Accounting Terminology
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Accountimg Reports & Terminology series: Accounting Terminology. Paper 05.01

Accountimg Reports & Terminology series: Accounting Terminology. Paper 05.01

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