Understanding Bookkeeping

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Liability

A present obligation of the entity arising from past events, the settlement of which is expected to result in an outflow from the entity of resources embodying economic benefits.

Liquidity

The availability of cash in the near future after taking account of financial commitments over this period.

Losses

Decreases in economic benefits and as such they are no different in nature from other expenses.

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Understandability

Information provided in financial statements has the quality of understandability when is comprehensible to users who have a reasonable knowledge of business and economic activities and accounting and a willingness to study the information with reasonable diligence.

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Sale and leaseback transaction

The sale of an asset and the leasing back of the same asset. The lease payment and the sale price are usually interdependent because they are negotiated as a package.

Solvency

The availability of cash over the longer term to meet financial commitments as they fall due.

Subsidiary

An entity, including an unincorporated entity such as a partnership, that is controlled by another entity (known as the parent).

Substance over form

The principle that transactions and other events are accounted for and presented in accordance with their substance and economic reality and not merely their legal form.

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Realisable value

The amount of cash or cash equivalents that could currently be obtained by selling an asset in an orderly disposal.

Recognition

The process of incorporating in the balance sheet or income statement an item that meets the definition of an element and satisfies the following criteria for recognition:

1. it is probable that any future economic benefit associated with the item will flow to or from the entity; and
2. the item has a cost or value that can be measured with reliability.

Relevance

Information has the quality of relevance when it influences the economic decisions of users by helping them evaluate past, present or future events or confirming, or correcting, their past evaluations.

Reliability

Information has the quality of reliability when it is free from material error and bias and can be depended upon by users to represent faithfully that which it either purports to represent or could reasonably be expected to represent.

Revenue

The gross inflow of economic benefits during the period arising in the course of the ordinary activities of an entity when those inflows result in increases in equity, other than increases relating to contributions from equity participants.

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Parent

An entity that has one or more subsidiaries.

Profit

The residual amount that remains after expenses (including capital maintenance adjustments, where appropriate) have been deducted from income. Any amount over and above that required to maintain the capital at the beginning of the period is profit.

Profit or loss for the period

A separate line item on the face of the income statement in which all items of income and expense recognised in a period are included unless a Standard or Interpretation requires otherwise.

Property, plant and equipment

Tangible items that:

1. are held for use in the production or supply of goods or services, for rental to others, or for administrative purposes; and
2. are expected to be used during more than one period.

Provision

A liability of uncertain timing or amount.

Prudence

The inclusion of a degree of caution in the exercise of the judgements needed in making the estimates required under conditions of uncertainty, such that assets or income are not overstated and liabilities or expenses are not understated.

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Operating activities

The principal revenue-producing activities of an entity and other activities that are not investing or financing activities.

Operating cycle

The time between the acquisition of assets for processing and their realisation in cash or cash equivalents.

Ordinary share

An equity instrument that is subordinate to all other classes of equity instruments.

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Net realisable value

The estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale.

Net realisable value refers to the net amount that an entity expects to realise from the sale of inventory in the ordinary course of business. Fair value reflects the amount for which the same inventory could be exchanged between knowledgeable and willing buyers and sellers in the marketplace. The former is an entity-specific value; the latter is not. Net realisable value for inventories may not equal fair value less costs to sell.

Non-current asset

An asset that does not meet the definition of a current asset.

Notes

Notes contain information in addition to that presented in the balance sheet, income statement, statement of changes in equity and cash flow statement. Notes provide narrative descriptions or disaggregations of items disclosed in those statements and information about items that do not qualify for recognition in those statements.

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Matching of costs with revenues

A process in which expenses are recognised in the income statement on the basis of a direct association between the costs incurred and the earning of specific items of income. This process involves the simultaneous or combined recognition of revenues and expenses that result directly and jointly from the same transactions or other events. However, the application of the matching concept does not allow the recognition of items in the balance sheet which do not meet the definition of assets or liabilities.

Materiality

Information is material if its omission or misstatement could influence the economic decisions of users taken on the basis of the financial statements.

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Matching of costs with revenues

A process in which expenses are recognised in the income statement on the basis of a direct association between the costs incurred and the earning of specific items of income. This process involves the simultaneous or combined recognition of revenues and expenses that result directly and jointly from the same transactions or other events. However, the application of the matching concept does not allow the recognition of items in the balance sheet which do not meet the definition of assets or liabilities.

Materiality

Information is material if its omission or misstatement could influence the economic decisions of users taken on the basis of the financial statements.

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Liability

A present obligation of the entity arising from past events, the settlement of which is expected to result in an outflow from the entity of resources embodying economic benefits.

Liquidity

The availability of cash in the near future after taking account of financial commitments over this period.

Losses

Decreases in economic benefits and as such they are no different in nature from other expenses.