Account a record in the general ledger that is used to collect, classify and store similar

information. For example, a company will have a Cash account in which every transaction
involving cash is recorded.
Accounting the art of recording, classifying, and summarizing in a significant manner and in
terms of money, transactions and events which are, in part at least, of financial character, and
interpreting the results thereof. [AICPA]
Accounting Equation a financial equation described as Assets = Liabilities + Owners Equity.
For a corporation the equation is Assets = Liabilities + Stockholders Equity. For a nonprofit
organization the accounting equation is Assets = Liabilities + Net Assets. Because of doubleentry accounting this equation should be in balance at all times. The accounting equation is
expressed in the financial statement known as the balance sheet or statement of financial
position.
Accrual a basis in accounting that means income is recognized when earned regardless of
when received and expense is recognized when incurred regardless of when paid.
Additional Paid in Capital the capital contributed by the stockholders in excess of the par or
stated value of the stock subscribed and issued.
Assets a resource controlled by the entity as a result of past events and from which future
economic benefits are expected to flow to the entity
Available-for-sale Financial Assets (AFS) are any non-derivative financial assets designated
on initial recognition as available for sale or any other instruments that are not classified as (a)
loans and receivables, (b) held-to-maturity investments or (c) financial assets at fair value
through profit or loss. ] AFS assets are measured at fair value in the balance sheet. [IAS 39]
Balance sheet (Statement of Financial Position) is one of the major components of a
complete set of financial statements. The balance sheet reports the assets, liabilities, and owners
(stockholders) equity at a specific point in time, such as December 31. The balance sheet is also
referred to as the Statement of Financial Position.
Capital Stock the portion of the paid in capital representing the total par or stated value of the
shares of stock issued.
Cash Basis an accounting method in which revenue is recognized when received regardless of
when earned. All collections are treated as revenue and there are no accruals and deferrals.
Cash Flow Statement one of the main financial statements, the statement of cash flows
analyses changes in cash and cash equivalents during a period. It reports the sources and uses of
cash and cash equivalents by operating activities, investing activities, financing activities, and
certain supplemental information for the period specified in the heading of the statement.

Cash and Cash Equivalents - comprise cash on hand and demand deposits, together with shortterm, highly liquid investments that are readily convertible to a known amount of cash, and that
are subject to an insignificant risk of changes in value. [IAS 7]
Contingency a condition or situation involving gain or loss, the ultimate outcome of which
will be confirmed only upon the occurrence or nonoccurrence of one or more future uncertain
events. [IAS 10]
Current Assets are cash; cash equivalent; assets held for collection, sale, or consumption
within the entitys normal operating cycle; or assets held for trading within the next 12 months.
All other assets are noncurrent. [IAS 1.66]
Current Liabilities - are those to be settled within the entitys normal operating cycle or due
within 12 months, or those held for trading, or those for which the entity does not have an
unconditional right to defer payment beyond 12 months. Other liabilities are noncurrent. [IAS
1.69]
Derivative - a financial instrument (a) whose value changes in response to the change in an
underlying variable such as an interest rate, commodity or security price, or index; (b) requires
no initial investment, or one that is smaller than would be required for a contract with similar
response to changes in market factors; and (c) that is settled at a future date. [IAS 39.9]
Equity the owners interest on the assets of the enterprise after deducting all its liabilities
Earnings per share (EPS) the amount of earnings per each outstanding share of a companys
stock.
Expense- a decrease in economic benefits during the accounting period in the form of outflows
or depletions of assets or incurrence of liabilities that result in decreases in equity, other than
those relating to distributions to equity participants. [IASB]
Financial instrument a contract that gives rise to a financial asset of one entity and a financial
liability or equity instrument of another entity.
Financial Statements are the means by which the information accumulated and processed in
financial accounting is periodically communicated to the users. A complete set of financial
statements include balance sheet (statement of financial position), income statement (statement
of comprehensive income), statement of changes in equity and the notes accompanying the
financial statements.
Financing Activities are activities that alter the equity capital and borrowing structure of the
entity [IAS 7.6]
General Journal is where double entry bookkeeping entries are recorded by debiting one or
more accounts and crediting another one or more accounts with the same total amount. The total

amount debited and the total amount credited should always be equal, thereby ensuring the
accounting equation is maintained.
General Ledger also known as the nominal ledger, is the main accounting record of a business
which uses double-entry bookkeeping. It will usually include accounts for such items as current
assets, fixed assets, liabilities, revenue and expense items, gains and losses. Each General Ledger
is divided into debits and credits sections.
Held-to-maturity Investments are non-derivative financial assets with fixed or determinable
payments that an entity intends and is able to hold to maturity and that do not meet the definition
of loans and receivables and are not designated on initial recognition as assets at fair value
through profit or loss or as available for sale. Held-to-maturity investments are measured at
amortised cost. [IAS 39]
Income an increase in economic benefits during the accounting period in the form of inflows
or enhancements of assets or decreases of liabilities that result in an increase in equity, other than
those relating to contributions from equity participants. [IFRS Framework]
Income Statement One of the main financial statements (along with the balance sheet, the
statement of cash flows, and the statement of stockholders equity). The income statement is also
referred to as the profit and loss statement, P&L, statement of income, and the statement of
operations. The income statement reports the revenues, gains, expenses, losses, net income and
other totals for the period of time shown in the heading of the statement. If a companys stock is
publicly traded, earnings per share must appear on the face of the income statement.
Intangible Asset an identifiable nonmonetary asset without physical substance. Examples of
possible intangible assets include: computer software, patents, copyrights, motion picture films,
customer lists, mortgage servicing rights, licenses, import quotas, franchises, customer and
supplier relationships, and marketing rights. [IAS 38]
Inventories include assets held for sale in the ordinary course of business (finished goods),
assets in the production process for sale in the ordinary course of business (work in process), and
materials and supplies that are consumed in production (raw materials). [IAS 2]
Investing Activities the acquisition and disposal of long-term assets and other investments that
are not considered to be cash equivalents [IAS 7.6]
Investments an asset held by an enterprise for the accretion of wealth through capital
distribution, such as interest, royalties, dividends and rentals, for capital appreciation or for other
benefits to the investing enterprise such as those obtained through trading relationships.
Investment Property is property (land or a building or part of a building or both) held (by the
owner or by the lessee under a finance lease) to earn rentals or for capital appreciation or both.
[IAS 40.5] A property interest that is held by a lessee under an operating lease may also be
classified and accounted for as investment property under certain conditions. [IAS 40.6]

Journal the record of journal entries appearing in order by date. It also called as the book of
original entry, since the entries are first recorded in a journal. From the journal the entries will be
posted to the designated accounts in the general ledger. Journals may include sales journal,
purchases journal, cash receipts journal, cash disbursements journal, and the general journal.
Journal Entry it is the entry made in a journal. It contains the date, account name and amount
to be debited, and the account name and amount to be credited. Each journal entry has the equal
amounts of pesos or dollars of debits and credits.
Ledger a book or computer file for recording and totaling monetary transactions by account,
with debits and credits in separate columns and a beginning balance and ending balance for each
account. The ledger is a permanent summary of all amounts entered in supporting journals.
Ledgers include sales ledger, purchase ledger and general ledger.
Liabilities a present obligation of the enterprise arising from past events, the settlement of
which is expected to result in an outflow from the enterprise of resources embodying economic
benefits
Liquidity the availability of cash in the near future to cover currently maturing obligations
(e.g., payroll liabilities, trade payables and short-term loan amortizations).
Loans and Receivables are non-derivative financial assets with fixed or determinable
payments that are not quoted in an active market, other than held for trading or designated on
initial recognition as assets at fair value through profit or loss or as available-for-sale. Loans and
receivables are measured at amortized cost. [IAS 39]
Materiality a practical rule in accounting which dictates that strict adherence to established
accounting standards and principles is not required when the items are not significant enough to
affect the evaluation, decision and fairness of the financial statements. This concept is also
known as the doctrine of convenience.
Notes to the Financial Statements one of the major components of a complete set of financial
statements, this presents information about the basis of preparation of the financial statements
and the specific accounting policies used, disclose any information required by IFRSs that is not
presented elsewhere in the financial statements and provide additional information that is not
presented elsewhere in the financial statements but is relevant to an understanding of any of
them. Notes should be cross-referenced from the face of the financial statements to the relevant
note. [IAS 1.113]
Operating Activities the main revenue-producing activities of the entity that are not investing
or financing activities, so operating cash flows include cash received from customers and cash
paid to suppliers and employees [IAS 7.14]
Operating Cycle for trading enterprise, it is the average period of time that it takes for an
enterprise to acquire the merchandise inventory, sell the inventory to customers and collect cash

from the sale. For manufacturing firm, it is the period of time between acquisition of materials
and their final conversion into cash.
Property, Plant and Equipment tangible assets which are held by an enterprise for use in
production or supply of goods and services or for administrative purposes, and are expected to be
used during more than one year.
Revenue the gross inflow of economic benefits during the period arising in the course of
ordinary activities of an enterprise when those inflows result in increase in equity, other than
those relating to contributions from owners.
Retained Earnings Represents cumulative net earnings not paid out as dividends, but retained
by the company to be reinvested in its core business or to pay debt. It is recorded under
shareholders equity on the balance sheet or statement of financial position. Retained earnings
can be unappropriated (unrestricted) or appropriated (restricted) for a certain purpose and not
available for any dividend declarations.
Solvency the availability of cash over a long term to meet financial commitments when they
fall due.
Statement of Changes in Equity a major component of the financial statements, it shows the
total comprehensive income for the period, showing separately amounts attributable to owners of
the parent and to non-controlling interests; the effects of retrospective application, when
applicable, for each component; reconciliations between the carrying amounts at the beginning
and the end of the period for each component of equity, separately disclosing: (a) profit or loss,
(b)each item of other comprehensive income, and (c) transactions with owners, showing
separately contributions by and distributions to owners and changes in ownership interests in
subsidiaries that do not result in a loss of control. [IAS1]
Stockholders Equity the residual interest of owners in the assets of a corporation measured
by the excess of assets over liabilities.
Treasury Stock a corporations own stock that has been issued and then reacquired but not
cancelled.