gloassary of fa and fsa

7/25/2019 Gloassary of FA and FSA

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GLOSSARY OF FA &FSA

Above the line: This term can be applied to many aspects of accounting. It meanstransactions, assets etc., that are associated with the everyday running of a business.

Account: A section in a ledger devoted to a single aspect of a business (eg. a Bankaccount, ages account, !ffice e"penses account#.

Accounting cycle: This covers everything from opening the books at the start of theyear to closing them at the end. In other words, everything you need to do in oneaccounting year accounting wise.

Accounting equation: The formula used to prepare a balance sheet: assets$liability%e&uity.

Accounting period: the period of time over which profits are calculated. 'ormal

accounting periods are months, &uarters, and years (fiscal or calendar#.

Accounts Payable: An account in the nominal ledger which contains the overallbalance of the urchase )edger.

Accretive: If a company ac&uires another and says the deal is *accretive to earnings*, itmeans that the resulting + ratio(priceearnings# of the ac&uired company is less thanthe ac&uiring company. +"ample: -ompany *A* has an earnings per share (+# of /0.The current share price is /01. This gives a + ratio of 01 (current share price is 01times the +#. -ompany *B* has made a net profit for the year of /21,111. If company*A* values *B* at, say, /031,111 (+ ratio$4 5031,111 valuation21,111 profit6# then the

deal is accretive because company *A* is effectively increasing its + (because it nowhas more shares and it paid less for them compared with its own share price#. (seedilutive#

Accruals: If during the course of a business certain charges are incurred but no invoiceis received then these charges are referred to as accruals (they *accrue* or increase invalue#. A typical e"ample is interest payable on a loan where you have not yet receiveda bank statement. These items (or an estimate of their value# should still be included inthe profit 7 loss account. hen the real invoice is received, an ad8ustment can be madeto correct the estimate. Accruals can also apply to the income side.

Accrual ethod o! accounting: 9ost businesses use the accrual method ofaccounting (because it is usually re&uired by law#. hen you issue an invoice on credit(ie. regardless of whether it is paid or not#, it is treated as a ta"able supply on the date itwas issued for income ta" purposes (or corporation ta" for limited companies#. Thesame applies to bills received from suppliers. (This does not mean you pay income ta"immediately, 8ust that it must be included in that year*s profit and loss account#.

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Accuulated "epreciation Account: This is an account held in the nominal ledgerwhich holds the depreciation of a fi"ed asset until the end of the asset*s useful life(either because it has been scrapped or sold#. It is credited each year with that year*sdepreciation, hence the balance increases (ie. accumulates# over a period of time. +achfi"ed asset will have its own accumulated depreciation account.

Advanced #orporation $a%(A-T ;< only no longer in use#: This is corporation ta"paid in advance when a limited company issues a dividend. A-T is then deducted fromthe total corporation ta" due when it has been calculated at year end. A-T wasabolished in April 0444. ee -orporation Ta".

Aging :a process where accounts receivable are sorted out by age (typically current, =1to >1 days old, >1 to 021 days old, and so on.# Aging permits collection efforts to focuson accounts that are long overdue

Aortiation: The depreciation (or repayment# of an (usually# intangible asset (eg.

loan, mortgage# over a fi"ed period of time. +"ample: if a loan of 02,111 is amorti?edover 0 year with no interest, the monthly payments would be 0111 a month.

Annualie: To convert anything into a yearly figure. +g. if profits are reported as runningat @01k a &uarter, then they would be @1k if annuali?ed. If a credit card interest ratewas &uoted as 0 a month, it would be annuali?ed as 02.

Appreciation ''an increase in value. If a machine cost /0,111 last year and is nowworth /0,211, it has appreciated in value by /211. (The opposite of depreciation.#

Appropriation Account: An account in the nominal ledger which shows how the net

profits of a business (usually a partnership, limited company or corporation# have beenused.

Arrears: Bills which should have been paid. Cor e"ample, if you have forgotten to payyour last = months rent, then you are said to be = months in arrears on your rent.

Assets :things of value owned by a business. An asset may be a physical property suchas a building, or an ob8ect such as a stock certificate, or it may be a right, such as theright to use a patented process.

Current Assets are those assets that can be e"pected to turn into cash within a year or

less. -urrent assets include cash, marketable securities, accounts receivable, andinventory.

Fixed Assets cannot be &uickly turned into cash without interfering with businessoperations. Ci"ed assets include land, buildings, machinery, e&uipment, furniture, andlongterm investments.

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Intangible Assets are items such as patents, copyrights, trademarks, licenses,franchises, and other kinds of rights or things of value to a company, which are notphysical ob8ects. These assets may be the most important ones a company owns. !ftenthey do not appear on financial reports.

At cost: The *at cost* price usually refers to the price originally paid for something, asopposed to, say, the retail price.

Audit: The process of checking every entry in a set of books to make sure they agreewith the original paperwork (eg. checking a 8ournal*s entries against the originalpurchase and sales invoices#.

Audit $rail: A list of transactions in the order they occurred.

(ad debts :amounts owed to a company that are not going to be paid. An accountreceivable becomes a bad debt when it is recogni?ed that it won*t be paid. ometimes,

bad debts are written off when recogni?ed. This is an e"pense. ometimes, a reserve isset up to provide for possible bad debts. -reating or adding to a reserve is also ane"pense.

(alance sheet :a statement of the financial position of a company at a single specifictime (often at the close of business on the last day of the month, &uarter, or year.# Thebalance sheet normally lists all assets on the left side or top while liabilities and capitalare listed on the right side or bottom. The total of all numbers on the left side or topmust e&ual or balance the total of all numbers on the right side or bottom. A balancesheet balances according to this e&uation: Assets $ )iabilities % -apital.

(an)rupt: If an individual or unincorporated company has greater liabilities than it hasassets, the person or business can petition for, or be declared by its creditors, bankrupt.In the case of a limited company or corporation in the same position, the term used isinsolvent.

(elo* the line: This term is applied to items within a business which would notnormally be associated with the everyday running of a business. (ond '' a writtenrecord of a debt payable more than a year in the future. The bond shows amount of thedebt, due date, and interest rate.

(ill: A term typically used to describe a purchase invoice (eg. an invoice from a

supplier#.

(oo) value :total assets minus total liabilities. (ee also net worth.# Book value alsomeans the value of an asset as recorded on the company*s books or financial reports.Book value is often different than true value. It may be more or less.

(rea)even point :the amount of revenue from sales which e"actly e&uals the amountof e"pense. Breakeven point is often e"pressed as the number of units that must be

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sold to produce revenues e"actly e&ual to e"penses. ales above the breakeven pointproduce a profitD below produces a loss.

#AGR: (-ompound Annual Erowth Fate# The year on year growth rate re&uired toshow the change in value (of an investment# from its initial value to its final value. If a /0

investment was worth /0.G2 over three years, the -AEF would be 0G 5(0 " 0.0G# "0.0G " 0.0G6

#apital +ployed ,#+-: Eross -+$Total assets, 'et -+$Ci"ed assets plus (currentassets less current liabilities#.

#apital Gains $a%: hen a fi"ed asset is sold at a profit, the profit may be liable to ata" called -apital Eains Ta". -alculating the ta" can be a complicated affair (capitalgains allowances, ad8ustments for inflation and different computations depending on theage of the asset are all considerations you will need to take on board#.

#apital :money invested in a business by its owners. (ee e&uity.# !n the bottom orright side of a balance sheet. -apital also refers to buildings, machinery, and other fi"edassets in a business. A capital investment is an investment in a fi"ed asset with a longterm use.

#apitalie :to capitali?e means to record an e"penditure on the balance sheet as anasset, to be amorti?ed over the future. The opposite is to e"pense. Cor e"ample,research e"penditures can be capitali?ed or e"pensed. If e"pensed, they are chargedagainst income when the e"penditure occurs. If capitali?ed, the e"penditure is chargedagainst income over a period of time usually related to the life of the products orservices created by the research.

#ash :money available to spend now. ;sually in a current account.

#ash Accounting: This term describes an accounting method whereby only invoicesand bills which have been paid are accounted for. However, for most types of businessin the ;


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#ontingent liabilities :liabilities not recorded on a company*s financial reports, butwhich might become due. If a company is being sued, it has a contingent liability thatwill become a real liability if the company loses the suit.

#ost o! sales. cost o! goods sold : the e"pense or cost of all items sold during an

accounting period. +ach unit sold has a cost of sales or cost of the goods sold. Inbusinesses with a great many items flowing through, the cost of sales or cost of goodssold is often computed by this formula: -ost of ales $ Beginning Inventory %urchases Juring the eriod +nding Inventory.

#opound interest: Apply interest on the capital plus all interest accrued to date. +g.A loan with an annually applied rate of 01 for 0111 over two years would yield a grosstotal of 0201 at the end of the period (year 0 interest$011, year two interest$001#. Thesame loan with simple interestapplied would yield 0211 (interest on both years is 011per year#.

#ontra account: An account created to offset another account. +g: a ales contraaccount would be ales Jiscounts. They are accounts included in the same section of aset of books, which when compared together, give the net balance. +"ample:ales$01,111 ales Jiscounts$0,111 therefore 'et ales$4,111. This e"ample,affecting the revenue side of a business, is also referred to as -ontra revenue . The telltale sign of a contra account is that it has the oposite balance to that e"pected for anaccount in that section (in the above e"ample, the ales Jiscounts balance would beshown in brackets eg. it has a debit balance where ales has a credit balance#.

#orporation $a%(-T ;< only#: The ta" paid by a limited company on its profits. Atpresent this is calculated at year end and due within 4 months of that date. Crom April

0444Advanced -orporation Ta" was abolished and large (;


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"ebit :an accounting entry on the left or top of a balance sheet. ;sually an increase inassets or a reduction in liabilities. +very debit has a balancing credit.

"e!erred incoe :a liability that arises when a company is paid in advance for goods orservices that will be provided later. Cor e"ample, when a maga?ine subscription is paid

in advance, the maga?ine publisher is liable to provide maga?ines for the life of thesubscription. The amount in deferred income is reduced as the maga?ines aredelivered.

"epreciation :an e"pense that is supposed to reflect the loss in value of a fi"ed asset.Cor e"ample, if a machine will completely wear out after ten year*s use, the cost of themachine is charged as an e"pense over the tenyear life rather than all at once, whenthe machine is purchased. traight line depreciation charges the same amount toe"pense each year. Accelerated depreciation charges more to e"pense in early years,less in later years. Jepreciation is an accounting e"pense. In real life, the fi"ed assetmay grow in value or it may become worthless long before the depreciation period ends.

"ilutive: If a company ac&uires another and says the deal is *dilutive to earnings*, itmeans that the resulting + (priceearnings# ratio of the ac&uired company is greaterthan the ac&uiring company. +"ample: -ompany *A* has an earnings per share (+# of/0. The current share price is /01. This gives a + ratio of 01 (current share price is 01times the +#. -ompany *B* has made a net profit for the year of /21,111. If company*A* values *B* at, say, /221,111 (+ ratio$00 5221,111 valuation21,111 profit6# then thedeal is dilutive because company *A* is effectively decreasing its + (because it nowhas more shares and it paid more for them in comparison with its own share price#. (see

Accretive#

"iscounted cash !lo* :a system for evaluating investment opportunities that discountsor reduces the value of future cash flow. (ee present value.#

"ividend :a portion of the afterta" profits paid out to the owners of a business as areturn on their investment.

"ouble entry :a system of accounting in which every transaction is recorded twice asa debit and as a credit.

"ebenture: This is a type of share issued by a limited company. It is the safest type ofshare in that it is really a loan to the company and is usually tied to some of the

company*s assets so should the company fail, the debenture holder will have first call onany assets left after the company has been wound up.

"ebit: A column in a 8ournal or ledger to record the *To* side of a transaction (eg. if youare paying money into your bank account you would debit the bank when making the

8ournal entry#.

"ebtors: A list of customers who owe money to the business.

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"e!erred e%penditure: +"penses incurred which do not apply to the current accountingperiod. Instead, they are debited to a *Jeferred e"penditure* account in the noncurrentassets area of your chart of accounts. hen they become current, they can then betransferred to the profit and loss account as normal.

"ividends: These are payments to the shareholders of a limited company.

"ouble'entry boo)')eeping: A system which accounts for every aspect of atransaction where it came from and where it went to. This from and toaspect of atransaction (called crediting and debiting# is what the term doubleentry means. 9oderndoubleentry was first mentioned by E -otrugli, then e"panded upon by ) accioli in the0Gth century.

"ra*ings: The money taken out of a business by its owner(s# for personal use. This isentirely different to wages paid to a business*s employees or the wages or remunerationof a limited company's directors (see 'Wages').

"uality:is the very foundation of double entry book keeping system and it comes fromthe fact that every transaction has a double (or dual# effect on the position of a businessas recorded in the accounts. Cor e"ample, when an asset is bought, another asset cash(or bank# is also and simultaneously decreased !F a liability such as creditors is alsoand simultaneously increased.

+arnings per share :a company*s net profit after ta"es for an accounting period,divided by the average number of shares of stock outstanding during the period.

+(/$: +arnings before interest and ta" (profit before any interest or ta"es have been

deducted#.

+(/$A: +arnings before interest, ta" and amorti?ation (profit before any interest, ta"esor amorti?ationhave been deducted#.

+(/$"A: +arnings before interest, ta", depreciation and amorti?ation (profit before anyinterest, ta"es, depreciation or amorti?ation have been deducted#. 01 ' 21 rule '' ageneral rule of thumb in business that says that 21 of the items produce 31 of theaction 21 of the product line produces 31 of the sales, 21 percent of thecustomers generate 31 of the complaints, and so on. In evaluating any businesssituation, look for the small group which produces the ma8or portion of the transactions

you are concerned with. This rule is not e"actly accurate, but it reflects a general truth,nothing is evenly distributed.

+quity :The value of the business to the owner of the business (which is the differencebetween the business*s assets and liabilities#.

+%penditure :an e"penditure occurs when something is ac&uired for a business anasset is purchased, salaries are paid, and so on. An e"penditure affects the balance

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sheet when it occurs. However, an e"penditure will not necessarily show up on theincome statement or affect profits at the time the e"penditure is made. All e"penditureseventually show up as e"penses, which do affect the income statement and profits.hile most e"penditures involve the e"change of cash for something, e"penses neednot involve cash. (ee e"pense below.#

+%pense :an e"penditure which is chargeable against revenue during an accountingperiod. An e"pense results in the reduction of an asset. All e"penditures are note"penses. Cor e"ample, a company buys a truck. It trades one asset cash to ac&uireanother asset. An e"penditure has occurred but no e"pense is recorded. !nly as thetruck is depreciated will an e"pense be recorded. The concept of e"pense as differentfrom an e"penditure is one reason financial reports do not show numbers that representspendable cash. The distinction between an e"penditure and an e"pense is important inunderstanding how accounting works and what financial reports mean. (To e"pense is averb. It means to charge an e"penditure against income when the e"penditure occurs.The opposite is to capitali?e.#

Fi%ed cost :a cost that does not change as sales volume changes (in the short run.#Ci"ed costs normally include such items as rent, depreciation, interest, and any salariesunaffected by ups and downs in sales.

F/FO: Cirst In Cirst !ut. A method of valuing stock.

Fiscal year: The term used for a business*s accounting year. The period is usuallytwelve months which can begin during any month of the calendar year (eg. 0st April2110 to =0st 9arch 2112#.

Fi%ed Assets: These consist of anything which a business owns or buys for use withinthe business and which still retains a value at year end. They usually consist of ma8oritems like land, buildings, e&uipment and vehicles but can include smaller items liketools. (see Jepreciation#

Fi%tures & Fittings: This is a class of fi"ed asset which includes office furniture, filingcabinets, display cases, warehouse shelving and the like.

Flo* o! Funds: This is a report which shows how a balance sheet has changed fromone period to the ne"t.

Good*ill: This is an e"tra value placed on a business if the owner of a businessdecides it is worth more than the value of its assets. It is usually included where thebusiness is to be sold as a going concern.

3istorical #ost: Assets, stock, raw materials etc. can be valued at what they originallycost (which is what the term *historical cost* means#, or what they would cost to replaceat today*s prices

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/ncoe :see profit.

/nterest :a charge made for the use of money.

/nventory :the supply or stock of goods and products that a company has for sale. A

manufacturer may have three kinds of inventory: raw materials waiting to be convertedinto goods, work in process, and finished goods ready for sale.

/nventory turnover : a ratio that indicates the amount of inventory a company uses tosupport a given level of sales. The formula is: Inventory Turnover $ -ost of ales

Average Inventory. Jifferent businesses have different general turnover levels. The ratiois significant in comparison with the ratio for previous periods or the ratio for similarbusinesses.

/nvested capital :the total of a company*s longterm debt and e&uity.

/nsolvent: A company is insolvent if it has insufficient funds (all of its assets# to pay itsdebts (all of its liabilities#. If a company*s liabilities are greater than its assets and itcontinues to trade, it is not only insolvent, but in the ;#.

/ntangible assets: Assets of a nonphysical or financial nature.

4ournal :a chronological record of business transactions.

Ledger :a record of business transactions kept by type or account. Mournal entries areusually transferred to ledgers.

Liabilities :amounts owed by a company to others. Current liabilities are those amountsdue within one year or less and usually include accounts payable, accruals, loans dueto be paid within a year, ta"es due within a year, and so on. Long-term liabilitiesnormally include the amounts of mortgages, bonds, and longterm loans that are duemore than a year in the future.

L/FO: )ast In Cirst !ut. A method of valuing stock.

L/LO: )ast In )ast !ut. A method of valuing stock.

Liquid :having lots of cash or assets easily converted to cash

Long ter liabilities: These usually refer to long term loans (ie. a loan which lasts formore than one year such as a mortgage#.

5atching principle: A method of analysing the sales and e"penses which make upthose sales to a particular period (eg. if a builder sells a house then the builder will tie in

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all the raw materials and e"penses incurred in building and selling the house to oneperiod usually in order to see how much profit was made#.

5aturity value: The (usually pro8ected# value of an intangibleasset on the date itbecomes due.

5inority interest: A minority interest represents a minority of shares not held by theholding company of a subsidiary. It means that the subsidiary is not wholly owned by theholding company. The minority shareholdings are shown in the holding companyaccounts as long term liabilities .

5oving average: A way of smoothing out (i.e. removing the highs and lows# of a seriesof figures (usually shown as a graph#. If you have, say, 02 months of sales figures andyou decide on a moving average period of = months, you would add three monthstogether, divide that by three and end up with an average for each month of the threemonth period. Lou would then plot that single figure in place of the original monthly

points on your graph. A moving average is useful for displaying trends. ee 'ormali?e.

5ultiple'step incoe stateent(aka 9ultistep#: An income statement (aka rofit and)oss# which has had its revenue section split up into subsections in order to give amore detailed view of its sales operations. +"ample: a company sells services andgoods. The statement could show revenue from services and associated costs of thoserevenues at the start of the revenue section, then show goods sold and cost of goodssold underneath. The two sections totals can then be amalgamted at the end to showoverall sales (or gross profit#. ee inglestep income statement .

6et *orth: total assets minus total liabilities. 'et worth is seldom the true value of a

company.

Ob7ectivity: The ob8ectivity concept means that an accountant has to prepare anyaccounts only on the basis of ob8ective and factual information. Thus, this conceptattempts to ensure that if, for e"ample, 011 accountants were to draw up a set ofaccounts for one business, there would be 011 identical accounting statementsprepared

Opportunity cost :a useful concept in evaluating alternate opportunities. If you choosealternative A, you cannot choose B, -, or J. hat is the cost or loss of profit of notchoosing B, -, or JN This cost or loss of profit is the opportunity cost of alternative A. In

personal life you may buy a car instead of taking a +uropean vacation. The opportunitycost of buying the car is the loss of the en8oyment of the vacation.

Overhead :a cost that does not vary with the level of production or sales, and usually acost not directly involved with production or sales. The chief e"ecutive*s salary and rentare typically overhead.

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Price'earnings ,p8e- ratio :the market price of a share of stock divided by the earnings(profit# per share. e ratios can vary from sky high to dismally low, but often do notreflect the true value of a company.

Post :to enter a business transaction into a 8ournal or ledger or other financial record.

Prepaid e%penses. de!erred charges :assets already paid for, that are being used upor will e"pire. Insurance paid for in advance is a common e"ample. The insuranceprotection is an asset. It is paid for in advance, it lasts for a period of time, and e"pireson a fi"ed date.

Present value :a concept that compares the value of money available in the future withthe value of money in hand today. Cor e"ample, /O3.=G invested today in a G savingsaccount will grow to /011 in five years. Thus the present value of /011 received in fiveyears is /O3.=G. The concept of present value is used to analy?e investmentopportunities that have a future payoff.

Pro!it :the amount left over when e"penses are subtracted revenues. Gross profit is theprofit left when cost of sales is subtracted from sales, before any operating e"pensesare subtracted. Operating profit is the profit from the primary operations of a businessand is sales minus cost of sales minus operating e"penses. Net profit before taxes isoperating profit minus nonoperating e"penses and plus nonoperating income. Net

profit after taxes is the bottom line, after everything has been subtracted. Also calledincome, net income, earnings. 'ot the same as cash flow and does not representspendable dollars.

Pre!erence Shares: This is a type of share issued by a limited company. It carries a

medium risk but has the advantage over ordinary shares in that preferenceshareholders get the first slice of the dividend *pie* (but usually at a fi"ed rate#.

Pro!it and Loss Account: An account made up of revenue and e"pense accountswhich shows the current profit or loss of a business (ie. whether a business has earnedmore than it has spent in the current year#.

Pro!it argin: The percentage difference between the costs of a product and the priceyou sell it for. +g. if a product costs you /01 to buy and you sell it for /21, then you havea 011 profit margin. This is also known as your *markup*.

Provisions: !ne or more accounts set up to account for e"pected future payments (eg.where a business is e"pecting a bill, but hasn*t yet received it#.

Realisation principle: The principle whereby the value of an asset can only bedetermined when it is sold or otherwise disposed of, ie. its *real* (or realised# value.

Retail: A term usually applied to a shop which resells other people*s goods. This type ofbusiness will re&uire a trading account as well as a profit and loss account

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Retained earnings :profits not distributed to shareholders as dividends, theaccumulation of a company*s profits less any dividends paid out. Fetained earnings arenot spendable cash.

Return on investent ,RO/- :a measure of the effectiveness and efficiency with which

managers use the resources available to them, e"pressed as a percentage. Return onequity is usually net profit after ta"es divided by the shareholders* e&uity. Return oninvested apital is usually net profit after ta"es plus interest paid on longterm debtdivided by the e&uity plus the longterm debt. Return on assets used is usually theoperating profit divided by the assets used to produce the profit. Typically used toevaluate divisions or subsidiaries. F!I is very useful but can only be used to compareconsistent entities :similar companies in the same industry or the same company over aperiod of time. Jifferent companies and different industries have different F!Is.

Revenue :the amounts received by or due a company for goods or services it providesto customers. Feceipts are cash revenues. Fevenues can also be represented by

accounts receivable.

Ris) :the possibility of lossD inherent in all business activities. High risk re&uires highreturn. All business decisions must consider the amount of risk involved.

Run Rate: A forecast for the year based on the current year to date figures. If acompany*s 0st &uarter profits were, say, /2Gm, they may announce that the run rate forthe year is /011m.

Sales :amounts received or due for goods or services sold to customers. Gross salesare total sales before any returns or ad8ustments. Net sales are after accounting for

returns and ad8ustments.

Service: A term usually applied to a business which sells a service rather thanmanufactures or sells goods (eg. an architect or a window cleaner#.

Sin)ing !und: An account set up to reduce another account to ?ero over time (using theprinciples of amorti?ation or straight line depreciation#. !nce the sinking fund reachesthe same value as the other account, both can be removed from the balance sheet.

Shares: These are documents issued by a company to its owners (the shareholders#which state how many shares in the company each shareholder has bought and what

percentage of the company the shareholder owns. hares can also be called *tock*

Shareholders: The owners of a limited company or corporation.

Shares issued(aka hares outstanding#: The number of shares a company has issuedto shareholders.

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Share preiu: The e"tra paid above the face value of a share. +"ample: if acompany issues its shares at /01 each, and later on you buy 0 share on the openmarket at /02, you will be paying a share premium of /2

Sole'proprietor: The selfemployed owner of a business

Straight'line depreciation: Jepreciating something by the same (ie. fi"ed# amountevery year rather than as a percentage of its previous value. +"ample: a vehicle initiallycosts /01,111. If you depreciate it at a rate of /2111 a year, it will depreciate to ?ero ine"actly G years.

Sun) costs :money already spent and gone, which will not be recovered no matterwhat course of action is taken. Bad decisions are made when managers attempt torecoup sunk costs.

$rial balance :at the close of an accounting period, the transactions posted in the

ledger are added up. A test or trial balance sheet is prepared with assets on one sideand liabilities and capital on the other. The two sides should balance. If they don*t, theaccountants must search through the transactions to find out why. They keep makingtrial balances until the balance sheet balances.

9ariable cost : cost that changes as sales or production change. If a business isproducing nothing and selling nothing, the variable cost should be ?ero. However, herewill probably be fi"ed costs.

9alue Added $a%(AT applies to many countries#: alue Added Ta", or AT as it isusually called is a sales ta" which increases the price of goods. At the time of writing the

;< AT standard rate is 0O.G, there is also a rate for fuel which is G (this refers toheating fuels like coal, electricity and gas and not *road fuels* like petrol which is stillrated at 0O.G#.

or)ing capital :current assets minus current liabilities. In most businesses the ma8orcomponents of working capital are cash, accounts receivable, and inventory minusaccounts payable. As a business grows it will have larger accounts receivable and moreinventory. Thus the need for working capital will increase.

or) in Progress: The value of partly finished (ie. partly manufactured# goods

rite'do*n :the partial reduction in the value of an asset, recogni?ing obsolescence orother losses in value.

rite'o!! :the total reduction in the value of an asset, recogni?ing that it no longer hasany value. ritedowns and writeoffs are noncash e"penses that affect profits.

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gloassary of fa and fsa

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