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Alphabetical
Index
[ A | B | C | D | E | F | G | H | I | J | K | L | M | N | O | P | Q | R | S | T | U | V | W | X | Y | Z | # ]
A:
Absorption Costing: A costing process that charges both variable and fixed manufacturing costs to production.
Accounting Bases: These are particular methods of accounting which have been developed for applying the Conceptual Framework to financial transactions. The range of accounting bases is very wide and there is frequently more than one recognised accounting basis for dealing with a particular item e.g. depreciation (see Accounting Policies)
Accounting Cycle: The process of journalising and posting business transactions, making the necessary adjustments, and preparing financial statements.
Accounting Period: The period of time spanning the date between two consecutive balance sheets and to which the income statement (or profit and loss account) relates. For companies and close corporations it is normally twelve months.
Accounting Policies: These are the specific accounting bases adopted by an enterprise in the preparation of its accounts. These bases for certain key items in the accounts must be disclosed in terms of the Companies Act (see Accounting Bases).
Accounting Rate of Return (ARR): The average profit from an investment, expressed as a percentage of the average investment made.
Accounts Payable: See creditors.
Accounts Receivable: See debtors.
Accrual: An amount included in the income statement of an enterprise to reflect the expense effects of a transaction which has not as yet been recognised (see Accruals Basis).
Accruals Basis: The normal basis of preparing accounts for trading enterprises. When using this basis the income and expense effects of transactions are incorporated in the enterprise’s accounts whether or not they have as yet resulted in cash flow consequences and matched with one another so far as a relationship can be established.
Accumulated Depreciation: Describes the cumulative amount of depreciation charged (expense) against an asset during the period from its acquisition to the date of the accounts.
Activity: The volume of sales per R1 invested in net assets.
Activity Based Costing: An approach to the costing of individual products and services which focuses on the identification of ‘cost drivers’ i.e. those activities which lead to indirect production costs being incurred, and which charges the individual products or services with indirect costs on the basis of their demands on these ‘cost drivers’.
Allocation Basis: The process by which costs or revenues are assigned to a business segment, responsibility centre, product or service. There are numerous different bases on which this process can be conducted - frequently quite arbitrarily.
Annual General Meeting: A meeting which a company must hold each year and which all shareholders are entitled to attend. The business to be conducted at this meeting normally includes: consideration of the directors’ report and the accounts; election of directors; appointment of auditors and the declaration of dividends.
Annual Report: A report made each year by the directors to the shareholders. It contains the directors’ report and accounts. It normally contains a statement by the chairman and a range of information on the company’s activities. Such a report is required by the Companies Act, which also specifies a number of specific items of information that it must contain. Accounting Standards and Stock Exchange Regulations (for listed companies) also contain disclosure requirements.
Annuity: An investment which pays a constant sum each year over a period of time.
Arbitrage: (1) the ability to make riskless profits through the simultaneous buying and selling of financial instruments; (2) trading the same asset in two different markets to make riskless profits.
Articles of Association: Every company requires a set of Articles of Association which are in effect part of the constitution of the company. They specify the way the company should conduct its affairs and the rights and obligations of various parties involved with the company.
Asset: A resource controlled by the enterprise as a result of past events and from which future economic benefits are expected to flow to the enterprise.
Associated Companies: An associated company is an enterprise in which a group has a participating interest and over which it has significant influence but not control. The consolidated accounts of the group must account for their share of associated company’s profits.
Audit: The independent examination of, and expression of opinion on the financial statements of an enterprise by an appointed external auditor in pursuance of that appointment and in compliance with any relevant statutory obligation.
Auditor: The person who carries out an audit. To carry out an audit of the accounts of a company such a person must be registered with the Public Accountants’ and Auditors’ Board.
Authorised Share Capital: The maximum amount of share capital which the company is authorised by its Memorandum of Association to issue at any point in time. The amount can be altered by means of a resolution of the company in a general meeting and is disclosed each year in the accounts.
Accounting rate of return (ARR): The average profit from an investment, expressed as a percentage of the average investment made.
Ageing schedule of debtors: A report dividing debtors into categories, depending on the length of time outstanding.
Agency theory: A theory which views a business as a coalition of different interest groups (managers, shareholders, lenders, etc.), in which each group is seeking to maximise its own welfare.
Annuity: An investment which pays a constant sum each year over a period of time.
Average settlement period: The average time taken for debtors to pay the amounts owing or for a business to pay its creditors.
AC 000: is the framework for the preparation and presentation of financial statements.
Account stores information in the general ledger relating to transactions of a similar kind, for example the equipment account relates to equipment bought or sold, the salaries account stores information about all salaries paid.
Accounting controls are internal controls used to protect assets and ensure accuracy of accounting records.
Accounting officer is the person who is responsible for drafting the financial statements of a close corporation. Only members of recognised professions are allowed to become accounting officers.
Accumulated fund is used in the place of capital and represents all the funds accumulated in a non-profit organisation.
Accumulated profits are the cumulative balance of undistributed profits of a company.
Adjustment clause may require that the turnover, on which an insurance claim is based, be adjusted to take into account the trend in turnover over previous periods. This is done in order to attempt to obtain a realistic estimate for the turnover had the loss not occurred.
Adjustments are entries which are not transactions recorded on source documents, but which are necessary to provide meaningful information about financial position and performance.
Agent is the person to whom the goods are sent for sale.
Allowances subsidiary journal is a special journal used to record the return of goods and price adjustments
Annual turnover (as applied in insurance claims) is the turnover (revenue) during the 12 months immediately before the date of the loss.
Articles of association is a legal document, drafted on the formation of a company, which regulates the internal affairs of the company
Asset is a resource controlled by the enterprise as a result of past events and from which future economic benefits are expected to flow to the enterprise (see Intangible assets)
Association agreement is a contract entered into by the members of a close corporation to regulate internal matters and matters not specifically dealt with in the Close Corporations Act.
Bad debt, also referred to as a doubtful or irrecoverable debt, occurs when a debtor cannot pay the amount owing. The account must thus be 'written off', requiring an en" into the personal account and the accounts receivable account in the general ledger.
Bad debts recovered are amounts previously considered irrecoverable and written off, now paid.
Bank overdraft: Amount owing to a bank which is repayable on demand. The amount borrowed and the rate of interest may fluctuate over time.
Bank reconciliation statement is a statement detailing the reasons for the differences between the bank balance in the general ledger and the bank balance according to the bank statement.
Bank statement is a copy of the entries recorded by the bank in the current account of the business
Beta coefficient: A measure of the extent to which the returns on a particular share vary with the market as a whole.
Bill of exchange is an order to pay a stated amount at a stated date in the future.
Bills payable is a bill of exchange accepted by the reporting entity in favour of a creditor.
Bills receivable is a bill of exchange accepted by a debtor in favour of the reporting entity.
Bond: A long-term loan.
Bonus issue (scrip issue): Transfer of reserves to share capital requiring the issue of new shares to shareholders in proportion to existing shareholdings.
Budget is a financial plan which can be drafted for important areas of a business such as expected revenues, costs, capital expenditure, cash flows and profits.
Business entity is an individual or organisation with an identity of its own
Budget: A comprehensive quantitative plan for utilizing the resources of an entity for some specified period of time.
Budget Entity: Any accounting entity, such as a firm, division, department, or project, for which a budget is prepared.
Budget Performance Report: An internal accounting report that shows the difference between actual results and expected performance planned in a budget.
Budget Review Process: The process of evaluating budget proposals and arriving at the master budget.
Budget Variance: The difference between budgeted data and actual results.
Back-to-back loan: For example, a loan granted by one party to another in one country, on condition that, in some other country, a loan is effected between two other specific parties. (In most cases the lending party in one country will have connections with the borrowing party in the other country). Such arrangements are usually used to circumvent currency exchange difficulties between countries.
Bad Debt: The amount of money owed to the enterprise by its debtors which will not be collectable from them.
Balance of Payments: A country’s record of international transactions presented in a double-entry bookkeeping form.
Balance Sheet: A financial statement of an enterprise’s assets, liabilities and equity at a particular point in time.
Bank Guarantee: A bank may, for example, underwrite the obligations of a client to a third party, thereby assuming the associated risk over some determinable period. Such a guarantee would enable a customer to obtain funds from a third party on the strength of the bank’s name, which it ‘rents out’’ for a fee. By supporting the guaranteed party with its name, the bank relieves counterparties to the guaranteed transaction from needing to ascertain for themselves, the debtor’s ability and willingness to meet his obligations. Failure by a party on whose behalf a bank has issued a guarantee to honour his commitment may mean immediate loss for the bank, or the acquisition by it of a claim over assets as collateral.
Bank Overdraft: A short term loan facility made available by banks for day-to-day working capital requirements.
Bank Overdraft: The amount is owe to a bank and is repayable on demand. The amount borrowed and the rate of interest may fluctuate over time.
Banker’s Acceptance (B/A): A negotiable money market instrument for which a secondary market exists and is issued by the Importer’s Bank once the bill of lading and time draft are accepted. It is essentially a promise that the bank will pay the draft when it matures.
Basis Risk: The risk that the futures price and the price of the underlying instrument in the spot market are not perfectly correlated.
Bear: An investor who expects market prices to decline.
Bear Market: A declining market or a period of pessimism when declines in the market are anticipated.
Beta Coefficient: A measure of the extent to which the returns on a particular share vary with the market as a whole.
Bid: The price offered for the purchase of securities.
Bond: A long-term loan.
Bonds: Documentation evidencing medium or long term borrowing by an enterprise, a government or other organisation.
Bonus Shares: An issue of fully paid shares to shareholders by way of a dividend out of a company’s undistributed profits.
Book: Reference by a banker to his bank’s assets and liabilities. If the average maturity of the liabilities is less than that of the assets, the bank is running a short position; a long position is the opposite.
Book Value: The value at which an asset is shown in the holder’s balance sheet - often the asset’s acquisition cost plus/minus appreciation due to revaluation, or depreciation or writing down.
Bottom Line: The net profit or net income that the enterprise has made.
Break Even Point: That volume of activity at which the revenues an enterprise generates are equal to the cost which it incurs, and it accordingly makes neither a profit nor a loss.
Bridging Finance: Interim financing of one form or another, usually while long-term financing is being finalised.
Budget: A formal quantified plan of action (normally expressed in financial terms).
Bull: An investor who expects market prices to rise.
Bull Market: A period of optimism when increases in market prices are anticipated.
Call Money: Interest-bearing bank deposits withdrawable on an overnight basis, or on notice of 24 hours, as the case may be.
Capital Account: Balance of payment entry capturing all sales and purchases of financial assets, real estate, and businesses.
Capital Asset Pricing Model ( CAPM): A method of valuing assets which identifies two forms of risk: unique risk which can be eliminated through diversification and non-diversifiable risk.
Capital Gains Tax: A tax on the gains from the disposal of certain assets which is payable at the taxpayer’s marginal rate of tax.
Cash Conversion Cycle: The time period required to convert inventory into debtors (via sales) and thereafter into cash, less the credit period granted by the creditors.
Cash Flow Forecast: A forecast, covering a specific period of time, of the estimated receipts and payments of an enterprise.
Clientele Effect: The phenomenon where investors seek out companies whose dividend policies match their particular needs.
Commercial Paper: A promissory note with fixed maturity of no more than 12 months, usually sold at a discount to face value (defined in more detail in the Deposit-taking Institutions Act).
Conglomerate: A group of which either national or international companies or business activities are subject to more than one supervisory authority.
Contribution Margin: The difference between the sales price and the unit variable cost.
Convertible Loans: Loan capital which can be converted into equity share capital at the option of the holders.
Cost-Volume-Profit Analysis: An accounting technique based on analysing the cost and revenue structure of an enterprise into their component elements based on their variability relative to the volume of activity. This form of analysis, which is sometimes referred to as ‘break-even’ analysis, is most commonly used as an aid to budgeting and profit planning.
Current Account: Balance of payment entry representing the exports and imports of goods and services, and unilateral transfer.
Capital Budgeting: The systematic process of identifying and evaluating capital investment projects to arrive at a capital expenditure budget.
Capital rationing: A situation where the funds available for investment are limited during a period.
Clientele effect: The phenomenon where investors seek out companies whose dividend policies match their particular needs.
Coefficient of correlation: A statistical measure of association which can be used
Committed Fixed Costs: The fixed costs of providing production facilities and other relatively long-term commitments of resources. Fixed costs that cannot be easily or quickly eliminated.
Control: The concept of monitoring activities and taking action to correct undesirable performance or to ensure that goals and objectives are achieved, often using budgets as a basis for measuring performance.
Capital expenditure is amounts spent an acquiring tangible assets.
Capital redemption reserve fund arises when redeemable preference shares are redeemed out of profits.
Capitalisation shares are shares issued to existing shareholders in the same proportion as the number of shares already held. No payment is received from shareholders for capitalisation shares.
Capitalising expenses is when the expenses relating to the preparation of tangible assets are added to the cost price of the asset
Carrying value is the cost less the accumulated depreciation of an asset
Cash book is a book of original entry, which doubles as a ledger account, in which all cash transactions are recorded.
Cash equivalents are short-term highly liquid investments that are readily convertible into cash.
Cash payment journal (CPJ) is a special journal used to record all cash payments.
Cash receipts journal (CRJ) is a special journal used to record all cash receipts.
Cash sale is a sale for which payment is made immediately.
Cheque book is a number of unused cheques, together with cheque counterfoils, bound in a booklet.
Cheque counterfoil is the attachment to a cheque on which details of the amount, date and payee are recorded.
Cheque is a written order addressed to a bank requesting it to pay the sum of money specified to a specified person or the bearer of the cheque.
Client is a person or entity to whom services are rendered for payment (see Customer.)
Close corporation is an organisation form with one to 1 0 members owning the business. It is a legal person which complies with the requirements of the Close Corporations Act.
Collectively exhaustive means classifying something in such a way that every single item can be placed into an existing category. Commission is the remuneration which the agent receive for his services in selling the goods.
Consignment is the goods sent to an agent to be sold.
Consignor is the person who dispatches the goods to be sold by an agent for a commission.
Consistency concept - in order to make valid comparisons, it is clear that methods and procedures adopted during one period should be adopted during the next.
Control account is a single account in the general ledger which is a summary of a number of other accounts, kept in a subsidiary ledger
Conversion costs are the total costs incurred to convert raw materials into finished goods, namely direct labour and manufacturing overheads
Convertible preference shares are shares that may be converted into ordinary shares at a future date.
Cost of sales is the price paid for goods sold. Calculated by adding the value of inventory at the beginning of a period, plus all goods bought, less the value of inventory at the end of the period.
Cost principle means quite simply that accountants do not attempt to reflect assets at real or market values but record them at original cost.
Credit (noun) is the provision of goods and services on account
Credit card is a plastic card issued by commercial banks to approved clients. Purchases may be charged against the credit card instead of opening an account or paying cash.
Credit is the right-hand side of an account drafted in T form in the general ledger. Entries are made on the credit side of an account when assets decrease, when owner's equity accounts increase and when liabilities increase.
Credit note is a document prepared by the seller in response to a debit note.
Credit policy is the approach and procedures adopted in the granting of credit.
Creditors are people or organisations lending money to businesses which, in turn, sell their own products to customers.
Creditors subsidiary journal is a special journal to record all purchases on credit.
CRRF refers to the Capital Redemption Reserve Fund.
Cumulative preference shares are shares where the right to receive dividends is cumulative.
Current account is a cheque account held at a bank. The current account will reflect all receipts and payments of cash in the records of the bank.
Current account is a ledger account used by partnerships to which the owner's share of net profits or losses, drawings and other specific transactions with the partnership are transferred.
Current assets are assets that are expected to be realised within the operating cycle of the company, are used mainly for trading or short-term purposes or are expected to realise within 12 months.
Current liabilities imply debt that will be settled within the company's operating cycle or within 12 months of the balance sheet date.
Customer is a person or entity to whom goods are sold (see Client).
Debentures are acknowledgements of debt by the company issuing the debentures to the debenture holders.
Debit is the left-hand side of an account drafted in T form in the general ledger. Entries are made on the debit side of an account when assets increase, when owner's equity accounts decrease and liabilities decrease.
Debit note is a document sent by the buyer of goods to the seller, indicating intention to debit the account of the seller.
Debit order is an authorisation for the regular transfer of funds from one banking account to another.
Debtor’s subsidiary journal is a special journal to record all sales on credit.
Deferred shares are shares where the right to share in profits and assets is deferred beyond those of ordinary shares.
Deficit in a non-profit organisation arises if expenditure exceeds income.
Delivery note is a document which must be signed by the recipient of goods or services to indicate acknowledgement of receipt of goods or services.
Delphi technique is a subjective method of forecasting expected sales.
Deposit slip is a document completed when depositing money, cheques, postal orders, etc. into a bank account.
Depreciable amount is the amount on which depreciation is calculated.
Depreciation is the amount by which the cost price of an asset is reduced because, being used or older, the asset is worth less. Depreciation is an expense. It also makes the carrying value of the asset smaller.
Direct costs are amounts which can be attributed unerringly to a particular sector because they are clearly related to that sector.
Direct labour costs are the salaries and wages paid to the staff directly involved in the manufacturing process.
Direct material costs are used directly in the process of manufacture and can be identified in the end product.
Discount is a reduction of the amount payable granted by the recipient of the amount (creditor).
Discounting (a bill) is the 'sale for cash' of a bill to a bank or broker.
Dishonoured cheque is a cheque for which payment is refused by the drawee when presented for payment. Colloquially also known as a bounced cheque.
Dissolution is the discontinuance of a partnership as a separate entity due to a change in the original partners.
Discretionary Fixed Cost: Fixed costs that can he eliminated at management's discretion in a relatively short period of time, e.g., some administrative salaries, research and development, and new systems development.
Doubtful debts are non-specific amounts owed by debtors, collection of which is considered to be uncertain.
Due date is the final date on which something must take place, i.e. the due date of a bill is the final date on which that bill must be paid.
Debenture: A long-term loan evidenced by a trust deed.
Degree of Financial Gearing: A measure of the sensitivity of earnings per share to changes in profit before interest and taxation.
Dividend Policy: Relates to the policy of the company (directors) on how it divides its profits between paying dividends to shareholders and retaining them for reinvestment.
Economies of Scale: Sensitivity of costs to proportionate increase in output.
Efficient Market Hypothesis: Hypothesis stating that financial markets are informationally efficient in that the current asset prices reflect all the relevant and available information.
Elasticity of Demand: A measure of the sensitivity of demand for a product with respect to its price.
EPS (Earnings per share): The retained profit for the year (before extraordinary items) divided by the weighted number of issued shares.
Economy is the financial situation within a country resulting from its productive and government management of monetary and fiscal policies.
Efficiency is broadly the term that relates to achieving an objective using the minimum possible resources. In the context of company management it refers to specific management such as the management of inventory. Any measure used to reflect how well a company has used a specific resource is referred to as an efficiency measurement.
Employees are the people working in an organisation and who receive remuneration for their work contribution.
Employer is someone who employs people and pays them for their services by way of remuneration.
Endorsing (a bill) is signing over/transferring ownership. Entrance fee is the initial payment which many clubs require new members joining to pay.
Equity is the residual interest in the assets of the enterprise after deducting all its liabilities.
Expenses accrued refers to expenses which relate to the financial year under review but which are not yet recorded in the general ledger because the invoices have not been received by the last day of the financial year
Expenses are 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.
Expenses prepaid refers to expenses paid in the current financial year, of which a portion relates to the current year and the balance to the next financial year(s).
FIFO is a method of assigning costs to goods sold whereby it is assumed that the earliest item purchased (first in) is the first item sold (first out). The cost of the sale is therefore the cost of the oldest item on hand.
Financing activities are activities that result in changes in the size and composition of the equity capital and borrowings of the enterprise.
Financial assets are cash, contractual rights to receive cash or another financial asset or an equity instrument, such as shares, in another enterprise.
Financial Budget: The set of budgets including capital expenditures budget, cash budget, budgeted balance sheet, and budgeted statement of changes in financial position.
Fixed Budget: A budget prepared for a single expected level of activity. Also called a static budget.
Fixed costs are costs incurred which do not increase with additional production and sales - for example rent.
Flexible Budget: A budget prepared for more than one level of activity, covering several levels within the relevant range of activity. Also called a dynamic budget.
Financial liabilities are contractual obligations to deliver cash or another financial assets to another enterprise.
Founding statement is completed when a close corporation is formed. It requires information about the members, accounting officer, main business and business address.
Free enterprise system refers to the freedom of enterprises to operate without government participation or intervention.
Funds may be defined as the financial resources possessed by a company which flow from transactions concluded with third parties.
Factoring: A method of raising short-term finance. A financial institution (‘factor’) will manage the sales ledger of the business and will be prepared to advance sums to the business based on the amount of trade debtors outstanding.
Finance Lease: A finance lease is a lease which effectively transfers the risks and rewards associated with ownership of the leased asset from the lessor to the lessee. Thus the substance of the arrangement is a purchase transaction rather than a rental one and it is accounted for as such.
Financial Engineering: Using cash and options as basic building blocks to create new financial market embracing cash, futures, and options markets.
Financial Gearing: The existence of fixed payment bearing securities (e.g. loans) in the capital structure of a business.
Fixed-rate Loan: A loan on which the rate paid by the borrower is fixed for the life of the loan (in contrast to a variable rate loan).
Forward Market: The market in which forward contracts are traded. In the South African institutional market settlement can take up to two weeks - so it may sometimes be difficult to establish the precise dividing line between spot and forward dealing.
G.A.A.P.: Generally Accepted Accounting Practice. The “rules” by which a set of Financial Statements are created in order that they are both fair and comparable. Globalization: The emergence of a 24-hour worldwide financial marketplace.
GAAP is the abbreviation for generally accepted accounting practice.
Gamma Vs Murray ruling is a legal precedent from British case law that holds that losses not recovered from an insolvent partner should be borne by the existing partners in proportion to the balances on their capital accounts.
General journal is a place for recording transactions from source documents, as well as adjustments. It records the date of the transaction as well as the accounts in the general ledger which need to be debited and credited
General ledger is a collection of all the accounts of a business. Traditionally each account has two sides, a debit side (the left-hand side) and a credit side (the right- hand side).
Generally accepted accounting practice refers to the accounting practices used to account for transactions found either in the accounting standards or practices used in companies and other reporting entities.
Going concern concept accepts that the entity is expected to continue in operational existence in the foreseeable future.
Goodwill is an asset which represents the excess of the real value over the book value of a business entity.
Gross margin is the difference between revenue and the cost of sales, whereas net margin is the difference between revenue and all costs. Both gross and net margin may be expressed as a percentage of sales for the purpose of analysis (see Gross profit and Net profit).
Gross profit is the difference between the cost price and the selling price of goods which are sold, before deducting any operating expenses.
Gross remuneration is the total remuneration that an employee receives before taxation, whether in cash or by way of a fringe benefit.
Indirect cost: A cost incurred to serve more than one segment of an organisation. Also referred to as common cost.
Insider-trading: Buying and selling securities on the market using privileged (inside) information.
Insolvency: The state of an enterprise which is unable to meet its liabilities.
Intangible Assets: These are assets which have no underlying physical substance. Examples include: goodwill, trademarks, copyrights and, more controversially, brand names.
Intermediation: The provision of banking services by financial intermediaries.
Internal Rate of Return (IRR): The discount rate for a project which will have the effect of producing a zero NPV.
Imprest system is a system for controlling small cash disbursements by establishing a fund at a fixed amount and periodically reimbursing the fund by the amount necessary to bring the fund back to the fixed amount.
Income accrued refers to income earned for the current financial year but not yet received by the year-end
Income is 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.
Income prepaid refers to income received in the current financial year of which a portion relates to the current year and the balance to the next financial year(s).
Income tax assessment is the invoice sent by the South African Revenue Service to the company showing the actual company tax payable.
Income tax return is the form completed by companies, usually on an annual basis, showing the estimated company tax payable.
Increased cost of working is the additional expenditure incurred by the insured to avoid a decrease in turnover which, had it not been for this expenditure, would have taken place as a result of the accident.
Indemnity amount is the maximum amount which the insurer will pay out in the case of loss.
Indemnity period is the period of business disruption beginning at the date of the damage and not exceeding the period for which insured (usually 12 months).
Indirect costs are incurred by the business as a whole and are not directly attributable to an individual sector.
Indirect labour costs are the salaries and wages of staff not directly involved in the manufacturing process.
Indirect material costs are also used in the manufacturing process, but may not be directly identified to specific product units.
Industry is a branch of trade or manufacture, for example Ellerines and Beares both operate in the furniture industry.
Intangible asset is an identifiable non-monetary asset without a physical substance held for use in the production or supply of goods or services, for rental to others, or for administrative purposes.
Interest allowance is a provision in a partnership agreement that allows for interest on the partners' capital invested.
Inventory consists of goods kept for resale on the shelves or in the warehouse of a wholesaler or retailer.
Inventory in transit comprises items bought for which legal ownership has passed, but because they are still being transported, are not available at the time of the inventory count
Investing activities are the acquisition and disposal of long-term assets and other investments not included in cash equivalents.
Investors are people or organisations placing their money in a business with the expectation of receiving a return on the investment in the form of profit
Invoice is a document indicating the amount owing for the delivery of goods or services (see Delivery note).
Labour costs consist of salaries and wages paid to staff involved in the manufacturing process.
Lay-by sale is the sale of an article where payments are made in installments and delivery effected upon receipt of the last installment
Leverage is based on the principle of levers using a fulcrum (for example a seesaw is a lever with the fulcrum in the middle) - it refers to increasing the benefit to one party by using the resource of another. Its most popular use is when a company borrows money at say 10% and then earns 15% on that money - it has levered its profits to shareholders up, by borrowing at a lower rate than it earns.
Liability is a present obligation of the enterprise arising from past events, the settlement of which is expected to result in an outflow from the enterprise of resources embodying economic benefits.
LIFO is a method of assigning costs to goods sold whereby it is assumed that the last item purchased (last in) is the first item sold (first out). The cost of the sale is therefore the cost of the last item bought.
Limited liability means that the members' or owners' responsibility for debts is limited to their investment.
Linear regression is a statistical method of forecasting the most likely figure based on a series of past events.
Liquidation is a special form of dissolution in which the business ends by selling assets, paying liabilities and distributing remaining assets to the partners.
Liquidity is the ability of a company to meet its obligations (repay its debt) in the short-term.
Letter of Credit (foreign trade): A South African importer of goods from abroad may request its bank to issue a letter of credit on its behalf, for forwarding to the foreign supplier. If the importer’s credit standing is satisfactory, the bank will issue the letter, authorising the foreign supplier to draw a draft on it - the bank - in payment of goods. Holding this authorisation, the foreign supplier, on shipping the goods, may discount this draft with his bank, so receiving immediate payment. This (foreign) bank, in turn, will forward the draft, together with the applicable shipping documents, to its correspondent bank in South Africa, with instructions as to how the draft should be disposed of. Generally, the South African correspondent bank will present the draft for acceptance at the drawee bank, which will then forward the shipping document to the importer, enabling him to claim the shipment. The correspondent bank may be instructed to sell the acceptance in the money market and credit the account of the foreign bank. In either case, the ultimate holder of the acceptance finances the transaction. The accepting bank may itself buy the acceptance that it originated. If it does, the bank earns the difference between the purchase price and the face value of the acceptance, as well as the commission it charged the customer. If some other party buys the acceptance, the funds are not tied up with the originating bank - this bank has lent its name to the paper and thereby assumed a contingent liability, for which it earns a commission.
Leverage: Measures the impact of borrowings on operating performance. Sometimes referred to as gearing.
Libor: The London interbank offered rate - the interest rate at which first-class banks in London are prepared to offer US dollar deposits to other first-class banks.
Liquid Bill: A bill which can be converted easily and rapidly into cash without a substantial loss of value.
Memorandum of Association: Part of the constitution of a company registered under the Companies Act. The memorandum, of association is a legal requirement and its minimum contents are specified in the Companies Act.
Merchant Bank: A bank (South African and British) that specialises not in lending out its own funds but in providing various financial services such as accepting bills arising out of trade, underwriting new issues, and providing advice on acquisitions, mergers, foreign exchange, portfolio management, etc.
Merger: When two or more businesses combine in order to form a single business.
Mortgage Bond: A debt secured by a lien on property, equipment, or other real assets.
Manufacturing is the making or assembling of articles, usually in a factory.
Manufacturing organisation is a concern that manufactures (makes) items and then sells to either a wholesaler or a retailer.
Manufacturing overheads are generally all costs which cannot be identified with specific units of the end product.
Margin is the difference between the cost price and the selling price, expressed as a percentage by dividing the gross profit by the selling price.
Mark-up is the amount added to the cost price to establish the selling price. It is often expressed as a percentage, calculated by dividing the gross profit by the cost price.
Master Budget: The total budget package of an organization, including both the operating and financial budgets. Sometimes referred to as the profit plan.
Matching concept is the recognition of expenses in the same accounting period as the revenue they helped to produce.
Material costs consist of the cost of raw materials used in the process of manufacturing
Materiality principle simply reflects the view that items which are not significant in reflecting on financial performance or position need not be disclosed separately in financial reports.
Members' interest represents the members' ownership in a close corporation and consists of members' contributions, undrawn income and the revaluation of tangible assets.
Memorandum is a legal document drafted on the formation of a company which deals with the external affairs of the company.
Mutually exclusive means classifying something in such a way that it can fit into only one category.
Negotiable instruments are tradable instruments, i.e. transferable from one person or entity to another.
Net realisable value is the amount which will be received on the sale of any item after deducting all other costs incurred in finalising the sale (such as advertising and delivery costs).
Nominal accounts are income statement accounts such as salaries and rent. They record the amounts of expenses or revenues which have reduced or increased the owner's equity.
Non-current assets are all assets that are not current assets,
Non-current liabilities are all liabilities that are not current liabilities.
Non-profit organisation is one which obtains funds from either its members or from donations and uses these funds in order to achieve the objectives of the organisation.
Naked Trading: Trading in the futures market without an underlying position in the cash market.
Net Present Value (NPV): The net cash flows from a project which have been adjusted to take account of the time value of money. The NPV measure is used to rank investment projects and for accept/reject decisions.
Nominal Rate: Also known as the coupon rate. It is the rate of interest payable on the nominal value of a stock.
Off-balance Sheet: Denotes transactions embodying contingent commitments or contracts which generate income for a bank but are not normally reflected as assets or liabilities on a bank’s balance sheet in terms of general accounting practice. A loan is required to be represented as an asset on a bank’s balance sheet, but a promise to make a loan is a contingent liability, being an obligation on the bank’s part to lend funds on a standby basis i.e. if it is called upon to do so. Such a promise will not appear on the bank’s balance sheet unless the agreement is invoked. A contingent liability is therefore a possible debt which will come into existence only upon the uncertain occurrence of some event, referred to as the contingency. Some contingent items are required to be recorded as notes to a bank’s balance sheet - perhaps the best-known example is that of liabilities under acceptances (i.e. bankers’ acceptances). Another example is that of repurchase agreements, which are short-term sales of securities or parcels of securities with a promise to repurchase on or by a certain date. Repurchase durations may be overnight, for a few days, or longer. Under a repurchase agreement the seller is borrowing funds from the buyer, with the security or securities as collateral. Guarantees furnished by banks on behalf of clients are also contingent liabilities and are therefore also of an off-balance sheet nature. The Deposit-taking Institutions Act prescribes certain capital percentages to be maintained by banks in respect of their off-balance sheet items.
Offer: The price asked by a seller of securities.
Opportunity Cost: The cost of pursuing one course of action measured in terms of the return foregone offered by the most attractive alternative.
Option: A contract giving the owner the right, but not the obligation, to buy or sell a given quantity of an asset at a specified price at some date in the future.
Overtrading: A circumstance where excessive credit sales occur with the replacement stock having to be paid for in cash.
Operating activities are the principal revenue-producing activities of the enterprise and are activities that are not investing or financing activities.
Operating Budget: The set of budgets for the normal operations of a business, including all activities involved in generating operating income.
Ordinary shares are the shares issued to the effective owners of companies.
Overheads are expenses which are not directly associated with the particular manufactured product
Over subscription for shares takes place when a company receives more applications for shares than the shares available for issue.
Owner's equity is the amount of the assets less the liabilities, which belongs to the owner of the business.
Participating preference shares are shares with which ordinary shareholders participate in a share of profits over and above the fixed preference dividend.
Partner is a co-owner in a partnership.
Partnership agreement is the contractual relationship among partners that identifies the details of the partnership.
Partnership is an organisation form where two to 20 partners own the business; it is not a legal entity and there are no legal formalities to comply with, but it is necessary to draw up a partnership agreement
Participative Budgeting: The process of preparing the budget using input from managers who are held responsible for budget performance.
Performance Reporting: The comparison of actual results with the expected results embodied in the budget, often resulting in the reporting of variances.
Periodic inventory is a system used to account for inventory on hand by means of a physical count at the end of a period. Cost of sales is then equal to the value of opening inventory, plus net purchases for the period, less closing inventory.
Perpetual inventory is a system used to account for inventory on hand by means of a continuous and detailed record of the goods on hand and the cost of goods sold. This system is especially suitable where inventory consists of large units, often with unique serial numbers. Examples are motor vehicles, television sets, personal computers.
Personal account is a ledger account of an individual - usually a debtor (accounts receivable) or a creditor (accounts payable). Personal accounts are usually kept in a subsidiary ledger, and the summarised version of the whole subsidiary ledger is kept in the general ledger as a control account.
Physical inventory is the value of the actual number of items of inventory on hand.
Planning: The process of developing the set of budgets used in achieving organisational goals. A design or scheme for achieving specific goals or objectives.
Posting is the procedure of recording transactions into the general ledger from the information in the general journal.
Preference shares are shares that have a preferential right over ordinary shares.
Prime costs are the total of direct labour and direct material costs used in the manufacturing process.
Principle of duality determines that the financial situation of an enterprise be represented in terms of the basic accounting equation
Private company is an organisation form with a minimum of one and a maximum of 50 shareholders. It must adhere to the requirements of the Companies Act. Its name will always contain the words 'Proprietary Limited' or '(Pty) Ltd.'
Profit and loss summary account is the account to which all nominal account balances are posted (after completing the general journal entry). This happens prior to reporting in the financial statements. The income statement is drafted from the information contained in the profit and loss summary account.
Profit Plan: A businesses total budget used in achieving a desired profit goal. Sometimes the term refers only to the operating budget, and sometimes it is used synonymously with the term master budget.
Profitability is used as an expression of how well a company has performed relative to some benchmark. For example comparing the net profit to the capital invested is a measure of the profitability of a company.
Promissory note is a promise to pay a stated amount at a stated date in the future.
Prospectus is a document which public companies are required to issue in terms of the Companies Act when shares are offered to the public
Provision is created to record amounts that cannot be established with certainty. For example, the provision for doubtful debts is created to record estimates of amounts that will not be collected from debtors.
Prudence concept requires the preparer of financial statements to exercise Prudence in their preparation, i.e. not to overstate assets or income and not to understate liabilities and expenses.
Public company is an organisation form limited by share capital. It consist of a minimum of seven shareholders. It must adhere to the requirements of the Companies Act. Its name will always contain the word 'Limited'.
P/E Ratio: The Price/Earnings ratio. The expected time it would take a company to generate sufficient earnings to cover the share price.
Passive Income: Income not directly generated by an individual or corporation, such as interest income, royalty income, and copyright income.
Payback Period (PP): The time taken for the initial investment in a project to be repaid from the net cash inflows of the project.
Portfolio: Collection of securities held by an investor.
Premium: The amount by which the price at which a security is trading in the market, exceeds its issue price.
Primary Market: The market in which new security issues are sold to investors. In selling the new securities, investment bankers can play a role either as a broker or a dealer.
Prime Rate: The rate at which banks will lend to the best (prime) customers.
Prospectus: An invitation to subscribe to the share or debenture capital of a company. The contents of prospectuses are regulated by the Companies Act.
Revolving Line of Credit: An arrangement whereby a customer is charged a commitment fee by a bank for being able to take down and repay funds as needed.
Rigging: Illegal trade practices under which securities are perceived to be bought in the market, but are in fact routed through another broker to a client.
Rights Issue: An issue of shares to existing shareholders on the basis of the number of shares already held.
Ratio is the bringing together of two numbers that are relevant to each other (for example the numbers a and b) and comparing them by expressing them as a:b, usually with either a or b being expressed as the number 1. Ratios may easily be converted to percentages by dividing 'a' by 'b' and multiplying by 1 00. It is of critical importance to remember that any two numbers can be expressed-as a ratio. However, only the selection of meaningful numbers which relate to each other in some way are of any relevance.
Real account - refers to a balance sheet T-account.
Real accounts are accounts for assets or liabilities. They are therefore reported in the balance sheet.
Realised amounts is debt that has been converted to cash, for example a debtor is ,realised' as soon as that debtor pays its account. '
Receipt is a document which acknowledges the acceptance of money.
Redeemable preference shares are shares that are redeemable by the company.
Refer to drawer is an instruction given by the bank to the depositor in connection with a cheque deposited and subsequently dishonoured.
Relevance is defined as the capacity of information to make a difference in a decision by helping users to form predictions about the outcomes of present and future events or to confirm or correct prior expectations.
Reliability is defined as the quality of information which assures that information is reasonably free from error and bias and faithfully represents what it purports to represent.
Remittance advice is a document accompanying a payment to a creditor. It reconciles the balance of the creditor's statement with the amount of the payment.
Retailer is a concern that buys from the manufacturer or wholesaler and then sells to the ultimate user (consumer).
Retailing is the sale of goods in relatively small quantities, usually to consumers.
Retired (bills) are bills that are paid before due date.
Return is the term widely used to reflect a large number of possible events. It is similar in concept to the number of apples produced from a given number of apple trees being the 'return'. Thus the profit compared to the equity and converted to a percentage is referred to as the 'return on equity', while if compared to the capital invested it is referred to as the 'return on capital employed'. Each time the word is used, therefore, the two questions should be asked: Return of what? Return on what? Then it may be expressed as a percentage.
Rights issue is a share offer made to existing shareholders of the company to take up new shares in the proportion of shares already held.
Salary allowance is a provision in a partnership agreement that allows for remuneration for partners' personal services to the partnership.
SARS refers to the South African Revenue Service which collects taxes in South Africa.
Service fee is a charge by the bank for the service of operating a current account.
Settlement discount is a discount to encourage debts to he paid early. The full amount of the invoice is entered at the time of purchase/sale, thus requiring an entry for the discount if the amount is settled within the required period.
Share capital is transferable units of ownership issued to the shareholders of companies.
Share premium arises when par value shares are issued at a premium.
Share register is a record of existing shareholders and their personal information.
SITE is employees' tax deducted during the tax period. SITE (Standard Income Tax on Employment) is applicable only to remuneration to R60 000 (current). All other remuneration is subject to PAYE (Pay As You Earn).
Skills Development Levy
Sole trader is an organisation form where only one person owns the business and there are no legal formalities to comply with.
Source document is the document, such as a receipt or cheque counterfoil, that first records the details of a transaction and serves as proof that the transaction took place. Entries are made into accounting records from a source document.
Standard turnover (revenue) is a term used in insurance claims and is the turnover during that period in the 12 months immediately before the date of the damage which corresponds with the indemnity period
Standing charges are costs of a fixed nature which continue to he payable after a disaster, for example salaries and wages of permanent staff, rent, directors' fees, insurance premiums, interest on loans
Stated capital is the account name used for issued no par value shares.
Statement of account is a document, usually prepared monthly, which shows all invoices not yet paid (see Invoice).
Statement of changes in equity is a new statement introduced by AC 101 that reconciles the opening and closing equity of a reporting entity.
Statement of receipt and payments is usually a summary of all the cash transactions (cash book).
STC refers to secondary tax on companies.
Stop order is a document that authorises regular transfers of funds from one banking account to another. A stop order is initiated by the bank.
Subscriptions are the annual payments made by all members for membership, usually on an annual basis.
Subsidiary is a company controlled by another company (parent company) through voting rights obtained via the holding of shares.
Subsidiary journals are special journals used for repetitive transactions such as cash receipts, cash payments, sales and purchases. Also known as books of first entry.
Supplier is the organisation that manufactures specific items and makes the goods available to wholesalers or retailers.
Surplus in a non-profit organisation arises when revenue exceeds expenses.
Sale and Leaseback: An agreement to sell an asset (usually property) to another party and simultaneously lease the asset back in order to continue using the asset.
Scenario Analysis: A method of dealing with risk which involves changing a number of variables simultaneously so as to provide a particular scenario for managers to consider.
Secret or Hidden Reserve: In respect of a banking or insurance institution, a reserve not appearing in the institutions published financial statement. Such reserves may be created by excessive depreciation of assets and/or by not accounting for appreciation in the value of assets which remain in the balance sheet at cost price. At the time of writing, the continued existence of institutions’ hidden reserves is virtually certain to be terminated by pending legislation. The maintenance of hidden reserves by institutions was condoned historically as being in the interests of sustained public confidence in the financial system.
Sensitivity Analysis: An examination of the key variables affecting a project, to see how changes in each variable might influence the outcome.
Settlement Date: Date, spot or future, on which a deal is cleared in the market.
Settlement Price: The price determined by multiplying the quantity with the strike price of the of the financial instrument underlying the option contract at the time the contract is exercised. Where necessary, option contracts specify objective standards for determining the settlement price.
Share Premium: This arises where shares are issued at an amount exceeding their nominal value. The excess is a non-distributable reserve.
Shareholder Value Analysis (SVA): Method of measuring and managing business value based on the long-term cash flows generated.
Spot (Exchange) Rate: Price at which foreign exchange can be sold or purchased for immediate (within two business days) delivery.
Sunk Cost: A cost that will not be “saved” as a result of termination of the project.
Sustainable Growth: Measure of a business’ global performance. It measures the growth rate in sales, which can be achieved by a business without changing the way it operates.
Swap: A financial transaction in which two counter parties agree to exchange streams of payments over time according to a pre-determined rule. A swap is normally used to transform the market exposure associated with a loan borrowing from one interest rate base or currency of denomination to another (e.g. interest rate swaps and currency swaps).
Swift: Society for Worldwide Interbank Financial Transactions/Telecommunications (Swift): Swift is a communications network enabling banks worldwide to speedily and securely exchange-encrypted messages relating to transactions. It has rigorous controls to prevent ‘cracking’ of the system.
Takeover: Normally used to describe a situation where a larger company acquires control of a smaller company, which is then absorbed by the larger company.
Tax Haven: A country which has a low corporate income tax rate and low withholding tax rates on passive income.
Time Value: The imputed monetary value of an option reflecting the possibility that the price of the underlying asset will move so that the option will become more valuable. The time value of an option is calculated by deducting the intrinsic value from the option premium.
Taxable income of employees is the net result of gross earnings less pension fund contributions and qualifying retirement annuity contributions on which tax is payable
Tenor (of a bill) is the period of an instrument, for example for a bill, from the date of acceptance to the due date thereof
Trade discount is a reduction of the retail price offered to dealers and wholesalers. Trade discount is not recorded in the accounting records.
Trading organisations consist of retailers and wholesalers
Trading statement is a report showing how the gross profit is calculated by reporting the total revenue less the cost of sales. It is derived from the trading account in the general ledger.
Treasury shares are shares issued by a company, which are subsequently bought back by the company and held for reissue or cancelled.
Trial balance is a list of all the accounts in the general ledger showing debit and credit balances in two columns alongside each other. It tests (tries to prove) whether a debit entry has been made for every credit entry and that each account has been correctly balanced. It does not prove that there are no errors (for example a transaction may have been left out altogether).
Turnover has at least two meanings in the context of accounting. Turnover is another word for sales or gross revenue. It may also be used to state how many times a certain event took place in a given year - for example the number of times the value of creditors was paid in a year is the creditors turnover. If for example it was 12 times, it may also be converted to a time measurement - creditors in the balance sheet are equal to one month (one 12th of a year).
Under subscription for shares takes place when a company receives less applications for shares than the shares available for issue.
Undrawn income is the cumulative income remaining in the close corporation after all distributions to members have been paid
Unlimited liability is a characteristic of a partnership whereby each partner has personal liability for the debts of the partnership, regardless of the partner's investment in the partnership
Value added tax (VAT) is taxation levied by the government on goods and services. Vendors collect the tax which they charge customers (output tax) and reclaim the tax paid (input tax). What is submitted to the government each month, is therefore the difference based on the value added.
Variable costs are costs which are directly related to volume and which increase as the volume produced or sold increases - for example sales commission.
Venture Capital: Long-term capital provided by certain institutions to small and medium-sized businesses to exploit relatively high-risk opportunities.
Warranty is a promise to correct, free of charge, a deficiency in a product sold or service rendered.
Wholesaler is a concern that buys from the manufacturer and then sells to dealers (retailers).
Work in progress is the inventory which is only partially complete and is, therefore, still in the process of being manufactured
Working capital refers to all current assets and current liabilities, which are active every day in the operations of a business (they flow like a river - hence the term 1current'). Net working capital is the difference between current assets and current liabilities. As current assets are usually larger for most businesses than current liabilities, the term net current assets may also be used in this instance
Worksheets are tools used by accountants to pass the final year-end adjustments and to draft the financial statements.
Weighted Average Cost of Capital: An average of the post-tax costs of the forms of long-term finance employed within a business where the market value of each particular form of finance is used as a weight.
Working Capital: Current assets less current liabilities (creditors due for payment within one year).
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