A Account a record of transactions of a

Accounting planning, recording,

Accounting elements classification of transactions into the types of accounts

Accounting equation an equation showing the relationship among asse

equity, mathematically, it is

Accounting period the length of ti

information, usually 12 months

Accrual basis of accounting

(goods/services are provided

this oppose the Cash basis of accounting

Accrued revenue income earn in this accounting period yet to

Accrued expense resources consumed that has not been paid for in this accounting period

Acid-test ratio see Quick ratio

Adjusting entries journal entries recorded to update general ledger accounts at the end of an

accounting period

Amalgamation the combination of two or more existing businesses into a single entity

Appropriation account

partners

Asset anything of value that is owned

B Bad debts debtor amounts

Balance sheet a financial statement that reports assets, liabilities, and owner's equity on a specific

date see Financial statements

Balance Day Adjustments

accounting period see Adjusting entries

Bank statement a report

Book of original entry see Journal

Bookkeeping the systematic

the financial condition of a business entity.

Book value of a fixed asset

C Capital the account used to summaris

Capital expenditure the purchase of fixed assets which benefits the business for more than one

accounting period. This expense appears in the balance sheet

Cash basis of accounting

expenses when they are paid

accounting

Cash book a special journal used to record only cash

Cash discount a deduction from the invoice amount to encourage ear

customer

Cash flows the cash receipts and cash payments of a company

Cash sale a sale in which cash is received for the total amount of the sale at the time of the

transaction

Chart of accounts a list of accounts used by a business

Cheque a business form ordering a bank to pay cash from a bank account

Cheque counterfoil record of amount and details of the transaction paid by cheque

Closing entries journal entries used to prepare temporary accounts for a new accounting period

Closing stock ending merchandise inventory on hand for sale to customers

Consistency concept The accounting treatment applied to an item should be the same for all

accounting periods

Contra account an account that reduces a related account on a financial

Contra balance an account balance that is opposite the normal balance

“contradict,””contraband”)

Correcting entry a journal entry made to correct an error in the ledger

GCE O’/N’ LEVEL PRINCIPLES OF ACCOUNTS (POA) KEY TERMS & DEFINITIONSwww.principlesofaccounts.com.sg

a record of transactions of a similar nature

planning, recording, summarizing, analysing, and interpreting financial information

classification of transactions into the types of accounts

an equation showing the relationship among asse

, mathematically, it is Assets = Owner’s Equity + Liabilities

the length of time for which a business summarises and reports

information, usually 12 months

Accrual basis of accounting the accounting method that records revenues when they are earned

provided) and expenses when they are incurred

Cash basis of accounting

income earn in this accounting period yet to

resources consumed that has not been paid for in this accounting period

see Quick ratio

journal entries recorded to update general ledger accounts at the end of an

the combination of two or more existing businesses into a single entity

a partnership financial statement showing net income

anything of value that is owned by the business which brings economic benefits

debtor amounts that is irrecoverable

a financial statement that reports assets, liabilities, and owner's equity on a specific

see Financial statements

Adjustments adjusting entries are made on balance day or the last day of the

see Adjusting entries

a report showing the transactions between a depositor

see Journal

the systematic maintenance and convenient records of all transactions in order to show

the financial condition of a business entity.

of a fixed asset see Net book value of fixed asset

the account used to summarise the owner's equity in a business

the purchase of fixed assets which benefits the business for more than one

accounting period. This expense appears in the balance sheet

Cash basis of accounting the accounting method that records revenues when they are received and

nses when they are paid, this oppose the accrual concept of accounting see

a special journal used to record only cash receipts and payment

uction from the invoice amount to encourage ear

the cash receipts and cash payments of a company

a sale in which cash is received for the total amount of the sale at the time of the

a list of accounts used by a business

a business form ordering a bank to pay cash from a bank account

record of amount and details of the transaction paid by cheque

journal entries used to prepare temporary accounts for a new accounting period

ending merchandise inventory on hand for sale to customers

The accounting treatment applied to an item should be the same for all

an account that reduces a related account on a financial

an account balance that is opposite the normal balance

band”)

a journal entry made to correct an error in the ledger

1

CE O’/N’ LEVEL PRINCIPLES OF ACCOUNTS KEY TERMS & DEFINITIONS ciplesofaccounts.com.sg

ing, and interpreting financial information

classification of transactions into the types of accounts

an equation showing the relationship among assets, liabilities, and owner's

Assets = Owner’s Equity + Liabilities

me for which a business summarises and reports financial

nting method that records revenues when they are earned

and expenses when they are incurred (goods/services are consumed),

income earn in this accounting period yet to be received

resources consumed that has not been paid for in this accounting period

journal entries recorded to update general ledger accounts at the end of an

the combination of two or more existing businesses into a single entity

a partnership financial statement showing net income or loss distribution to

by the business which brings economic benefits

a financial statement that reports assets, liabilities, and owner's equity on a specific

entries are made on balance day or the last day of the

a depositor and a bank

maintenance and convenient records of all transactions in order to show

e the owner's equity in a business

the purchase of fixed assets which benefits the business for more than one

the accounting method that records revenues when they are received and

, this oppose the accrual concept of accounting see Accrued basis of

receipts and payment transactions

uction from the invoice amount to encourage early repayment from the

the cash receipts and cash payments of a company

a sale in which cash is received for the total amount of the sale at the time of the

a business form ordering a bank to pay cash from a bank account

record of amount and details of the transaction paid by cheque

journal entries used to prepare temporary accounts for a new accounting period

ending merchandise inventory on hand for sale to customers

The accounting treatment applied to an item should be the same for all

an account that reduces a related account on a financial statement

an account balance that is opposite the normal balance (think

a journal entry made to correct an error in the ledger

1

journal entries recorded to update general ledger accounts at the end of an

maintenance and convenient records of all transactions in order to show

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Cost of goods sold the total original price of all goods sold during a accounting period

Credit an amount recorded on the right side of a T account

Credit sale a sale for which cash will be received at a later date

Credit note a form prepared by the vendor showing the amount deducted for returns or for any

amounts overcharged

Creditor a person or organisation to whom a liability is owed

Creditor Control Account a subsidiary ledger containing only accounts for suppliers from whom items

are purchased or bought on credit

Current assets cash and other assets expected to be exchanged for cash or consumed within a year

Current liabilities liabilities due within a short time, usually within a year

Current ratio a ratio that shows the numeric relationship of current assets to current liabilities D Day book see Journal

Debit an amount recorded on the left side of a T account

Debit note a form prepared by the vendor to add charges to an invoice previously issued

Debtors Control Account a subsidiary ledger containing only accounts for customers who bought on

credit also known as Sales ledger control account

Depreciation the loss in the value of a fixed asset over a period of time

Depreciation expense the portion of a fixed asset's cost that is transferred to an expense account in

each accounting period during a fixed asset's useful life

Diminishing method see Reducing balance method

Discount allowed see Cash discount

Dishonoured cheque a cheque that a bank refuses to clear

Dividends earnings distributed to stockholders who invested in a business

Double-entry accounting the recording of debit and credit parts of a transaction, based on Assets =

Liabilities + Owner’s Equity

Doubtful debts amount from debtors which are expected as uncollectible from debtors.

Drawings assets taken out of a business for the owner's personal use

E Entry information for each transaction recorded in a journal

Equities financial rights to the assets of a business

Ethics refers to the standards of conduct by which one’s actions are judged as right or wrong, honest

or dishonest, fair or not fair

Error of complete reversal of entries Both entries of a transaction are made on the opposite sides

Error of compensation errors of the same amount are recorded on both the debit and credit sides,

thus cancelling each other

Error of omission the complete omission of the double-entry records for a transaction which has

taken place.

Error of commission Double entries recorded are of the correct amounts and on the right side of the

account but in the wrong accounts of the same category

Error of principle Double entries are recorded but in the wrong category of accounts.

Error of original entry Entries are made to both the debit and credit sides of with the same incorrect

amount

Expenditures cash disbursements and liabilities incurred for the cost of goods delivered or services

rendered

Expense resources used up resulting from the operation of a business F Financial performance a measure of how well a business can use assets from its primary mode of

business and generate revenues

Financial position the state of and the relationships among the various financial data found on a

business' balance sheet.

Financial statements a formal record of the financial activities of a business

For GCE O/N levels, the key financial statements are Profit and Loss Statement and Balance Sheet.

Fixed assets assets that will be used for a number of years in the operation of a business Float a specified amount of petty cash at the start of the period

3

G Gain on disposal of fixed assets revenue that result when a fixed asset is sold for more than book

value

General journal a journal with two amount columns in which all kinds of entries can be recorded

General ledger a ledger that contains all accounts needed to prepare financial statements

Goodwill the value of a business in excess of the net worth of the business

Going concern assumption that business will continue indefinitely

Gross profit the difference between revenue and the cost of goods sold, before deducting operating

expenses

Gross profit margin measures the gross profit earned from every dollar of sales

Goods and Service Tax, GST (Singapore) a broad-based value added tax levied on import of goods, as

well as nearly all supplies of goods and services see Value Added Tax

Gross profit on sales the revenue remaining after cost of goods sold has been deducted

H Historical cost concept states that all business transactions are recorded at the cost at the time it took place.

I Income statement a financial statement showing the revenue and expenses during the accounting

period

Incomplete records the recording of transactions which does not observe the double-entry rules.

Impress system is a system for controlling petty cash. The petty cashier is given an amount in advance

of expenditure. Under the Imprest system, the chief cashier replenishes the cash such that the petty

cash box always has the same amount of float at the start of each period

Insurance on purchases an expense in under the Trading account to cover possible losses, damages or

theft while goods are being brought to the business

Intangible assets assets of a non-physical nature that brings economical benefits for a business

Interest an amount paid for the use of money for a period of time

Interest on capital given to compensate partners who contribute money into the business

Interest on drawings amounts owed to the business by the partners for withdrawal of

funds or goods for personal use, given to compensate for the opportunity cost of the

business to generate profits

Interest expense the interest accrued on money borrowed

Interest income the interest earned on money loaned

Inventory see Stock

Invoice a form containing the description of the goods or services sold, the quantity, and the price

J Journal a book for recording transactions, also known as book of original entry or day books

Journal entry the act of recording transactions in a journal L Ledger a group of accounts

Liability an amount owed by a business

List price a business's printed or catalog price

Long-term assets see Fixed assets

Long-term liabilities amounts owing for more than a year

Loss on fixed assets the loss that results when a fixed asset is sold for less than book value

Lower of cost or net realisable value using the lower of cost or market value to determine the cost of

closing stock

M Market value the price at which a share of stock may be sold on the stock market

Markup the amount added to the cost of goods to establish the selling price

Matching principle The appropriate expenses should be matched to all the revenue to determine

profits in a given accounting period.

Materiality concept how each transaction is captured and dealt with in the accounting records

depends on its significance and impact

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Monetary assumption or money measurement only transactions quantifiable/ expressed in monetary

terms are recorded.

Mutual agency the right of all partners to contract for a partnership

N Net book value of a fixed asset the original cost of a fixed asset minus accumulated depreciation

Net income the difference between total revenue and total expenses when total revenue is greater

Net loss the difference between total revenue and total expenses when total expenses are greater

Net purchases total purchases less purchases discount and purchases returns and drawings from

owners

Net sales total sales less sales discount and sales returns and allowances

Normal balance the side of the account that is increased Net realisable value the market value of an asset O Objectivity concept the methods used to prepare financial reports should be free from personal bias

and based on verifiable evidence

Operating expenses the payments necessary to operate a business on a day-to-day basis

Other revenue revenue from activities other than normal business operations

Owner's equity the amount remaining after the value of all liabilities is subtracted from the value of

all assets

P Partnership a business in which two or more persons combine their assets and skills

Partnership agreement a written agreement setting forth the conditions under which a partnership

is to operate

Partner Salary given to compensate a partner managing the business and forgoing the opportunity

for employment elsewhere

Petty cash an amount of cash kept on hand and used for making small payments

Petty cash voucher a form showing proof of a petty cash payment

Postdated cheque a cheque with a future date on it

Posting transferring information from a journal entry to a ledger account

Prepaid expenses expenses paid in one accounting period but not reported as expenses until a later

accounting period

Profit and loss statement see Income statement

Provision for Doubtful debts allowance made amounts expected to be uncollectible from debtors at

a given date

Provision for Depreciation the total amount of depreciation expense that has been recorded since

the purchase of a fixed asset, also known as Accumulated depreciation

Purchase invoice an invoice used as a source document for recording a purchase on credit transaction

Purchases journal a special journal used to record only purchases of goods on credit

Purchases return credit allowed for the purchase price of returned goods, resulting in a decrease in

trade debtors

Q Quick ratio the number of times liquid assets cover the current liabilities. A safe ratio should be at least 1:1

R Rate of return of capital measures the net profit earned for every dollar invested by the owner

Rate earned on average total assets the relationship between net income and average total assets

Rate of stock turnover the number of times the average amount of goods is sold during a specific

period of time

Ratio a comparison between two numbers showing how many times one number exceeds the other

Receipt a business form giving written acknowledgement for cash received Residual value

see Estimated salvage value

Reducing balance method multiplying the book value of the fixed asset by a constant depreciation rate

at the end of each accounting period

5

Revaluation method depreciation is calculated as the difference between the value of the asset at the

end of the period and the value of the asset at the beginning of the period.

Revenue income generated from the operation of a business

Revenue expenditure for day-to-day running of the business. Such expenses benefit the business

within a given period. This expense appears in the Profit and loss statement

Reversing entry an entry made at the beginning of one accounting period to reverse an adjusting

entry made in the previous accounting period

S Salary the money paid for employee services

Sales ledger control account see Debtors control account

Sales invoice an invoice used as a source document for recording a sale on credit

Sales journal a special journal used to record only sales of goods on credit

Sales return credit allowed a customer for the sales price of returned goods, resulting in a decrease in

the debtors’ account

Salvage/Scrap value the amount an owner expects to receive when a fixed asset is disposed

Service business a business that performs an activity for a fee

Sole proprietorship a business owned by one person

Source document a business paper from which information is obtained for a journal entry. Example:

bank statement, cheque counterfoil, credit note, debit note, payment voucher, invoice and receipt

Special journal a journal used to record only one kind of transaction. These are Purchase Journal,

Sales Journal, Returns Outwards Journal and Return Inwards Journals are special journals

Standing order a written, signed, and dated order from the business ordering a bank, to pay money

to a third party to make regular payments by a given date. GIRO is a common form of standing order

(in Singapore)

Statement of affairs shows the assets and liabilities of the firm at a particular period

Stock the amount of goods on hand

Stock turnover see Rate of Stockturn

Straight-line method of depreciation charging an equal amount of depreciation expense for a fixed

asset in each year of useful life

Subsidiary ledger a ledger that is summarized in a single general ledger account

Sundry expenses items which do not occur frequently enough to warrant record in their own

accounts

T T account an accounting device used to analyze transactions

Trade discount a reduction in the list price granted to customers to encourage bulk purchases

Transaction a business activity that changes assets, liabilities, or owner's equity

Trial balance a proof of the equality of debits and credits in a general ledger

U Unearned revenue revenue received in one accounting period but not earned until the next

accounting period

Useful life the number of years fixed assets is expected to be used

V Value Added Tax is a tax on spending on goods and services. The tax base of such a tax is the money

spent on consumption.

Vendor a business from which goods is purchased or supplies or other assets are bought

Voucher a business form used to show an authorised person's approval for a cash payment

W Wages see Salary

Withdrawals see Drawings

Working capital the amount of total current assets less total current liabilities

Writing off an account canceling the balance of a customer account because the customer does not

pay

GCE O’/N’ LEVEL PRINCIPLES OF ACCOUNTS PRINCIPLESOFACCOUNTS.COM.SG

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