The Glossary
Standardizing IFRS and CMA definitions for professional excellence.
Absorption Costing
A costing method that includes all manufacturing costs (fixed and variable) in the cost of a product.
Accounting Equation
The foundation of double-entry bookkeeping: Assets = Liabilities + Equity. The balance sheet must always satisfy this equation.
Accounts Payable (AP)
A liability account representing a company's obligation to pay off a short-term debt to its creditors or suppliers.
Accounts Receivable (AR)
An asset account representing money owed to a business by its customers for goods or services delivered on credit.
Accrual Basis
An accounting method where revenue and expenses are recorded when they are earned or incurred, regardless of when cash is exchanged. This is the foundation of IFRS and GAAP.
Accrued Expenses
Expenses that have been incurred but not yet paid or recorded in the accounts (e.g., unpaid wages or interest).
Additional Paid-In Capital (APIC)
The value of share capital above its stated par value. It is part of the Shareholders' Equity section of the balance sheet.
Adjusting Entries
Journal entries made at the end of an accounting period to adhere to the accrual concept and matching principle, ensuring accounts reflect the correct balances.
Allowance for Doubtful Accounts
A contra-asset account that estimates the amount of accounts receivable that a company does not expect to collect.
Amortization
The process of gradually writing off the initial cost of an intangible asset (like a patent or trademark) or a loan over a period of time.
Audit Trail
A step-by-step record by which financial data can be traced back to its source (invoices, receipts, etc.), essential for internal controls.
Bad Debt Expense
The expense associated with the estimated uncollectible portion of accounts receivable, recognized under the matching principle.
Balance Sheet
A financial statement that reports a company's assets, liabilities, and shareholder equity at a specific point in time.
Bank Reconciliation
The process of matching the balances in an entity's accounting records for a cash account to the corresponding information on a bank statement.
Break-Even Point
The point at which total cost and total revenue are equal, meaning there is no net loss or gain.
Capital Expenditure (CAPEX)
Funds used by a company to acquire, upgrade, and maintain physical assets such as property, buildings, or equipment.
Closing Entries
Journal entries made at the end of an accounting period to transfer balances from temporary accounts (Revenue, Expenses) to permanent accounts (Retained Earnings).
Common Stock
A type of security that represents ownership in a corporation. Holders of common stock elect the board of directors and vote on corporate policies.
Conservatism Principle
The concept that when two options for reporting an item are available, the accountant should choose the option that is least likely to overstate assets and income.
Consolidated Financial Statements
The combined financial statements of a parent company and its subsidiaries, presented as if they were a single economic entity.
Contra-Asset
An asset account with a credit balance that reduces the gross amount of a related asset. Example: Accumulated Depreciation or Allowance for Doubtful Accounts.
Contribution Margin
The amount remaining from sales revenue after variable expenses have been deducted. It is used to cover fixed costs and then contribute to profit.
Cost of Goods Sold (COGS)
The direct costs attributable to the production of the goods sold by a company, including material and direct labor costs.
Credit (CR)
An entry on the right side of an account. Credits increase liability, equity, and revenue accounts, but decrease asset and expense accounts.
Current Ratio
A liquidity ratio that measures a company's ability to pay short-term obligations (Current Assets / Current Liabilities).
Debit (DR)
An entry on the left side of an account. In double-entry bookkeeping, debits increase asset and expense accounts, but decrease liability, equity, and revenue accounts.
Debt-to-Equity Ratio
A leverage ratio calculated by dividing total liabilities by total shareholder equity, indicating the proportion of debt used to finance assets.
Deferred Revenue
A liability representing cash received from a customer for goods or services that have not yet been provided. Also known as Unearned Revenue.
Deferred Tax Asset
An item on the balance sheet that results from overpayment or advance payment of taxes; it can be used to reduce future tax liability.
Deferred Tax Liability
A tax obligation that a company has not yet paid, but which will eventually come due, often caused by timing differences in depreciation methods.
Depreciation
The systematic allocation of the cost of a tangible fixed asset over its useful life. This is a non-cash expense.
Direct Labor
The cost of wages paid to employees who are directly involved in the production of goods or services.
Discontinued Operations
A segment of a business that has been sold or shut down, which is reported separately on the income statement from continuing operations.
Dividends
A distribution of a portion of a company's earnings to its shareholders, usually in the form of cash or additional stock.
Double-Entry Bookkeeping
A system where every financial transaction affects at least two accounts, with at least one debit and one credit. The total debits must always equal total credits.
EBITDA
An acronym for Earnings Before Interest, Taxes, Depreciation, and Amortization. It is used as a proxy for the operating cash flow of a business.
Fiduciary Duty
The legal and ethical obligation of one party to act in the best interest of another (e.g., management's duty to shareholders).
FIFO (First-In, First-Out)
An inventory valuation method assuming that the goods purchased first are the ones sold first. In periods of rising prices, this leads to lower COGS and higher ending inventory.
Fixed Assets (PP&E)
Long-term tangible assets used in the operations of a business, such as land, buildings, and machinery, which are not intended for sale.
Fixed Costs
Expenses that do not change as a function of the activity of a business, within the relevant period (e.g., rent, insurance, executive salaries).
GAAP (Generally Accepted Accounting Principles)
The standard framework of guidelines for financial accounting used primarily in the United States.
General Ledger
The complete record of all financial transactions of a company, organized by account (Cash, Inventory, etc.).
Goodwill
An intangible asset that arises when one company acquires another for a price greater than the net fair value of its identifiable assets and liabilities.
Gross Profit Margin
A financial metric calculated as (Revenue - COGS) / Revenue. It shows the percentage of revenue that exceeds the cost of goods sold.
IFRS (International Financial Reporting Standards)
A set of accounting standards developed by the IASB that is becoming the global standard for the preparation of public company financial statements.
Impairment
A permanent reduction in the value of a company's asset (typically a fixed or intangible asset) when its market value falls below its book value.
Income Statement
A financial statement that shows a company's revenues and expenses over a specific period, resulting in net income or loss.
Intangible Assets
Non-physical assets that have a multi-year value, such as patents, copyrights, trademarks, and goodwill.
Internal Controls
The mechanisms, rules, and procedures implemented by a company to ensure the integrity of financial and accounting information and prevent fraud.
Inventory Turnover
A ratio showing how many times a company has sold and replaced inventory during a specific period.
Journal Entry
The record of a financial transaction in the accounting books of a business, listed in chronological order and showing the accounts to be debited and credited.
LIFO (Last-In, First-Out)
An inventory valuation method assuming that the last items placed in inventory are the first ones sold. Note: LIFO is permitted under US GAAP but prohibited under IFRS.
Liquidity
The ability of a business to convert its assets into cash quickly to meet its short-term financial obligations.
Lower of Cost or Market (LCM)
An inventory valuation rule stating that inventory must be recorded at either its original cost or its current market replacement cost, whichever is lower.
Matching Principle
The accounting principle that requires expenses to be reported in the same period as the revenues they helped generate.
Materiality
The accounting principle that allows small errors or omissions to be ignored if they are not large enough to mislead a person using the financial statements.
Non-Controlling Interest (Minority Interest)
The portion of equity ownership in a subsidiary not owned by the parent corporation.
Operating Expenses (OPEX)
The daily costs of running a business that are not directly tied to the production of goods (e.g., rent, utilities, marketing, salaries).
Overhead
Ongoing business expenses not directly attributed to creating a product or service, such as administrative costs or facility utilities.
Par Value
The nominal or face value of a bond or share of stock as stated in the corporate charter, having little relation to the actual market value.
Preferred Stock
A class of ownership in a corporation that has a higher claim on assets and earnings than common stock, usually including a fixed dividend.
Prepaid Expenses
An asset account representing payments made for goods or services to be received in the future (e.g., insurance or rent).
Quick Ratio (Acid-Test)
A more stringent liquidity test that excludes inventory from current assets ( [Current Assets - Inventory] / Current Liabilities).
Retained Earnings
The cumulative amount of net income a company has kept (retained) after paying out dividends to shareholders since its inception.
Return on Equity (ROE)
A measure of financial performance calculated by dividing net income by shareholders' equity. It reveals how effectively management is using a company’s assets to create profits.
Revenue Recognition Principle
The accounting rule that dictates revenue should be recognized in the period it is earned, regardless of when the cash is actually received.
Reversing Entries
Optional journal entries made at the beginning of a new accounting period to cancel out the adjusting entries made at the end of the previous period.
Salvage Value
The estimated resale value of an asset at the end of its useful life, used in calculating depreciation expense.
Statement of Cash Flows
A report that shows the movement of cash in and out of a business across three categories: Operating, Investing, and Financing activities.
Treasury Stock
Shares of a company’s own stock that it has bought back from the open market. It is recorded as a contra-equity account.
Trial Balance
A report that lists the balances of all general ledger accounts. If the total debits equal total credits, the ledger is considered 'in balance'.
Unearned Revenue
A liability account used when a company receives payment before providing the service or product. As the work is completed, it is moved to the Revenue account.
Variable Costs
Corporate expenses that change in proportion to how much a company produces or sells (e.g., raw materials, direct labor, shipping).
Weighted Average Cost of Capital (WACC)
The average rate a business pays to finance its assets, calculated by weighting the cost of debt and the cost of equity.
Working Capital
The difference between a company’s current assets and its current liabilities. It measures a company's short-term liquidity and operational efficiency.