct a franchised business at a specified location or in a specific geographical area (p. 886). Freight inwards (transportation-in): A cost incurred by the buyer in transporting inventory purchases (p. 252). See also EXW (ex works). Freight outwards: Transportation (delivery) expense incurred by the seller to deliver goods to customers (p. 249). See also DDP (delivered duty paid). Gains: Income which does not necessarily arise from the ordinary activities of the entity (pp. 77, 718). Gearing (leverage): The use of borrowed funds to earn a return greater than interest or dividends paid to creditors and preference shareholders respectively (pp. 928, 1061). General journal (two-column journal): A record book containing a chronological listing of transactions (p. 84). General ledger: A collection of accounts maintained by an entity to enable the preparation of that entity s financial statements (p. 72). General ledger software: Computerised accounting systems consisting of modular programs covering each of the major funtional areas of accounting (p. 319). General partnership: Where each partner is individually liable for the partnership liabilities (p. 619). General-purpose financial reports: Financial reports intended to meet the information needs of a range of users who are unable to command the preparation of reports tailored to satisfy, specifically, all of their information needs (pp. 11, 711). Goal congruence: The reconciliation of the goals of individual managers with those of the organisation (p. 500). Going concern assumption (continuity): The assumption that a business will continue to operate in the future unless there is evidence to the contrary (pp. 41, 724). Goodwill: Future benefits from unidentifiable assets (pp. 624, 887). Grants related to assets: Government grants to an entity to purchase, construct or otherwise acquire longterm assets (p. 722). Grants related to income: Government grants to an entity other than those related to assets (p. 722). Gross pay (gross earnings): The total amount of an employee s wages or salary before any payroll deductions (p. 916). Gross profit method: A method used to estimate ending inventory value based on the assumption that the gross profit percentage is approximately the same from period to period (p. 808). Gross profit (or gross margin) on sales: Net sales less cost of sales (p. 241). Gross profit ratio: A ratio which represents the portion of sales reflected in gross profit (p. 268). GST Collections: The account recording the GST received or receivable by a GST-registered entity from its customers and clients (p. 75). GST Outlays: The account recording the GST paid or payable by a GSTregistered entity to its suppliers (p. 75). Historical cost: An asset is recorded at the amount of cash or cash equivalents paid or the fair value of the consideration given to acquire it at its acquisition date (p. 726). Horizontal analysis: That part of an analysis based on the comparison of amounts reported for the same item in two or more comparative statements with an emphasis on the change from year to year (p. 1057). Ideal standards: Performance targets achievable only with best performance (p. 562). 1113

7 2_60_06583_AIA-6Eaakey Page 1114 Friday, August 26, :07 PM Identifiable assets: Those assets that are capable of being both individually identified and specifically brought to account (p. 883). Impairment loss: As applied to an individual asset, the situation where the asset s recoverable amount is less than its carrying amount (p. 870). As applied to a cash-generating unit, the situation where the fair value of the group of assets as a whole is less than the carrying amount of that group (p. 870). Imprest system: A system of petty cash fund operation where a fixed amount of cash can always be accounted for by a count of cash plus the value of expenditure vouchers issued (p. 442). Income: Increases in economic benefits during the accounting period in the form of inflows or enhancements of assets or decreases of liabilities that result in increases in equity, other than those relating to contributions from equity participants; includes revenues and gains (pp. 37, 76, 718). Income statement (or profit and loss statement or operating statement): A financial statement listing the income, expenses and profit/operating surplus or loss/deficit of an entity for a certain time period (p. 36). Indirect cost (expenses): Cost or expenses incurred for the common benefit of multiple cost objects (p. 548). Insolvent: Unable to pay debts as they fall due (p. 18). Intangible assets: Identifiable nonmonetary assets that usually do not have a physical existence and derive value from the rights that possession confers on their holders (pp. 155, 882). Interest (in relation to bills of exchange): A charge made for the use of money, calculated as Principal Rate Time (p. 763). Interim financial report: A set of halfyearly statements, including an income statement, a balance sheet, a cash flow statement and selected explanatory notes, to be prepared by a disclosing entity (p. 950). Interim statements: Financial statements prepared between the annual reports, usually half-yearly or quarterly (pp. 71, 189). Internal audit: The ongoing investigation of compliance with established procedures and policies of an entity by its internal audit staff (p. 19). Internal control system: The overall procedures adopted by a business to safeguard its assets, promote the reliability of accounting data, and encourage compliance with management policies (p. 289). Internal rate of return (IRR): The interest rate that discounts the net cash flows from an investment so their present value is equal to the cost of the investment (p. 600). Internal transactions: Business activities in which only the single business entity participates, such as the use of supplies by an employee (p. 68). Inventory: Goods or property acquired by a retail business for the purposes of resale in the ordinary course of operations (p. 240). Inventory turnover: A ratio that indicates the number of times average inventory has been sold during a period (p. 269). Investing activities: Activities associated with the acquisition and sale of an entity s non-current assets (p. 34), and to the purchasing and selling of investments (e.g. shares) which are not part of the definition of cash (p. 988). Investments: Assets held for investment purposes rather than for use in the normal activities of the entity (p. 155). Job cost order: A control account used in job order costing to provide a detailed listing of the costs related to the completion of a particular job (p. 391). Job order costing: A cost system in which costs are accumulated by job (p. 389). Joint product costs: Common costs required to produce joint products before they are identifiable as separate units (p. 588). Joint products: More than one product produced from common raw materials or the same production process (p. 588). Journal (book of original entry): A record in which transactions are initially recorded (p. 84). Journal entry: The format in which a transaction is entered in the general journal (p. 84). Just-in-time (JIT) processing: A system of manufacturing designed to eliminate the holding of inventories by putting raw materials directly into production when received and shipping finished goods immediately to customers (p. 408). Last-in, first-out (LIFO): A cost flow assumption in inventory costing that assumes the most recent units purchased were the first units sold. The cost of ending inventory is assumed to be the cost of the earliest units purchased (p. 790). Lease: A rental agreement in which the lessee obtains from the lessor the right to use property for a stated period of time (p. 927). Leasehold improvements: Permanent improvements to leased property made by the lessee (p. 844). Legal obligation: Obligation evidenced by formal documentation such as a contract, legislation or other operations of the law which establish a present obligation (p. 907). Lessee: The entity which has leased an asset from the lessor (p. 832). Lessor: The entity which has leased an asset to the lessee (p. 832). Liabilities: Present obligations of an entity arising from past events, the settlement of which is expected to result in an outflow from the entity of resources embodying economic benefits (pp. 36, 717, 906). Limited company: A company whose members are liable only to the extent of the amount of issue price unpaid on their shares, or to the extent of a guaranteed amount (p. 653). Limited liability: In a company, shareholders are liable to contribute to the assets of a company only to the extent of amounts unpaid on their shares (p. 30). 1114

8 2_60_06583_AIA-6Eaakey Page 1115 Friday, August 26, :07 PM Limited partnership: Where one or more of the partners have limited their liability for partnership debts to the amount of their investment. However, at all times at least one partner must have unlimited liability (p. 619). Linearity assumption: A key assumption of CVP analysis that all revenue and costs will behave as straight-line functions in the relevant range of activity (p. 469). Liquidation: The process of winding up the affairs of a company so that it ceases to exist (p. 18). Liquidity (solvency): The ability of an entity to satisfy its short-term financial obligations; also refers to the average length of time it takes to convert a noncash asset into cash (pp. 152, 1055). Liquidity ratios: Ratios which provide a measure of an entity s ability to pay its short-term obligations, and meet unexpected demands on cash resources (p. 930). Long-service leave: Paid leave granted to employees who have remained with the same employer over an extended period of time (p. 919). Loss: The excess of expenses over total income (revenues and gains) (pp. 38, 77). Lower of cost and net realisable value: Inventory valuation method where inventory is valued at lower of original cost and net realisable value at the reporting date (p. 799). Lump-sum acquisition: The purchase of a group of assets for one total payment (p. 831). Management accounting: That part of accounting which provides information to management for planning, controlling and decision making (p. 14). Management by exception: The concentration only on performance results that deviate significantly from those planned (pp. 33, 545). Management functions: The planning, organising, directing and controlling required to manage an organisation (p. 32). Manufacturing business: A business that converts raw materials into saleable products (p. 352). Manufacturing cost elements: The direct materials, direct labour and factory overhead required to produce a saleable product (p. 356). Manufacturing worksheet: Working papers used to organise financial data, including the manufacturing costs, and to prepare financial statements (p. 364). Margin of safety: The excess of actual or expected sales over break-even sales (p. 477). Mark-down cancellation: Reversal of a mark-down whereby inventory not sold at a sales promotion reverts to its normal retail price (p. 807). Mark-downs: Price reductions to promote sales (p. 807). Mark-up cancellations: Reversal of markups. A downward revision on retail prices because of lack of demand or an excessive mark-up (p. 807). Master budget: A set of interrelated budgets representing a comprehensive plan of action for a specified time period (p. 502). Materiality: The extent to which information can be omitted, misstated or grouped with other information without misleading the users of that information when they are making their economic decisions (pp. 42, 713). Materials requisition: A record of the amount of raw materials requisitioned from the storeroom for a job or as indirect materials (p. 392). Maturity date: The date on which a bill or debenture is due for payment (pp. 764, 923). Maturity value: The amount of a bill due on its maturity date; it includes principal as well as interest (p. 763). Mixed cost: A cost that has both a variable component and a fixed component (p. 468). Monetary assumption: The use of money in accounting as the common denominator by which economic activity is measured and reported (p. 725). Mortgage: A legal document setting forth the specific assets serving as collateral for a loan (p. 926). Mortgage debenture: A debenture in which land held by the company is mortgaged as security for the debenture (p. 924). Mortgage payable: A liability in which specific property of the borrower serves as collateral for a loan (p. 923). Moving average: An inventory costing method by which an average unit cost is calculated after each purchase. The method applies only where a perpetual inventory system is being used (p. 797). Mutual agency: A characteristic whereby each partner is an agent for the partnership and can bind the partnership to a contract if acting within the normal scope of the business (p. 619). Net assets: Total assets minus total liabilities (as in the narrative form of the balance sheet) (p. 36). Net fair value: Fair value less estimated point-of-sale costs (p. 881). Net pay (net earnings): Gross pay of an employee less deductions (p. 916). Net present value (NPV) method: A capital budgeting method used to discount future net cash flows into present value terms with the entity s cost of capital (p. 596). Net present value index method: A method of evaluating investments where an index is derived by relating the net present values of future cash flows to initial cost (p. 599). Net realisable value: The market value based on estimated proceeds of sales less, where applicable, GST and all further costs of production, marketing, selling and distribution to customers (p. 799). No-liability company: A company, being a mining company, which does not have the right to require shareholders to pay calls to the company (p. 654). Nominal value (face value, principal): The amount due to a lender when a debt under debentures or unsecured notes matures (p. 923). 1115

9 2_60_06583_AIA-6Eaakey Page 1116 Friday, August 26, :07 PM Non-cumulative preference shares: Preference shares on which the right to receive dividends is lost in any year in which dividends are not declared (p. 671). Non-current liabilities: Obligations of the entity that do not require payment within the operating cycle or within 12 months of the reporting date (pp. 156, 912). Non-reciprocal transfer: A transfer of assets in which the entity receives assets or services without giving approximately equal value in exchange for the assets or services received (p. 722). Normal account balance: The side or column of the account on which increases are recorded (p. 83). Onerous contract: A contract in which the unavoidable costs of meeting the obligations under the contract exceed the economic benefits expected to be received under it (p. 920). Operating activities: Activities associated with the provision of an entity s goods or services, and other activities that are neither financing nor investing activities (pp. 34, 988). Operating budgets: The components of the master budget that describe the income, costs and expenses required to achieve a satisfactory financial performance (p. 503). Operating cycle: The average period of time it takes for an entity to purchase or manufacture inventory or perform services, and then receive cash from the sale (p. 154). Operating lease: A lease where the lessor effectively retains all of the substantial risks and rewards associated with ownership of the leased asset (pp. 832, 928). Operating statement: See Income statement. Opportunity cost: The potential benefit forgone by rejecting one alternative while accepting another (p. 586). Ordinary shares: A class of share that has no preferences relative to other classes (p. 668). Organisation: A group of people who share common goals with a welldefined division of labour (p. 31). Overapplied factory overhead: The excess of the factory overhead applied to work in process with a predetermined rate during a given period over the actual factory overhead incurred (p. 396). Overhead application rate: A predetermined rate used to assign factory overhead costs to products (p. 357). Participating preference shares: Preference shares which have the right to receive further dividends above their fixed rate after ordinary shares have received dividends up to a stated percentage for the period (p. 671). Partnership: A form of business structure under which a business entity is owned by two or more people as partners sharing profits and losses (pp. 30, 618). Partnership agreement: The contract or agreement made among the partners to form and operate a partnership (p. 620). Patent: An exclusive right to produce and sell a particular product or process for a period of 20 years (p. 884). Payback period: The length of time required to recover the cost of an investment from the net cash flows it generates (p. 600). Percentage-of-completion method: A method of accounting for service contracts and long-term construction contracts under which revenue is recognised in proportion to the services or work completed during the period (p. 721). Percentage of net credit sales: A method used to determine the amount of the allowance for doubtful debts (p. 748). Performance: The entity s ability to operate its assets efficiently and effectively in the conduct of its activities (pp. 33, 711). Period assumption: The assumption that the economic life of an entity can be divided into arbitrary equal time intervals for reporting purposes (pp. 41, 725). Period costs: Costs reported in the income statement of the period in which they are incurred rather than being costed to inventories as product costs (p. 355). Periodic inventory system: A system of accounting for inventory in which the goods on hand are determined by a physical count and the cost of sales is equal to the beginning inventory plus net purchases less ending inventory (p. 256). Permanent (real) accounts: Accounts reported in the statement of financial position (p. 132). Perpetual inventory system: A system of accounting for inventory that provides a continuous and detailed record of the goods on hand and the cost of sales (p. 250). Petty cash fund: A specified amount of cash placed under the control of an employee (petty cashier) for use in making small cash payments (p. 440). Petty cash voucher or receipt: A form used as a receipt for payments from a petty cash fund (p. 440). Physical capital: Capital is seen as the operating capability of the entity s assets. Profit exists only after the entity has set aside enough capital to maintain the operating capability of its assets (p. 727). Physical inventory count (stocktake): The process of counting and pricing the goods on hand (p. 255). Post-closing trial balance: A trial balance taken after the adjusting and closing entries have been posted to the accounts and the permanent accounts balanced (p. 210). Posting: The process of transferring information recorded in a journal to the individual accounts in the ledger (p. 86). Predetermined overhead rate: The rate determined by dividing estimated factory overhead or service costs for a period by some measure of the estimated activity and used to apply overhead to work in process/services provided (p. 395). Preference shares: Shares which receive preferential treatment over ordinary 1116

10 2_60_06583_AIA-6Eaakey Page 1117 Friday, August 26, :07 PM shares such as a preference in dividend distributions, and/or a preference in asset distributions if the company is wound up (depending on the constitution) (p. 668). Preliminary expenses: The expenditures made to form a company. They include incorporation fees, legal fees, and promoters and underwriters fees (p. 658). Premium (on debentures): The price in excess of nominal value on issue of debentures (p. 924). Present value: The single value at the present time of cash flows expected to be received or paid in the future which have been discounted at an appropriate rate (p. 916). Prime cost: The cost of direct materials plus the cost of direct labour (p. 357). Principal: The base figure (face amount) of an amount owing (a bill) (p. 763). Proceeds: The maturity value of a bill less discount (p. 766). Process costing: A cost accounting system in which costs are accumulated by processing centres during a specified period (p. 399). Processing centre: A segment of the manufacturing operation in which a particular process takes place and for which costs are accumulated in process costing (p. 399). Product costs: Costs assigned to inventories during production and reported in the income statement when the related finished goods are sold (p. 355). Production budget: An estimate of the number of units that will be manufactured during the budget period (p. 515). Production departments: Departments engaged directly in the manufacturing operation required to convert raw materials into finished goods (p. 357). Profit: When total income (revenues and gains) exceeds total expenses (pp. 38, 77). Profit and loss statement: See Income statement. Profit margin: A ratio which represents the portion of sales which ends up as profit (p. 268). Promissory note: An unconditional written promise to pay a sum certain in money on demand or at a future determinable date (pp. 744, 763). Property, plant and equipment: Resources of the entity that are physical in nature, have a relatively long useful life, and are used in the activities of the entity (p. 155). Proprietary company: A company having a share capital in which the right to transfer shares is restricted as is the right to raise capital from the public (p. 653). Prospectus: A legal document representing an approach by a company to raise funds in order to carry on business (p. 658). Provisions: Liabilities of uncertain timing or amount (p. 909). Prudence: A notion concerning the accountant s desire to exercise care and caution in situations of uncertainty as part of ensuring the reliability of information (p. 714). Public company: A company entitled to raise capital from the public and to have its shares listed on the stock exchange (p. 653). Purchases: An account used in a periodic inventory system to record the cost of goods acquired for resale to customers (p. 258). Purchases budget: An estimate of the number of units that will be purchased by a retail entity during the budget period (p. 503). Purchases journal: A special journal used to record all purchases of inventory on credit (p. 299). Purchases returns and allowances: An account used in the periodic inventory system to record the return by an entity of inventory or adjustments made to the purchase price (p. 258). Qualifying asset: An asset that necessarily takes a substantial period of time (i.e. usually longer than 1 year) to get ready for its intended use or sale (pp. 830, 953). Ratio: Division of the amount reported for one financial statement item by the amount reported for another. Ratio analysis is the evaluation of the relationship indicated by this division (p. 1059). Raw materials: The cost of the basic materials that have been purchased by a manufacturing entity and are available for conversion into saleable products (p. 354). Realisable value: The amount of cash or cash equivalents that could be obtained currently by selling the asset in an orderly disposal or in the normal course of business (p. 726). Receivables turnover ratio: A ratio which measures the number of times average receivables are converted into cash during a period (p. 757). Recognition: The process of incorporating in the balance sheet or income statement an item that meets the definition of an element (p. 719). Recoverable amount: The higher of an asset s net selling price and its value in use (p. 871). Redemption by sinking fund: The redemption of long-term debt by way of establishing a fund which will be used to pay the debt s obligations on maturity (p. 926). Relevance: A quality of financial information which influences economic decisions by helping users to form predictions, to confirm or correct past evaluations and to assess the rendering of accountability by preparers (pp. 41, 713). Relevant costs: Expected future costs that will differ between alternatives (p. 585). Relevant income: Expected future income that will differ between alternatives (p. 586). Relevant range: The range of activity within which a business expects to operate and incur variable costs with constant slopes as well as fixed costs that are constant in total amount (p. 469). 1117