Key accounting definitions

FIGURING IT OUT

Expired cost
That portion of an expenditure from which no further benefit is expected.

Fair market value
The price that would be agreed to in an open and unrestricted market between knowledgeable and willing parties dealing at arm's length who are fully informed and not under any compulsion to transact. Arm's length is a transaction on the assumption that the parties to the transaction would act without being influenced by each other or by any other person.

Forfeited share
A general charge on some or all assets of an enterprise which are not attached to specific assets and are given as security against debt.

Goodwill
An intangible asset arising from business connections or trade name or reputation of an enterprise.

Internal audit
An independent appraisal activity within an enterprise, whether by the staff of the enterprise or by a firm of accountants appointed for that purpose, for the review of accounting, financial and other operations and control as a basis of service to management. It involves a specialised application of techniques of auditing.

Internal check
A system of allocation and responsibility, division of work and methods of recording transactions, whereby the work of an employee or group of employees is checked continuously by correlating it with work of others. No employee or group of employees has exclusive control over any transaction or group of transactions.

Internal control
The entire system of controls, financial and otherwise, established by the management in order to carry on the business of the enterprise in an orderly and efficient manner, ensure adherence to management policies, safeguard the assets and secure as far as possible the accuracy and completeness of records.

Long-term liability
Liability which does not fall due for payment in a relatively short period which is normally a period of not more than twelve months.

Paid-up share capital
That part of subscribed share capital for which consideration in cash or otherwise has been received. This includes bonus shares allotted by the corporate enterprises.

Prime cost
The total cost of direct materials, direct wages and other direct production expenses.

Promissory note
An instrument in writing (not being a bank note or currency note) containing an unconditional undertaking signed by the maker to pay a certain sum of money only to or to the order of a certain person or to the bearer of the instrument.

Sales turnover
The aggregate amount for which sales are effected or services rendered by an enterprise. The terms gross turnover and net turnover (or gross sales and net sales) are sometimes used to distinguish the sales aggregate before and after deduction of returns and trade discounts.

Shareholders equity
The interest of the shareholders in the net assets of a corporate enterprise. However, in the case of liquidation, it is represented by the residual assets after meeting prior claims.

Source: ICWAI