ACCOUNTING REPORTS AND TERMINOLOGY<br />Accounting Terminology<br />
Any period of time utilised to measure accounting performance<br />www.lewistaxation.com.au<br />1.	Accounting Period<br />
Short term financial obligations<br />www.lewistaxation.com.au<br />2.	Accounts Payable (Sundry Creditors)<br />
Amounts owed to the firm by customers<br />www.lewistaxation.com.au<br />3.	Accounts Receivable (Sundry Debtors)<br />
Acquired by the firm to accomplish its business objectives<br />www.lewistaxation.com.au<br />4.	Assets<br />
The comparison of operating figures from one firm with another<br />www.lewistaxation.com.au<br />5.	Benchmarks<br />
Sales to cover all variable and fixed expenses<br />www.lewistaxation.com.au<br />6.	B.O.S. (Before Owners’ Salary)<br />
Sales to cover all variable and fixed expenses<br />www.lewistaxation.com.au<br />7.	Break – Even Sales<br />
Future maintainable profit expressed at a capitalisation rate<br />Rate of return required by a prudent investor<br />Refl...
Items which affect rate of return (cont’d):<br />Restrictions on entry<br />Size of the share parcel<br />General business...
Review your performance during each benchmark period<br />www.lewistaxation.com.au<br />9.	Comparative Analysis<br />
Opening Stock<br />Plus:<br />Purchases<br />Freight Inwards<br />Less:<br />Closing Stock<br />Equals – Cost Of Goods Sol...
Average days to pay creditors divided into 365 days<br />www.lewistaxation.com.au<br />11. Creditors Turnover<br />
Usually turned into cash within twelve months<br />www.lewistaxation.com.au<br />12.	Current Assets<br />
Normally paid within twelve months<br />www.lewistaxation.com.au<br />13.	Current Liabilities<br />
Indication of Liquidity<br />Calculated<br />Current Assets<br />        Current Liabilities<br />		= Current Ratio<br />w...
Business’ valuation of assets<br />www.lewistaxation.com.au<br />15.	Current Market Value<br />
Shows how a business is paying its creditors<br />Calculated:<br />	      Creditors		        <br />		Average Daily Credit ...
Calculated:<br />		Debtors		<br />	Average Daily Credit Sales<br />	= Days Debtors Outstanding<br />www.lewistaxation.com....
Percentage of debtors outstanding compared to credit sales<br />Debtors Ratio – calculated:<br />Debtors	x	100<br />      ...
Amounts owed to the firm by customers<br />www.lewistaxation.com.au<br />19.	Debtors<br />
Debtor Ratio to Borrowed Funds<br />Working Capital Ratio to Borrowed Funds<br />Debt to Equity Ratio<br />Other key perfo...
Percentage of external debt to equity<br />Debt to Equity % - calculated:<br />Total Debt	x	100<br />		    Equity		  1<br ...
Record department’s:<br />Sales<br />Cost of Goods Sold<br />Gross Profits<br />To determine GP% for each department<br />...
Costs incurred in producing net profit<br />www.lewistaxation.com.au<br />23.	Expenses<br />
Measures financial commitments:<br />Profitability<br />Exposure to Debt<br />Interest Rate<br />Owners’ Reinvestment<br /...
Earning before Interest and Tax<br />www.lewistaxation.com.au<br />25.	EBIT<br />
Earnings Before Interest, Depreciation and Tax<br />www.lewistaxation.com.au<br />26.	EBIDT<br />
Earnings Before Interest, Tax, Depreciation & Amortisation.<br />www.lewistaxation.com.au<br />27.	EBITDA<br />
Calculated earnings before interest and tax plus principal’s wages, superannuation etc<br />www.lewistaxation.com.au<br />...
Items owned by the business used to generate business revenue<br />www.lewistaxation.com.au<br />29.	Fixed Assets<br />
Fixed Assets as a % of Total Assets – calculated:<br />Fixed Assets		x	100<br />		Total Assets			  1<br />www.lewistaxatio...
Expected profitability after making adjustment for unusual or non recurring items<br />	Includes:<br />Reasonable Manageme...
Difference between sales and cost of goods sold<br />www.lewistaxation.com.au<br />32.	Gross Profit<br />
Measures gross profit earned on sales<br />www.lewistaxation.com.au<br />33.	Gross Profit % Of Sales<br />
Sales - Cost of Goods Sold = Gross Profit, then<br />www.lewistaxation.com.au<br />34.	Gross Profit Ratio<br />
Borrowings expressed as a percentage of assets:<br />	Assets worth		$100,000<br />	Borrowings		$  62,000<br />Calculated:<...
Measures increase from previous year.<br />	Factors effecting growth includes:<br />Competition<br />Business Presentation...
Original cost of assets<br />www.lewistaxation.com.au<br />37.	Historical Cost<br />
Industry group according to the Australian & New Zealand Standard Industry Classification Coding System of the Australian ...
Number of times interest charges are covered by EBIT<br />www.lewistaxation.com.au<br />39.	Interest Cover<br />
Goods purchased or manufactured for sale to customers<br />www.lewistaxation.com.au<br />40.	Inventory (Stock On Hand)<br />
Detailed review and comparison of a business against a “pool of similar businesses”<br />www.lewistaxation.com.au<br />41....
Amounts owing by the firm<br />www.lewistaxation.com.au<br />42.	Liabilities<br />
Ability to pay financial obligations<br />www.lewistaxation.com.au<br />43.	Liquidity<br />
Current Assets to Current Liabilities<br />www.lewistaxation.com.au<br />44. Liquid Ratio<br />
Amounts owed not due for repayment within the next twelve months<br />www.lewistaxation.com.au<br />45.	Long Term Liabilit...
People who look like current customers. <br />They are normally the first group of prospects targeted in a marketing campa...
Amount added to invoice cost<br />www.lewistaxation.com.au<br />47.	Mark - Up<br />
Amount remaining after cost of goods sold and operating expenses have been deducted from sales<br />www.lewistaxation.com....
Operating Profit or Loss after income tax.<br />www.lewistaxation.com.au<br />49.	Net Profit After Tax<br />
Measures net profit before tax earned on each dollar of sales<br />www.lewistaxation.com.au<br />50.	Net Profit Percentage...
Owner’s Funds as a percentage of total assets – calculated:<br />Owner’s Funds	x	100<br />		   Total Funds		  1<br />www.l...
Include all expenditure to be paid from Gross Profit.<br />www.lewistaxation.com.au<br />52. Overheads<br />
A measure of output generated from resources<br />www.lewistaxation.com.au<br />53.	Productivity<br />
Net profit after tax divided by total revenue and multiplied by 100.<br />www.lewistaxation.com.au<br />54.	Profit Margin<...
Ratio between current assets minus stock and current liabilities minus bank overdraft<br />www.lewistaxation.com.au<br />5...
The goods shall remain the property of the seller until all monies are paid<br />www.lewistaxation.com.au<br />56.	Romalpa...
Realistic arms length salaries if external persons were appointed<br />www.lewistaxation.com.au<br />57.	Reasonable Manage...
Relationship between net profit and total assets<br />Return on Assets – calculated:<br />Net Profit	x	100<br />		   Asset...
Relationship between net profit and owner’s equity<br />Return on Equity – calculated:<br />Net Profit	x	100<br />		   Equ...
Net profit after tax as a percentage of shareholder&apos;s funds.<br />www.lewistaxation.com.au<br />60.	Return On Funds<b...
Net profit after tax as a percentage of total revenue.<br />www.lewistaxation.com.au<br />61.	Return On Revenue<br />
Factors affecting staffing costs<br />Including:<br />Structures<br />Monitoring<br />Training<br />Experience<br />Turnov...
Goods purchased or manufactured to sell to customers<br />www.lewistaxation.com.au<br />63.	Stock On Hand<br />
Success of stock management including:<br />Displays<br />Mix<br />Ordering Systems<br />Stocktaking<br />Security<br />ww...
Dissection of sales income into departmental sales and measures income to be contributed from each product group<br />www....
Describes characteristics of retail store: <br />Average customers<br />Average items per customer<br />Average sale per c...
Shrinkage measures a business&apos; ability to control its margins and pricing.  <br />Strong stock management policies wi...
Number of times the entire stock is sold and replaced<br />www.lewistaxation.com.au<br />68.	Stock Turnover/Stock Turns<br />
Shows ability of a borrower to service the interest cost of a loan out of the business’ profit<br />Times Interest Covered...
Based on prior year’s performance:<br />Competition<br />Management<br />Business Planning<br />Business Reinvestment<br /...
Excess of current assets over current liabilities<br />Calculated:<br />	Current Assets less Current Liabilities<br />	= W...
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Accounting Terminology

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Accountimg Reports & Terminology series: Accounting Terminology. Paper 05.01

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Accounting Terminology

  1. 1. ACCOUNTING REPORTS AND TERMINOLOGY<br />Accounting Terminology<br />
  2. 2. Any period of time utilised to measure accounting performance<br />www.lewistaxation.com.au<br />1. Accounting Period<br />
  3. 3. Short term financial obligations<br />www.lewistaxation.com.au<br />2. Accounts Payable (Sundry Creditors)<br />
  4. 4. Amounts owed to the firm by customers<br />www.lewistaxation.com.au<br />3. Accounts Receivable (Sundry Debtors)<br />
  5. 5. Acquired by the firm to accomplish its business objectives<br />www.lewistaxation.com.au<br />4. Assets<br />
  6. 6. The comparison of operating figures from one firm with another<br />www.lewistaxation.com.au<br />5. Benchmarks<br />
  7. 7. Sales to cover all variable and fixed expenses<br />www.lewistaxation.com.au<br />6. B.O.S. (Before Owners’ Salary)<br />
  8. 8. Sales to cover all variable and fixed expenses<br />www.lewistaxation.com.au<br />7. Break – Even Sales<br />
  9. 9. Future maintainable profit expressed at a capitalisation rate<br />Rate of return required by a prudent investor<br />Reflects a mark up on prevailing interest rates<br />Items which affect rate of return:<br />Risk<br />Lack of negotiability<br />Economic conditions<br />www.lewistaxation.com.au<br />8. Capitalisation Rate<br />
  10. 10. Items which affect rate of return (cont’d):<br />Restrictions on entry<br />Size of the share parcel<br />General business risks<br />www.lewistaxation.com.au<br />8. Capitalisation Rate cont&apos;d...<br />
  11. 11. Review your performance during each benchmark period<br />www.lewistaxation.com.au<br />9. Comparative Analysis<br />
  12. 12. Opening Stock<br />Plus:<br />Purchases<br />Freight Inwards<br />Less:<br />Closing Stock<br />Equals – Cost Of Goods Sold<br />www.lewistaxation.com.au<br />10. Cost Of Goods Sold<br />
  13. 13. Average days to pay creditors divided into 365 days<br />www.lewistaxation.com.au<br />11. Creditors Turnover<br />
  14. 14. Usually turned into cash within twelve months<br />www.lewistaxation.com.au<br />12. Current Assets<br />
  15. 15. Normally paid within twelve months<br />www.lewistaxation.com.au<br />13. Current Liabilities<br />
  16. 16. Indication of Liquidity<br />Calculated<br />Current Assets<br /> Current Liabilities<br /> = Current Ratio<br />www.lewistaxation.com.au<br />14. Current Ratio<br />
  17. 17. Business’ valuation of assets<br />www.lewistaxation.com.au<br />15. Current Market Value<br />
  18. 18. Shows how a business is paying its creditors<br />Calculated:<br /> Creditors <br /> Average Daily Credit Purchase<br /> = Days Creditors Outstanding<br />www.lewistaxation.com.au<br />16. Days Creditors Outstanding<br />
  19. 19. Calculated:<br /> Debtors <br /> Average Daily Credit Sales<br /> = Days Debtors Outstanding<br />www.lewistaxation.com.au<br />17. Days Debtors Outstanding<br />
  20. 20. Percentage of debtors outstanding compared to credit sales<br />Debtors Ratio – calculated:<br />Debtors x 100<br /> Credit Sales 1<br />www.lewistaxation.com.au<br />18. Debtors’ Ratio<br />
  21. 21. Amounts owed to the firm by customers<br />www.lewistaxation.com.au<br />19. Debtors<br />
  22. 22. Debtor Ratio to Borrowed Funds<br />Working Capital Ratio to Borrowed Funds<br />Debt to Equity Ratio<br />Other key performance indicators applicable<br />www.lewistaxation.com.au<br />20. Debt Covenants<br />
  23. 23. Percentage of external debt to equity<br />Debt to Equity % - calculated:<br />Total Debt x 100<br /> Equity 1<br />www.lewistaxation.com.au<br />21. Debt To Equity Percentage<br />
  24. 24. Record department’s:<br />Sales<br />Cost of Goods Sold<br />Gross Profits<br />To determine GP% for each department<br />www.lewistaxation.com.au<br />22. Departmental Gross Profit %<br />
  25. 25. Costs incurred in producing net profit<br />www.lewistaxation.com.au<br />23. Expenses<br />
  26. 26. Measures financial commitments:<br />Profitability<br />Exposure to Debt<br />Interest Rate<br />Owners’ Reinvestment<br />Indicators to measure:<br />Debt as % of Sale<br />Debt as % of Equity<br />www.lewistaxation.com.au<br />24. Financing Indicators<br />
  27. 27. Earning before Interest and Tax<br />www.lewistaxation.com.au<br />25. EBIT<br />
  28. 28. Earnings Before Interest, Depreciation and Tax<br />www.lewistaxation.com.au<br />26. EBIDT<br />
  29. 29. Earnings Before Interest, Tax, Depreciation & Amortisation.<br />www.lewistaxation.com.au<br />27. EBITDA<br />
  30. 30. Calculated earnings before interest and tax plus principal’s wages, superannuation etc<br />www.lewistaxation.com.au<br />28. Adjusted EBIT<br />
  31. 31. Items owned by the business used to generate business revenue<br />www.lewistaxation.com.au<br />29. Fixed Assets<br />
  32. 32. Fixed Assets as a % of Total Assets – calculated:<br />Fixed Assets x 100<br /> Total Assets 1<br />www.lewistaxation.com.au<br />30. Fixed Assets As A Percentage Of Total Assets<br />
  33. 33. Expected profitability after making adjustment for unusual or non recurring items<br /> Includes:<br />Reasonable Management Salaries<br />“Notional Rent” on Owned Premises<br />www.lewistaxation.com.au<br />31. Future Maintainable Profits<br />
  34. 34. Difference between sales and cost of goods sold<br />www.lewistaxation.com.au<br />32. Gross Profit<br />
  35. 35. Measures gross profit earned on sales<br />www.lewistaxation.com.au<br />33. Gross Profit % Of Sales<br />
  36. 36. Sales - Cost of Goods Sold = Gross Profit, then<br />www.lewistaxation.com.au<br />34. Gross Profit Ratio<br />
  37. 37. Borrowings expressed as a percentage of assets:<br /> Assets worth $100,000<br /> Borrowings $ 62,000<br />Calculated:<br />Assets Worth x 100<br /> Borrowings 1<br /> Gearing is: = 62%<br />www.lewistaxation.com.au<br />35. Gearing<br />
  38. 38. Measures increase from previous year.<br /> Factors effecting growth includes:<br />Competition<br />Business Presentation<br />Catchment Area Growth<br />Customer Buying Habits<br />Advertising<br />www.lewistaxation.com.au<br />36. Growth - Sales<br />
  39. 39. Original cost of assets<br />www.lewistaxation.com.au<br />37. Historical Cost<br />
  40. 40. Industry group according to the Australian & New Zealand Standard Industry Classification Coding System of the Australian Bureau of Statistics.<br />www.lewistaxation.com.au<br />38. Industry Categories<br />
  41. 41. Number of times interest charges are covered by EBIT<br />www.lewistaxation.com.au<br />39. Interest Cover<br />
  42. 42. Goods purchased or manufactured for sale to customers<br />www.lewistaxation.com.au<br />40. Inventory (Stock On Hand)<br />
  43. 43. Detailed review and comparison of a business against a “pool of similar businesses”<br />www.lewistaxation.com.au<br />41. Inter Firm Comparisons<br />
  44. 44. Amounts owing by the firm<br />www.lewistaxation.com.au<br />42. Liabilities<br />
  45. 45. Ability to pay financial obligations<br />www.lewistaxation.com.au<br />43. Liquidity<br />
  46. 46. Current Assets to Current Liabilities<br />www.lewistaxation.com.au<br />44. Liquid Ratio<br />
  47. 47. Amounts owed not due for repayment within the next twelve months<br />www.lewistaxation.com.au<br />45. Long Term Liabilities<br />
  48. 48. People who look like current customers. <br />They are normally the first group of prospects targeted in a marketing campaign.<br />www.lewistaxation.com.au<br />46. Low-Hanging Fruit<br />
  49. 49. Amount added to invoice cost<br />www.lewistaxation.com.au<br />47. Mark - Up<br />
  50. 50. Amount remaining after cost of goods sold and operating expenses have been deducted from sales<br />www.lewistaxation.com.au<br />48. Net Profit<br />
  51. 51. Operating Profit or Loss after income tax.<br />www.lewistaxation.com.au<br />49. Net Profit After Tax<br />
  52. 52. Measures net profit before tax earned on each dollar of sales<br />www.lewistaxation.com.au<br />50. Net Profit Percentage Of Sales<br />
  53. 53. Owner’s Funds as a percentage of total assets – calculated:<br />Owner’s Funds x 100<br /> Total Funds 1<br />www.lewistaxation.com.au<br />51. Owner’s Funds As A Percentage Of Total Assets<br />
  54. 54. Include all expenditure to be paid from Gross Profit.<br />www.lewistaxation.com.au<br />52. Overheads<br />
  55. 55. A measure of output generated from resources<br />www.lewistaxation.com.au<br />53. Productivity<br />
  56. 56. Net profit after tax divided by total revenue and multiplied by 100.<br />www.lewistaxation.com.au<br />54. Profit Margin<br />
  57. 57. Ratio between current assets minus stock and current liabilities minus bank overdraft<br />www.lewistaxation.com.au<br />55. Quick Ratio<br />
  58. 58. The goods shall remain the property of the seller until all monies are paid<br />www.lewistaxation.com.au<br />56. Romalpa Clause<br />
  59. 59. Realistic arms length salaries if external persons were appointed<br />www.lewistaxation.com.au<br />57. Reasonable Management Salaries<br />
  60. 60. Relationship between net profit and total assets<br />Return on Assets – calculated:<br />Net Profit x 100<br /> Assets 1<br />www.lewistaxation.com.au<br />58. Return On Assets<br />
  61. 61. Relationship between net profit and owner’s equity<br />Return on Equity – calculated:<br />Net Profit x 100<br /> Equity 1<br />www.lewistaxation.com.au<br />59. Return On Equity (Investment)<br />
  62. 62. Net profit after tax as a percentage of shareholder&apos;s funds.<br />www.lewistaxation.com.au<br />60. Return On Funds<br />
  63. 63. Net profit after tax as a percentage of total revenue.<br />www.lewistaxation.com.au<br />61. Return On Revenue<br />
  64. 64. Factors affecting staffing costs<br />Including:<br />Structures<br />Monitoring<br />Training<br />Experience<br />Turnover<br />productivity<br />www.lewistaxation.com.au<br />62. Staffing Profile<br />
  65. 65. Goods purchased or manufactured to sell to customers<br />www.lewistaxation.com.au<br />63. Stock On Hand<br />
  66. 66. Success of stock management including:<br />Displays<br />Mix<br />Ordering Systems<br />Stocktaking<br />Security<br />www.lewistaxation.com.au<br />64. Stock Indicators<br />
  67. 67. Dissection of sales income into departmental sales and measures income to be contributed from each product group<br />www.lewistaxation.com.au<br />65. Sales Mix<br />
  68. 68. Describes characteristics of retail store: <br />Average customers<br />Average items per customer<br />Average sale per customer<br />Trading days<br />Trading hours<br />Floor area<br />Sales per floor area <br />www.lewistaxation.com.au<br />66. Store Profile<br />
  69. 69. Shrinkage measures a business&apos; ability to control its margins and pricing. <br />Strong stock management policies will reduce shrinkage. <br />www.lewistaxation.com.au<br />67. Shrinkage<br />
  70. 70. Number of times the entire stock is sold and replaced<br />www.lewistaxation.com.au<br />68. Stock Turnover/Stock Turns<br />
  71. 71. Shows ability of a borrower to service the interest cost of a loan out of the business’ profit<br />Times Interest Covered by Profit – calculated:<br />Profit Before Tax And Interest<br /> Interest<br />www.lewistaxation.com.au<br />69. Times Interest Covered By Profit<br />
  72. 72. Based on prior year’s performance:<br />Competition<br />Management<br />Business Planning<br />Business Reinvestment<br />Demographic Information<br />www.lewistaxation.com.au<br />70. Trend Analysis<br />
  73. 73. Excess of current assets over current liabilities<br />Calculated:<br /> Current Assets less Current Liabilities<br /> = Working Capital<br />www.lewistaxation.com.au<br />71. Working Capital<br />
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