Understanding Bookkeeping

    RETURN TO GLOSSARY INDEX 

Joint venture

A contractual arrangement whereby two or more parties undertake an economic activity that is subject to joint control.

RETURN TO GLOSSARY INDEX

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.

Intangible asset

An identifiable non-monetary asset without physical substance.

Interim financial report

A financial report containing either a complete set of financial statements or a set of condensed financial statements for an interim period.

Interim period

A financial reporting period shorter than a full financial year.

Inventories

Assets:

1. held for sale in the ordinary course of business;
2. in the process of production for such sale; or
3. in the form of materials or supplies to be consumed in the production process or in the rendering of services.

Inventories encompass goods purchased and held for resale including, for example, merchandise purchased by a retailer and held for resale, or land and other property held for resale. Inventories also encompass finished goods produced, or work in progress being produced, by the entity and include materials and supplies awaiting use in the production process. In the case of a service provider, inventories include the costs of the service for which the entity has not yet recognised the related revenue.

Investing activities

The acquisition and disposal of long-term assets and other investments not included in cash equivalents.

RETURN TO GLOSSARY INDEX

Historical cost

A measurement basis according to which assets are recorded at the amount of cash or cash equivalents paid or the fair value of the consideration given to acquire them at the time of their acquisition. Liabilities are recorded at the amount of proceeds received in exchange for the obligation, or in some circumstances (for example, income taxes), at the amounts of cash or cash equivalents expected to be paid to satisfy the liability in the normal course of business.

RETURN TO GLOSSARY INDEX

Historical cost

A measurement basis according to which assets are recorded at the amount of cash or cash equivalents paid or the fair value of the consideration given to acquire them at the time of their acquisition. Liabilities are recorded at the amount of proceeds received in exchange for the obligation, or in some circumstances (for example, income taxes), at the amounts of cash or cash equivalents expected to be paid to satisfy the liability in the normal course of business.

RETURN TO GLOSSARY INDEX

Gains

Increases in economic benefits and as such are no different in nature from revenue.

Going concern

The financial statements are prepared on a going concern basis unless management either intends to liquidate the entity or to cease trading, or has no realistic alternative but to do so.

Goodwill

Future economic benefits arising from assets that are not capable of being individually identified and separately recognised.

Group

A parent and all its subsidiaries.

RETURN TO GLOSSARY INDEX 

FIFO (first-in, first-out)

The assumption that the items of inventory that were purchased or produced first are sold first, and consequently the items remaining in inventory at the end of the period are those most recently purchased or produced.

Finance lease

A lease that transfers substantially all the risks and rewards incident to ownership of an asset. Title may or may not eventually be transferred.

Foreign currency

A currency other than the functional currency of the entity.

Foreign currency transaction

A transaction that is denominated in or requires settlement in a foreign currency.

Foreign operation

An entity that is a subsidiary, associate, joint venture or branch of the reporting entity, the activities of which are based or conducted in a country other than the country of the reporting entity.

Functional currency

The currency of the primary economic environment in which the entity operates.

Future economic benefit

The potential to contribute, directly or indirectly, to the flow of cash and cash equivalents to the entity. The potential may be a productive one that is part of the operating activities of the entity. It may also take the form of convertibility into cash or cash equivalents or a capability to reduce cash outflows, such as when an alternative manufacturing process lowers the costs of production.

RETURN TO GLOSSARY INDEX 

Economic life

Either:

1. the period over which an asset is expected to be economically usable by one or more users; or
2. the number of production or similar units expected to be obtained from the asset by one or more users.

Equity

The residual interest in the assets of the entity after deducting all its liabilities.

Events after the balance sheet date

Those events favourable and unfavourable, that occur between the balance sheet date and the date when the financial statements are authorised for issue. Two types of events can be identified:

1. those that provide evidence of conditions that existed at the balance sheet date (adjusting events after the balance sheet date); and
2. those that are indicative of conditions that arose after the balance sheet date (non-adjusting events after the balance sheet date).

Exchange difference

The difference resulting from translating a given number of units of one currency into another currency at different exchange rates.

Exchange rate

The ratio of exchange for two currencies.

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.

    RETURN TO THE GLOSSARY INDEX 

Depreciation (amortisation)

The systematic allocation of the depreciable amount of an asset over its useful life.

[ In the case of an intangible asset, the term ‘amortisation’ is generally used instead of ‘depreciation’. The two terms have the same meaning. ]

Dividends

Distributions of profits to holders of equity investments in proportion to their holdings of a particular class of capital.

RETURN TO THE GLOSSARY INDEX

Capital

Under a financial concept of capital, such as invested money or invested purchasing power, the net assets or equity of the entity. The financial concept of capital is adopted by most entities.

Under a physical concept of capital, such as operating capability, the productive capacity of the entity based on, for example, units of output per day.

Capitalisation

Recognising a cost as part of the cost of an asset.

Cash Equivalents

Short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value.

Cash flows

Inflows and outflows of cash and cash equivalents

Consolidated financial statements

The financial statements of a group presented as those of a single economic entity.

Cost

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, or, when applicable, the amount attributed to that asset when initially recognized in accordance with the specific requirements of other FRSs, eg FRS 2 Share-based Payment.

Cost of inventories

All costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and condition

Cost of purchase

All of the purchase price, import duties and other taxes (other than those subsequently recoverable by the entity from the taxing authorities), and transport, handling and other costs directly attributable to the acquisition of the item. Trade discounts, rebates and other similar items are deducted in determining the costs of purchase.

Current Asset

An asset which satisfies any of the following criteria:

1. it is expected to be realised in, or is intended for sale or consumption in, the entity’s normal operating cycle;
2. it is held primarily for the purpose of being traded;
3. it is expected to be realised within twelve months after the balance sheet date; or

it is cash or a cash equivalent (as defined in FRS 107₂₀₀₄ Cash Flow Statements) unless it is restricted from being exchanged or used to settle a liability for at least twelve months after the balance sheet date.

Current liability

A liability that satisfies any of the following criteria:

1. it is expected to be settled in the entity’s normal operating cycle;
2. it is held primarily for the purpose of being traded;
3. it is due to be settled within twelve months after the balance sheet date; or
4. the entity does not have an unconditional right to defer settlement of the liability for at least twelve months after the balance sheet date.

All other liabilities shall be classified as non-current.

RETURN TO THE GLOSSARY INDEX

Basic earnings per share

Profit or loss that is attributable to ordinary equity holders of the parent entity (the numerator) divided by the weighted average number of ordinary shares outstanding during the period (the denominator).

Borrowing costs

Interest and other costs incurred by an entity in connection with the borrowing of funds.

Business

An integrated set of activities and assets conducted and managed for the purpose of providing:

a return to investors; or

lower costs or other economic benefits directly and proportionately to policyholders or participants.

A business generally consists of inputs, processes applied to those inputs, and resulting outputs that are, or will be, used to generate revenues. If goodwill is present in a transferred set of activities and assets, the transferred set shall be presumed to be a business.