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| Accounting Department |
Glossary and Further Explanations
- Accounting - the recording, measuring and analysis of transactions in order to make informed decisions.
- involves not only books of accounts, but also preparing and interpreting financial statements.
- Asset - a resource in the business which generates future cash inflows.
- Book keeping - is the recording of business transactions in books of accounting.
- involves the use of 'special' books of accounts e.g. ledger, cash book, petty cash book and journals.
- Books of Accounts - these are specially ruled books used in accounting e.g. petty cash book, cash book and the ledger (the main/principal book of accounts; basically where all transactions end up in).
- Capital - money or resources invested in a business by the owner, aiming to make profit.
- The business is regarded as a separate entity, hence all personal resources transferred into the business will be classified as capital.
- Current asset - an asset used over a short period of time (usually some months to a year).
- It can be changed into another form of an asset within the short period of time, e.g. cash, inventory, trade receivables and bank.
- Non-current assets - Assets used in a business for a long period of time (usually more than a year).
- They can either be tangible or intangible.
- for example: machinery, labour, land, equipment, investments and goodwill.
- examples of intangible non-current assets are good will (reputation) and royalties (from copyrighted work).
- Labour is an asset, but in accounting it is not regarded or recorded, the same applies to human resources. The reason being; according to money measurement concepts, we cannot record human resources as assets because it is difficult/impossible to attach monetary value to people. We only record transactions which can be expressed in monetary terms.
- Drawings - money or resources withdrawn from the business, by the owner, for private use.
- Expenses - day to day running costs of a business.
- Income - money gained from normal business activities and other activities which cannot be classified as operating activities.
- Liabilities -
- Capital - this represents the owner's investment in the business and it is the amount owed by the business to the owner.
- Non-current liabilities - these are amounts owed by the business which are not due for repayment within the next 12 months (e.g. long-term loan and mortgage).
- Current liabilities - these are short-term liabilities. They are amounts owed by the business which are due for repayment within the next 12 months. Their values constantly change (e.g. trade payables and bank overdraft).
- Purchases - goods bought for resale.
- Sales - income received for goods sold.
Extra Information
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