Glossary

Absorption costing

A method of costing that assigns indirect costs (overheads) to given cost centres.

Allocation of resources

The method by which the resources available to an economy are divided between the alternative uses. In market economies resources are allocated to those with the financial ability to pay for them. In command economies the allocation decisions are made by the state or agencies of the state.

Articles of association

A document stating the regulations covering the internal organization of a company. This document must be submitted to the Registrar of Companies as part of the process of registration.

Assets

The possessions of a business that contribute to the value of the business.

Audit

The scrutiny of the accounts of a business by a qualified third party to ensure they give a true and fair view of the state of the business.

Auditor

The person who carries out an audit.

Balance of payments

The summary of all transactions between the residents of a country with the residents of other countries.

Balance sheet

A stating summarizing the assets and liabilities of an organization.

Barter

The exchange of goods and services for other goods and services.

Break-even point

The level of output at which the revenue generated by a business is just sufficient to cover its costs.

Bulk discount

A discount from the quoted price for buying large quantities of stock.

Business

An organization that buys in goods and services which are then used to produce different goods and services to be sold at a profit.

Capital

The total stock of wealth (as opposed to income) owned by a business.

Capital structure

The different types of loan and owner capital by which a business is financed. It is usually measured by ratios comparing each type of financing with the total capital in use.

Cash flow

The money that flows into and out of a business over a given period of time. A projected cash flow for a future period is known as a cash flow forecast/cash flow budget.

Consumer

The final user of good or service, not necessarily the person who makes the purchase.

Cost

The amount of money spent to produce a good or service.

Cost centre

A unit of a business enterprise to which costs of production can be allocated.

Costing

The process of identifying and allocating the costs associated with the production of a good or service.

Credit

The time allowed between the receipt of a good or service by a customer and the final date on which payment is due.

Current assets

Assets which can change considerably within a given accounting period. These usually include stocks, debtors and cash.

Customer

The purchaser of the goods and services produced by a business.

Debenture

A long-term loan to a company to be redeemed on a future date. The interest is normally paid annually. Debenture is paid before dividends on preference and ordinary shares.

Depreciation

The amount by which profits are reduced to allow for the decline in the value of fixed assets. The term is also used to describe the fall in the value of a country’s currency in relation to foreign currencies.

Direct costs

Costs which can be clearly allocated to a particular product. Such costs usually vary according to the level of production.

Efficiency

A ratio of the input of an operation or process to the output.

Equity

The value of a company’s assets after all liabilities, other than those of shareholders have been allowed. Sometimes used to mean shareholder’s funds.

Fixed assets

Assets which are expected to stay in the business for longer than the given accounting period. They are usually assets that the business needs in the long term in order to continue its operations.

Fixed costs

Costs which stay the same for a given period of time over a given output.

Functions of money

Medium of exchange, store of value, unit of account, standard of deferred payment.

Goodwill

The value a business can command in addition to the value of its tangible assets.

Hire purchase

Form of purchase in which a good is bought by installments but the ownership remains with the vendor until the full price has been paid.

Historic cost

The valuation of assets at their original cost rather than their current market value.