Glossary

A | B | C | D | E | F | G | H | I | J | K | L | M | N | O | P | Q | R | S | T | U | V | W | X | Y | Z

A

Abnormal loss (Business Accounting Vol 2 - Chapter 35 and Business Accounting Vol 2 - Chapter 34): A loss arising in the production process that should have been avoided.

Absorption costing (Business Accounting Vol 1 - Chapter 48): The method of allocating all factory indirect expenses to products. (All fixed costs are allocated to cost units.)

Account (Business Accounting Vol 1 - Chapter 2): Part of double entry records, containing details of transactions for a specific item.

Account codes (Business Accounting Vol 1 - Chapter 23): The process of identifying, measuring and communicating economic information to permit informed judgements and decisions by users of the
information.

Accounting (Business Accounting Vol 1 - Chapter 28): The uses to which data recorded by bookkeeping can be put for various purposes.

Accounting cycle (Business Accounting Vol 1 - Chapter 17): The sequence in which data is recorded and processed until it becomes part of the financial statements at the end of the period.

Accounting information system (AIS) (Business Accounting Vol 1 - Chapter 23): The total suite of components that, together, comprise all the inputs, storage, transformation processing, collating, and reporting of financial transaction data. It is, in effect, the infrastructure that supports the production and delivery of accounting information.

Accounting policies (Business Accounting Vol 1 - Chapter 47): Those principles, bases, conventions, rules and practices applied by an entity that specify how the effects of transactions and other events are to be reflected in its financial statements.

Accounts (or Final Accounts) (Business Accounting Vol 1 - Chapter 9): This is a term previously used to refer to statements produced at the end of accounting periods, such as the trading and profit and loss account and the balance sheet. Nowadays, the term 'financial statements' is more commonly used.

Accruals concept (Business Accounting Vol 1 - Chapter 10): The concept that profit is the difference between revenue and the expenses incurred in generating that revenue.

Accrued expense (Business Accounting Vol 1 - Chapter 28): An expense for which the benefit has been received but which has not been paid for by the end of the period. It is included in the balance sheet under current liabilities as 'accruals'.

Accrued income (Business Accounting Vol 1 - Chapter 28): Income (normally) from a source other than the main source of business income, such as rent receivable on an unused office in the company headquarters, that was due to be received by the end of the period but which has not been received by that date. It is added to debtors in the balance sheet.

Activity-based costing (Business Accounting Vol 2 - Chapter 34): The process of using cost drivers as the basis for overhead absorption.

Accumulated depreciation account (Business Accounting Vol 1 - Chapter 27): The account where depreciation is accumulated for balance sheet purposes. It is used in order to leave the cost (or valuation) figure as the balance in the fixed asset account. (It is sometime confusingly referred to as the 'provision for depreciation account'.)

Accumulated fund (Business Accounting Vol 1 - Chapter 36): A form of capital account for a non-profit-oriented organisation.

Acid test ratio (Business Accounting Vol 1 - Chapter 47): A ratio comparing current assets less stock with current liabilities.

Adverse variance (Business Accounting Vol 2 - Chapter 40): A difference arising that is apparently ‘bad’ from the perspective of the organisation. For example, when the total actual materials cost exceeds the total standard cost due to more materials having been used than anticipated. Whether it is indeed ‘bad’ will be revealed only when the cause of the variance is identified. It may, for example, have arisen as a result of an unexpected rise in demand for the product being produced.

Annuity (Business Accounting Vol 2 - Chapter 43): An income-generating investment whereby, in return for the payment of a single lump sum, the annuitant receives regular amounts of income over a predefined period.

Articles of Association (Business Accounting Vol 2 - Chapter 3): The document that arranges the internal relationships, for example, between members of the company, and the duties of directors. The Companies Act 1985 gives a model known as Table A.

Amortisation (Business Accounting Vol 1 - Chapter 26): A term used instead of depreciation when assets are used up simply because of the passing of time.

Assets (Business Accounting Vol 1 - Chapter 1): Resources owned by a business.

Associated undertaking (Business Accounting Vol 2 - Chapter 26): A company which is not a subsidiary of the investing group or company but in which the investing group or company has a long-term interest and over which it exercises significant influence.

Attainable standard (Business Accounting Vol 2 - Chapter 39): A standard that can be achieved in normal conditions. It takes into account normal losses, and normal levels of downtime and waste.

AVCO (Business Accounting Vol 1 - Chapter 29): A method by which the goods used are priced out at average cost.

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B

Bad debt (Business Accounting Vol 1 - Chapter 25): A debt that a business will not be able to collect.

Balance brought down (Business Accounting Vol 1 - Chapter 5): The difference between both sides of an account that is entered below the totals on the opposite side to the one on which the balance carried down was entered. (This is normally abbreviated to 'balance b/d'.)

Balance carried down (Business Accounting Vol 1 - Chapter 5): The difference between both sides of an account that is entered above the totals and makes the total of both sides equal each other. (This is normally abbreviated to 'balance c/d'.)

Balance off the account (Business Accounting Vol 1 - Chapter 5): Insert the difference (called a 'balance') between the two sides of an account and then total and rule off the account. This is normally done at the end of a period (usually a month, a quarter, or a year).

Balance sheet (Business Accounting Vol 1 - Chapter 1): A statement showing the assets, liabilities, and capital of a business.

Balanced scorecard (Business Accounting Vol 2 - Chapter 45): A technique that assesses performance across a balanced set of four perspectives - customers, internal processes, organisational learning and growth, and financial.

Bank Cash Book (Business Accounting Vol 1 - Chapter 18): A cash book that only contains entries relating to payments into and out of the bank.

Bank giro credit (Business Accounting Vol 1 - Chapter 12): A type of pay-in slip usually used when the payment is into an account held in a different bank. The two types of form are virtually identical - a bank giro credit can be used instead of a pay-in slip, but not the other way around, as the details of the other bank need to be entered on the bank giro credit.

Bank Giro credit (Business Accounting Vol 1 - Chapter 30): An amount paid by someone directly into someone else's bank account.

Bank loan (Business Accounting Vol 1 - Chapter 12): An amount of money advanced by a bank that has a fixed rate of interest that is charged on the full amount and is repayable on a specified future date.

Bank reconciliation statement (Business Accounting Vol 1 - Chapter 30): A calculation comparing the Cash Book balance with the bank statement balance.

Bank statement (Business Accounting Vol 1 - Chapter 13): A copy issued by a bank to a customer showing the customer's current account maintained at the bank.

Bonus shares (Business Accounting Vol 2 - Chapter 9): Shares issued to existing shareholders free of charge. (Also known as scrip issues.)

Bookkeeping (Business Accounting Vol 1 - Chapter 1): The process of recording data relating to accounting transactions in the accounting books.

Books of original entry (Business Accounting Vol 1 - Chapter 11): Books where the first entry recording a transaction is made. (These are sometimes referred to as 'Books of Prime Entry'.)

Bought Ledger (Business Accounting Vol 1 - Chapter 20): A variant of a Purchases Ledger where the individual accounts of the creditors, whether they be for goods or for expenses such as stationery or motor expenses, can be kept together in a single ledger.

Break-even point (Business Accounting Vol 2 - Chapter 42): The level of activity at which total revenues equal total costs.

Budget (Business Accounting Vol 1 - Chapters 1 and 48 and Business Accounting Vol 2 - Chapter 36): A plan quantified in monetary terms in advance of a defined time period - usually showing planned income and expenditure and the capital employed to achieve a given objective.

Business entity concept (Business Accounting Vol 1 - Chapter 10): Assumption that only transactions that affect the firm, and not the owner's private transactions, will be recorded.

Business-to-business (B2B) (Business Accounting Vol 2 - Chapter 47): Businesses purchase from other businesses and/or sell their goods and services to other businesses.

Business-to-consumer (B2C) (Business Accounting Vol 2 - Chapter 47): Businesses sell to consumers.

By-product (Business Accounting Vol 2 - Chapter 35): Products of minor sales value that result from the production of a main product.

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C

Capital (Business Accounting Vol 1 - Chapter 1): The total of resources invested and left in a business by its owner.

Capital expenditure (Business Accounting Vol 1 - Chapter 24): When a business spends money to buy or add value to a fixed asset.

Capital redemption reserve (Business Accounting Vol 2 - Chapter 5): A ‘non-distributable’ reserve created when shares are redeemed or purchased other than from the proceeds of a fresh issue of shares.

Capital reserve (Business Accounting Vol 1 - Chapter 46 and Business Accounting Vol 2 - Chapter 8): An account that can be used by sole traders and partnerships to place the amount by which the total purchase price paid for a business is less than the valuation of the net assets acquired. Limited companies cannot use a capital reserve for this purpose. Sole traders and partnerships can instead, if they wish, record the shortfall as negative goodwill.

Carriage inwards (Business Accounting Vol 1 - Chapter 9): Cost of transport of goods into a business.

Carriage outwards (Business Accounting Vol 1 - Chapter 9): Cost of transport of goods out to the customers of a business.

Cash (Business Accounting Vol 1 - Chapter 39): Cash balances and bank balances, plus funds invested in 'cash equivalents'.

Cash Book (Business Accounting Vol 1 - Chapter 11): A book of original entry for cash and bank receipts and payments.

Cash equivalents (Business Accounting Vol 1 - Chapter 39): Temporary investments of cash not required at present by the business, such as funds put on short-term deposit with a bank. Such investments must be readily convertible into cash, or available as cash within three months.

Cash flow statement (Business Accounting Vol 1 - Chapter 39): A statement showing how cash has been generated and disposed of by an organisation. The layout is regulated by FRS 1.

Casting (Business Accounting Vol 1 - Chapter 32): Adding up figures.

Charge card (Business Accounting Vol 1 - Chapter 12): A payment card that requires the cardholder to settle the account in full at the end of a specified period, e.g. American Express and Diners cards. Holders have to pay an annual fee for the card. (Compare this to a credit card.)

Cheque book (Business Accounting Vol 1 - Chapter 12): Book containing forms (cheques) used to pay money out of a current account.

Clearing (Business Accounting Vol 1 - Chapter 12): The process by which amounts paid by cheque from an account in one bank are transferred to the bank account of the payee.

Close off the account (Business Accounting Vol 1 - Chapter 5): Totalling and ruling off an account on which there is no outstanding balance.

Columnar Purchases Day Book (Business Accounting Vol 1 - Chapter 20): A Purchases Day Book used to record all items obtained on credit. It has analysis columns so that the various types of expenditure can be grouped together in a column. Also called a Purchases Analysis Book.

Columnar Sales Day Book (Business Accounting Vol 1 - Chapter 20): A Sales Day Book used to show the sales for a period organised in analysis columns according to how the information recorded is to be analysed. Also called a Sales Analysis Book.

Compensating error (Business Accounting Vol 1 - Chapter 32): Where two errors of equal amounts, but on opposite sides of the accounts, cancel each other out.

Consistency (Business Accounting Vol 1 - Chapter 10): Keeping to the same method of recording and processing transactions.

Consolidation accounting (Business Accounting Vol 2 - Chapter 16): This term means bringing together into a single balance sheet and profit and loss account the separate financial statements of a group of companies. Hence they are known as group financial statements.

Contra (Business Accounting Vol 1 - Chapter 13): A contra, for Cash Book items, is where both the debit and the credit entries are shown in the Cash Book, such as when cash is paid into the bank.

Contribution (Business Accounting Vol 1 - Chapter 38 and Business Accounting Vol 2 - Chapter 34): The surplus of revenue over direct costs allocated to a section of a business.

Control account (Business Accounting Vol 1 - Chapter 31): An account which checks the arithmetical accuracy of a ledger.

Corporation tax (Business Accounting Vol 2 - Chapter 7): A form of direct taxation levied on the profits of companies. The rate is determined each year in the Finance Act.

Cost centre (Business Accounting Vol 1 - Chapter 48 and Business Accounting Vol 2 - Chapter 33): A production or service location, function, activity, or item of equipment whose costs may be attributed to cost units.

Cost of control (Business Accounting Vol 2 - Chapter 17): An alternative expression to goodwill.

Cost unit (Business Accounting Vol 1 - Chapter 48 and Business Accounting Vol 2 - Chapter 33): A unit of product or service in relation to which costs are ascertained.

Credit (Business Accounting Vol 1 - Chapter 2): The right-hand side of the accounts in double entry.

Credit card (Business Accounting Vol 1 - Chapter 12): A card enabling the holder to make purchases and to draw cash up to a pre-arranged limit. The credit granted in a period can be settled in full or in part by the end of a specified period. Many credit cards carry no annual fee. (Compare this to a charge card.)

Credit note (Business Accounting Vol 1 - Chapter 16): A document sent to a customer showing allowance given by a supplier in respect of unsatisfactory goods.

Creditor (Business Accounting Vol 1 - Chapter 1): A person to whom money is owed for goods or services.

Creditor/purchases ratio (Business Accounting Vol 1 - Chapter 47): A ratio assessing how long a business takes to pay creditors.

Current account (Business Accounting Vol 1 - Chapter 12): A bank account used for regular payments in and out of the bank.

Current assets (Business Accounting Vol 1 - Chapter 8): Assets consisting of cash, goods for resale or items having a short life.

Current liabilities (Business Accounting Vol 1 - Chapter 8): Liabilities to be paid for within a year of the balance sheet date.

Current ratio (Business Accounting Vol 1 - Chapter 47): A ratio comparing current assets with current liabilities.

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D

Day books (Business Accounting Vol 1 - Chapter 11): Books in which credit sales, purchases, and returns inwards and outwards of goods are first recorded. The details are then posted from the day books to the ledger accounts.

Debenture (Business Accounting Vol 1 - Chapter 45 and Business Accounting Vol 2 - Chapter 4): Loan to a company. A bond or document acknowledging a loan to a company, normally under the company’s seal and carrying a fixed rate of interest.

Debit (Business Accounting Vol 1 - Chapter 2)The left-hand side of the accounts in double entry.

Debit card (Business Accounting Vol 1 - Chapter 12): A card linked to a bank or building society account and used to pay for goods and services by debiting the holder's account. Debit cards are usually combined with other facilities such as ATM and cheque guarantee functions.

Debit note (Business Accounting Vol 1 - Chapter 16): A document sent to a supplier showing allowance to be given for unsatisfactory goods.

Debtor (Business Accounting Vol 1 - Chapter 1): A person who owes money to a business for goods or services supplied to him.

Debtor/sales ratio (Business Accounting Vol 1 - Chapter 47): A ratio assessing how long it takes debtors to pay their debts.

Deferred taxation (Business Accounting Vol 2 - Chapter 7): Timing differences arise between the accounting treatment of events and their taxation results. Deferred taxation accounting adjusts the differences so that the accounts are not misleading.

Depletion (Business Accounting Vol 1 - Chapter 26): The wasting away of an asset as it is used up.

Deposit account (Business Accounting Vol 1 - Chapter 12): A bank account for money to be kept in for a long time.

Depreciation (Business Accounting Vol 1 - Chapter 26): The part of the cost of a fixed asset consumed during its period of use by the firm. It represents an estimate of how much of the overall economic usefulness of a fixed asset has been used up in each accounting period. It is charged as a debit to profit and loss and a credit against fixed asset accounts in the General Ledger.

Direct costs (Business Accounting Vol 1 - Chapter 37): Costs that can be traced to the item being manufactured.

Direct debit (Business Accounting Vol 1 - Chapter 12): A medium used to enable payments to be made automatically into a bank account for whatever amount the recipient requests.

Directors (Business Accounting Vol 1 - Chapter 45): Officials appointed by shareholders to manage the company for them.

Discounts allowed (Business Accounting Vol 1 - Chapter 13): A deduction from the amount due given to customers who pay their accounts within the time allowed.

Discounts received (Business Accounting Vol 1 - Chapter 13): A deduction from the amount due given to a business by a supplier when their account is paid before the time allowed has elapsed. It appears as income in the profit and loss part of the trading and profit and loss account.

Dishonoured cheque (Business Accounting Vol 1 - Chapter 30): A cheque which the writer's bank has refused to make payment upon.

Dissolution (Business Accounting Vol 1 - Chapter 44): When a partnership firm ceases operations and its assets are disposed of.

Dividends (Business Accounting Vol 1 - Chapter 45): The amount given to shareholders as their share of the profits of the company.

Double entry bookkeeping (Business Accounting Vol 1 - Chapter 2): A system where each transaction is entered twice, once on the debit side and once on the credit side.

Drawer (Business Accounting Vol 1 - Chapter 12): The person making out a cheque and using it for payment.

Drawings (Business Accounting Vol 1 - Chapter 4): Funds or goods taken out of a business by the owners for their
private use.

Dual aspect concept (Business Accounting Vol 1 - Chapter 10): The concept of dealing with both aspects of a transaction.

Dumb terminal (Business Accounting Vol 1 - Chapter 22): A computer screen with keyboard (and, perhaps, a mouse) that has no processing power of its own but uses the processing power of a central computer to carry out tasks involving the data held on that central computer.

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E

Economic order quantity (EOQ) (Business Accounting Vol 2 - Chapter 36): A mathematical method of calculating the amount of stock that should be ordered at a time and how frequently to order it, so that the overall total of the costs of holding the stock and the costs of ordering the stock can be minimised.

Electronic commerce (e-commerce) (Business Accounting Vol 2 - Chapter 47): The use of electronic telecommunication technology to conduct business transactions over the internet.

Endorsement (Business Accounting Vol 1 - Chapter 12): A means by which someone may pass the right to collect money due on a cheque.

Enterprise resource planning (ERP) system (Business Accounting Vol 2 - Chapter 46): A suite of software modules, each of which relates to a function of the organisation, such as order processing, production, creditor control, debtor control, payroll, marketing, and human resources.

Equity (Business Accounting Vol 1 - Chapter 1): Another name for the capital of the owner.

Equity accounting (Business Accounting Vol 2 - Chapter 26): A method of accounting for associated undertakings that brings into the consolidated profit and loss account the investor’s share of the associated undertaking’s results and that records the investment in the consolidated balance sheet
at the investor’s share of the associated undertaking’s net assets including any goodwill arising to the extent that it has not previously been written off.

Error of commission (Business Accounting Vol 1 - Chapter 32): Where a correct amount is entered, but in the wrong person's account.

Error of omission (Business Accounting Vol 1 - Chapter 32): Where a transaction is completely omitted from the books.

Error of original entry (Business Accounting Vol 1 - Chapter 32): Where an item is entered, but both the debit and credit entries are of the same incorrect amount.

Error of principle (Business Accounting Vol 1 - Chapter 32): Where an item is entered in the wrong type of account, e.g. a fixed asset in an expense account.

Estimation techniques (Business Accounting Vol 1 - Chapter 47): The methods adopted in order to arrive at estimated monetary amounts for items that appear in the financial statements.

Exception reporting (Business Accounting Vol 1 - Chapter 23): A process of issuing a warning message to decision-makers when something unexpected is happening: for example, when expenditure against a budget is higher than it should be.

Exempted businesses (Business Accounting Vol 1 - Chapter 19): Businesses which do not have to add VAT to the price of goods and services supplied to them. They cannot obtain a refund of VAT paid on goods and services purchased by them.

Expenses (Business Accounting Vol 1 - Chapter 4): The value of all the assets that have been used up to obtain revenues.

Extranet (Business Accounting Vol 1 - Chapter 22): A network based on Internet technologies where data and information private to the business is made available to a specific group of outsiders, such as
suppliers.

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F

Factoring (Business Accounting Vol 1 - Chapter 8): Selling the rights to the amounts owing by debtors to a finance
company for an agreed amount (which is less than the figure at which they are recorded in the accounting books because the finance company needs to be paid for providing the service).

Favourable variance (Business Accounting Vol 2 - Chapter 40): A difference arising that is apparently ‘good’ from the perspective of the organisation. For example, when the total actual labour cost is less than the total standard cost because fewer hours were worked than expected. Whether it is indeed ‘good’ will be revealed only when the cause of the variance is identified - it may be that fewer hours were worked because demand for the product fell unexpectedly.

FIFO (Business Accounting Vol 1 - Chapter 29): A method by which the first goods to be received are said to be the first to be sold.

Final accounts (or 'the Accounts') (Business Accounting Vol 1 - Chapter 9): This is a term previously used to refer to statements produced at the end of accounting periods, such as the trading and profit and loss account and the balance sheet. Nowadays, the term 'financial statements' is more commonly used.

Finance lease (Business Accounting Vol 2 - Chapter 2): This is an agreement whereby the lessee enjoys substantially all the risks and rewards associated with ownership of an asset other than legal title.

Financial modelling (Business Accounting Vol 1 - Chapter 22): Manipulating accounting data to generate forecasts and perform sensitivity analysis.

Financial statements (Business Accounting Vol 1 - Chapter 9): The more common term used to refer to statements produced at the end of accounting periods, such as the trading and profit and loss account and the balance sheet (sometimes referred to as 'final accounts' or simply 'the accounts').

Fixed assets (Business Accounting Vol 1 - Chapter 8): Assets which have a long life bought with the intention to use them in the business and not with the intention to simply resell them.

Fixed capital accounts (Business Accounting Vol 1 - Chapter 41): Capital accounts which consist only of the amounts of capital actually paid into the firm.

Fixed costs (Business Accounting Vol 1 - Chapter 47): Expenses which remain constant whether activity rises or falls, within a given range of activity.

Flexible budget (Business Accounting Vol 2 - Chapter 38): A budget which, by recognising the difference in behaviour between fixed and variable costs in relation to fluctuations in output, turnover or other factors, is designed to change appropriately with such fluctuations.

Float (Business Accounting Vol 1 - Chapter 18): The amount at which the petty cash starts each period.

Fluctuating capital accounts (Business Accounting Vol 1 - Chapter 41): Capital accounts whose balances change from one period to the next.

Folio columns (Business Accounting Vol 1 - Chapter 13): Columns used for entering reference numbers.

Forecasting (Business Accounting Vol 1 - Chapter 22): Taking present data and expected future trends, such as growth of a market and anticipated changes in price levels and demand, in order to arrive at a view of what the likely economic position of a business will be at some future date.

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G

Garner v Murrary rule (Business Accounting Vol 1 - Chapter 44): If one partner is unable to make good a deficit on his capital account, the remaining partners will share the loss in proportion to their last agreed capitals, not in the profit/loss sharing ratio.

Gearing (Business Accounting Vol 1 - Chapter 47): The ratio of long-term loans and preference shares shown as a percentage of total shareholders' funds, long-term loans, and preference shares.

General Ledger (Business Accounting Vol 1 - Chapter 11): A ledger for all accounts other than those for customers and suppliers.

Going concern concept (Business Accounting Vol 1 - Chapter 10): The assumption that a business is to continue for the foreseeable future.

Goodwill (Business Accounting Vol 1 - Chapter 42): An amount representing the added value to a business of such
factors as customer loyalty, reputation, market penetration, and expertise.

Gross equity accounting (Business Accounting Vol 2 - Chapter 26): A form of equity accounting applicable to joint ventures under which the investor’s share of the aggregate gross assets and liabilities of the joint venture is shown on the face of the balance sheet and the investor’s share of the joint venture’s turnover is noted in the profit and loss account.

Gross loss (Business Accounting Vol 1 - Chapter 7): Where the cost of goods sold exceeds the sales revenue.

Gross profit (Business Accounting Vol 1 - Chapter 7): Where the sales revenue exceeds the cost of goods sold.

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H

Hire purchase agreements (Business Accounting Vol 2 - Chapter 2): These are legal agreements by which an organisation can obtain the use of an asset in exchange for payment by instalment.

Historical cost concept (Business Accounting Vol 1 - Chapter 10): Assets are normally shown at cost price.

Holding company (Business Accounting Vol 2 - Chapter 16): The outdated term for what is now known as ‘parent undertaking’.

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I

Ideal standard (Business Accounting Vol 2 - Chapter 39): A standard that is based upon the premise that everything operates at the maximum level of efficiency. It takes no account of normal losses, or of normal levels of downtime and waste.

Impersonal accounts (Business Accounting Vol 1 - Chapter 11): All accounts other than debtors' and creditors' accounts.

Imprest system (Business Accounting Vol 1 - Chapter 18): A system where a refund is made of the total paid out in a period in order to restore the float to its agreed level.

Income and expenditure account (Business Accounting Vol 1 - Chapter 36): An account for a non-profit-oriented organisation to find the surplus or loss made during a period.

Indirect manufacturing costs (Business Accounting Vol 1 - Chapter 37): Costs relating to manufacture that cannot be economically traced to the item being manufactured (also known as 'indirect costs' and, sometimes, as 'factory overhead expenses').

Input tax (Business Accounting Vol 1 - Chapter 19): VAT added to the net price of inputs (i.e. purchases).

Inputs (Business Accounting Vol 1 - Chapter 19): Purchases of goods and services.

Interest on capital (Business Accounting Vol 1 - Chapter 41): An amount at an agreed rate of interest which is credited to a partner based on the amount of capital contributed by him/her.

Interest on drawings (Business Accounting Vol 1 - Chapter 41): An amount at an agreed rate of interest, based on the drawings taken out, which is debited to the partners.

Intranet (Business Accounting Vol 1 - Chapter 22): A network based on Internet technologies where data and information private to the business is made available to employees of the business.

Irrelevant costs (Business Accounting Vol 2 - Chapter 44): Those costs of the future that will not be affected by a decision.

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J

Job costing (Business Accounting Vol 1 - Chapter 48 and Business Accounting Vol 2 - Chapter 35): A costing system that is applied when goods or services are produced in discrete jobs, either one item at a time, or in batches.

Joint product (Business Accounting Vol 2 - Chapter 35): Two or more products, each of which has significant sales value, created in the same production process.

Joint ventures (Business Accounting Vol 1 - Chapter 40 and Business Accounting Vol 2 - Chapter 26): Business agreements under which two businesses join together for a set of activities and agree to share the profits. An entity in which the reporting entity holds an interest on a long-term basis and which is jointly controlled by the reporting entity and one or more other venturers under a contractual arrangement

Journal (Business Accounting Vol 1 - Chapter 11): A book of original entry for all items not contained in the other books of original entry.

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K

 

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L

Liabilities (Business Accounting Vol 1 - Chapter 1): Total of funds owed for assets supplied to a business or expenses incurred not yet paid.

LIFO (Business Accounting Vol 1 - Chapter 29): A method by which the goods sold are said to have come from the last lot of goods received.

Limited company (Business Accounting Vol 1 - Chapter 45 and Business Accounting Vol 2 - Chapter 3): An organisation owned by its shareholders, whose liability is limited to their share capital. A form of organisation established under the Companies Acts as a separate legal entity, and required to comply with the provisions of the Acts. The members of the company, known as shareholders, are liable only to pay the full price of the shares, not for any further amount, i.e. their liability is limited.

Limited partner (Business Accounting Vol 1 - Chapter 41): A partner whose liability is limited to the capital he or she has put into the firm.

Limiting factor (Business Accounting Vol 2 - Chapter 34): Anything that limits activity. Typically, this would be the shortage of supply of something required in production, for example, machine hours, labour hours, raw materials, etc. However, it could also be something that prevents production occurring, for example a lack of storage for finished goods, or a lack of a market for the products.

Liquidity ratios (Business Accounting Vol 1 - Chapter 47): Those ratios that relate to the cash position in an organisation and hence its ability to pay liabilities when due.

Local area network (LAN) (Business Accounting Vol 1 - Chapter 22): A group of workstations linked together locally through wires.

Long-term liabilities (Business Accounting Vol 1 - Chapter 8): Liabilities that do not have to be paid within twelve months of the balance sheet date.

Loss (Business Accounting Vol 1 - Chapter 4): The result of selling goods for less than they cost.

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M

Manufacturing account (Business Accounting Vol 1 - Chapter 37): An account in which production cost is calculated.

Margin (Business Accounting Vol 1 - Chapter 34): Profit shown as a percentage or fraction of selling price.

Margin of safety (Business Accounting Vol 2 - Chapter 42): The gap between the level of activity at the break-even point and the actual level of activity.

Marginal costing (Business Accounting Vol 1 - Chapter 48 and Business Accounting Vol 2 - Chapter 34): An approach to costing that takes account of the variable cost of products rather than the full production cost. It is particularly useful when considering utilisation of spare capacity.

Mark-up (Business Accounting Vol 1 - Chapter 34): Profit shown as a percentage or fraction of cost price.

Master budget (Business Accounting Vol 2 - Chapter 38): The overall summary budget encompassing all the individual budgets.

Materiality (Business Accounting Vol 1 - Chapter 10): That something should only be included in the financial statements if it would be of interest to the stakeholders, i.e. to those people who make use of financial accounting statements. It need not be material to every stakeholder, but it must be material to a stakeholder before it merits inclusion.

Measurement basis (Business Accounting Vol 1 - Chapter 47): The monetary aspects of the items in the financial statements, such as the basis of the stock valuation, say FIFO or LIFO.

Memorandum joint venture account (Business Accounting Vol 1 - Chapter 40): A memorandum account outside the double entry system where the information contained in all the joint venture accounts held by the parties to the joint ventures are collated, the joint venture profit is calculated and the share of profit of each party is recorded in order to close off the account.

Memorandum of Association (Business Accounting Vol 2 - Chapter 3): The document that discloses the conditions governing a company’s relationship with the outside world.

Minority interests (Business Accounting Vol 2 - Chapter 17): Shareholders in subsidiary undertakings other than the holding undertaking who are not therefore part of the group.

Money measurement concept (Business Accounting Vol 1 - Chapter 10): The concept that accounting is concerned only with facts measurable in monetary terms, and for which purpose measurements can be used that obtain general agreement as to their suitability.

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N

Narrative (Business Accounting Vol 1 - Chapter 17): A description and explanation of the transaction recorded in the journal.

Negative contribution (Business Accounting Vol 1 - Chapter 38): The excess of direct costs allocated to a section of a business over the revenue from that section.

Negative goodwill (Business Accounting Vol 1 - Chapter 46): The name given to the amount by which the total purchase price for a business a limited company has taken over is less than the valuation of the assets at that time. The amount is entered at the top of the fixed assets in the balance sheet as a negative amount. (Sole traders and partnerships can use this approach instead of a capital reserve.)

Net current assets (Business Accounting Vol 1 - Chapter 8): Current assets minus current liabilities. The figure represents the amount of resources the business has in a form that is readily convertible into cash. Same as working capital.

Net loss (Business Accounting Vol 1 - Chapter 7): Where the cost of goods sold plus expenses is greater than the revenue.

Net present value (NPV) (Business Accounting Vol 2 - Chapter 43): The sum of the present values of a series of cash flows.

Net profit (Business Accounting Vol 1 - Chapter 7): Where sales revenue plus other income, such as rent received, exceeds the sum of cost of goods sold plus other expenses.

Net realisable value (Business Accounting Vol 1 - Chapter 29): The value of goods calculated as their selling price less expenses before sale.

Nominal accounts (Business Accounting Vol 1 - Chapter 11): Accounts in which expenses, revenue and capital are recorded.

Nominal Ledger (Business Accounting Vol 1 - Chapter 11): Another name for the General Ledger.

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O

Objectivity (Business Accounting Vol 1 - Chapter 10): Using a method that everyone can agree to based on some clear and indisputable fact.

Obsolescence (Business Accounting Vol 1 - Chapter 26): Becoming out of date.

Operating lease (Business Accounting Vol 2 - Chapter 2): An agreement whereby the lessor retains the risks and rewards associated with ownership and normally assumes responsibility for repairs, maintenance and insurance.

Ordinary shares (Business Accounting Vol 1 - Chapter 45): Shares entitled to dividends after the preference shareholders have been paid their dividends.

Output tax (Business Accounting Vol 1 - Chapter 19): VAT added to the net price of outputs (i.e. sales).

Outputs (Business Accounting Vol 1 - Chapter 19): Sales of goods and services.

Overdraft (Business Accounting Vol 1 - Chapter 12): A facility granted by a bank that allows a customer holding a current account with the bank to spend more than the funds in the account. Interest is charged daily on the amount of the overdraft on that date and the overdraft is repayable at any time upon request from the bank.

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Parent undertaking (Business Accounting Vol 2 - Chapter 16): Although FRS 2 should be studied for a full and proper definition, the one that will suffice for the time being is ‘an undertaking which controls or has a dominating influence over the affairs of another undertaking’.

Partnership (Business Accounting Vol 1 - Chapter 41): A firm in which two or more people are working together as owners with a view to making profits.

Partnership salaries (Business Accounting Vol 1 - Chapter 41): Agreed amounts payable to partners in respect of duties undertaken by them.

PAYE (Pay As You Earn) (Business Accounting Vol 1 - Chapter 21): The system whereby income tax is deducted from wages and salaries by employers and sent to the Inland Revenue.

Payee (Business Accounting Vol 1 - Chapter 12): The person to whom a cheque is paid.

Pay-in slip (Business Accounting Vol 1 - Chapter 12): A form used for paying money into a bank account with the same bank.

Personal accounts (Business Accounting Vol 1 - Chapter 11): Accounts for creditors and debtors.

Personal allowances (Business Accounting Vol 1 - Chapter 21): Amounts each person may subtract from income in order to arrive at taxable income. The value of each allowance is set by Parliament following the Budget each year. They are for things like being married, caring for a dependent relative, etc.

Personal Identification Number or PIN (Business Accounting Vol 1 - Chapter 12): A secret number issued by a bank to a customer so that the customer may use a debit card in an ATM.

Petty Cash Book (Business Accounting Vol 1 - Chapter 18): A Cash Book for small payments.

Plastic card (Business Accounting Vol 1 - Chapter 12): The generic name for the range of payment-related cards.

Posting (Business Accounting Vol 1 - Chapter 13): The act of transferring information into ledger accounts from books of original entry.

Preference shares (Business Accounting Vol 1 - Chapter 45): Shares that are entitled to an agreed rate of dividend before the ordinary shareholders receive anything.

Pre-incorporation profits or losses (Business Accounting Vol 2 - Chapter 6): Profits or losses which arise immediately before a limited company is legally incorporated. Any such profits will be treated as capital profits not for distribution while, for sake of prudence, any such losses will be set against post-incorporation profits.

Preliminary expenses (Business Accounting Vol 1 - Chapter 45): All the costs that are incurred when a company is formed.

Prepaid expense (Business Accounting Vol 1 - Chapter 28): An expense which has been paid in advance, the benefits from which will be received in the next period. It is included in the balance sheet under current assets as 'prepayments'.

Present value (Business Accounting Vol 2 - Chapter 43): The amount that a future cash flow is worth in terms of today’s money.

Prime cost (Business Accounting Vol 1 - Chapter 37): Direct materials plus direct labour plus direct expenses.

Private company (Business Accounting Vol 1 - Chapter 45): A limited company that must issue its shares privately.

Private Ledger (Business Accounting Vol 1 - Chapter 11): A ledger for capital and drawings accounts.

Process costing (Business Accounting Vol 1 - Chapter 48 and Business Accounting Vol 2 - Chapter 35): A costing system that is applied when goods or services are produced in a continuous flow.

Production cost (Business Accounting Vol 1 - Chapter 37): Prime cost plus indirect manufacturing costs.

Profit (Business Accounting Vol 1 - Chapter 4): The result of selling goods or services for more than they cost.

Profit and loss account (Business Accounting Vol 1 - Chapter 7): An account in which net profit is calculated.

Provision (Business Accounting Vol 2 - Chapter 8): An amount written off or retained by way of providing for depreciation, renewals or diminution in value of assets, or retained by way of providing for any known liability of which the amount cannot be determined with ‘substantial accuracy’.

Provision for doubtful debts (Business Accounting Vol 1 - Chapter 25): An account showing the expected amounts of debtors at the balance sheet date who will not be able to pay their accounts.

Prudence (Business Accounting Vol 1 - Chapter 10): Ensuring that profit is not shown as being too high, or that assets are shown at too high a value and that the financial statements are neutral: that is, that neither gains nor losses are understated or overstated.

Public company (Business Accounting Vol 1 - Chapter 45): A company that can issue its shares publicly, and for which there is no maximum number of shareholders.

Purchased goodwill (Business Accounting Vol 1 - Chapter 42): The difference between the amount paid to acquire a part or the whole of a business as a going concern and the value of the net assets owned by the business.

Purchases (Business Accounting Vol 1 - Chapter 3): Goods bought by the business for the prime purpose of selling them again.

Purchases Day Book (Business Accounting Vol 1 - Chapter 11): Book of original entry for credit purchases. Also called the Purchases Journal.

Purchases invoice (Business Accounting Vol 1 - Chapter 15): A document received by a purchaser showing details of goods bought and their prices.

Purchases Ledger (Business Accounting Vol 1 - Chapter 11): A ledger for suppliers' personal accounts.

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Real accounts (Business Accounting Vol 1 - Chapter 11): Accounts in which property of all kinds is recorded.

Realisation concept (Business Accounting Vol 1 - Chapter 10): Only profits and gains realised at the balance sheet date should be included in the profit and loss account. For a gain to be realised, it must be
possible to be reasonably certain that it exists and that it can be measured with sufficient reliability.

Receipts and payments account (Business Accounting Vol 1 - Chapter 36): A summary of the Cash Book of a non-profit-oriented organisation.

Reduced rate (of VAT) (Business Accounting Vol 1 - Chapter 19): A lower VAT rate applicable to certain goods and services.

Reducing balance method (Business Accounting Vol 1 - Chapter 26): A method of calculating depreciation based
on the principle that you calculate annual depreciation as a percentage of the net-of-depreciation-to-date balance brought forward at the start of the period on the fixed asset.

Registered business (Business Accounting Vol 1 - Chapter 19): A business that has registered for VAT. It must account for VAT and submit a VAT Return at the end of every VAT tax period.

Relevant costs (Business Accounting Vol 2 - Chapter 44): Those costs of the future that will be affected by a decision.

Reserve accounts (Business Accounting Vol 1 - Chapter 45): The transfer of apportioned profits to accounts for use in future years.

Residual value (Business Accounting Vol 1 - Chapter 26): The net amount receivable when a fixed asset is put out of use by the business.

Return on capital employed (Business Accounting Vol 1 - Chapter 47): Net profit as a percentage of capital employed, often abbreviated as ROCE.

Return on owners' equity (Business Accounting Vol 1 - Chapter 47): Net profit as a percentage of ordinary share capital plus all reserves, often abbreviated as ROOE. The more common term in use for this is 'return on shareholders' funds'.

Return on shareholders' funds (Business Accounting Vol 1 - Chapter 47): Net profit as a percentage of ordinary share capital plus all reserves, often abbreviated as ROSF and more commonly used than the alternative term, return on owners' equity.

Returns inwards (Business Accounting Vol 1 - Chapter 9): Goods returned by customers. (Also known as 'sales returns'.)

Returns Inwards Day Book (Business Accounting Vol 1 - Chapter 11): Book of original entry for goods returned by customers. Also called the Returns Inwards Journal or the Sales Returns Book.

Returns outwards (Business Accounting Vol 1 - Chapter 9): Goods returned to suppliers. (Also known as 'purchases returns'.)

Returns Outwards Day Book (Business Accounting Vol 1 - Chapter 11): Book of original entry for goods returned to suppliers. Also called the Returns Outwards Journal or the Purchases Returns Book.

Revaluation account (Business Accounting Vol 1 - Chapter 43): An account used to record gains and losses when assets are revalued.

Revenue expenditure (Business Accounting Vol 1 - Chapter 24): Expenses needed for the day-to-day running of the business.

Revenue reserves (Business Accounting Vol 2 - Chapter 8): A balance of profits retained available to pay cash dividends including an amount voluntarily transferred from the profit and loss appropriation account by debiting it, reducing the amount of profits left for cash dividend purposes, and crediting a named reserve account, such as a general reserve.

Revenues (Business Accounting Vol 1 - Chapter 4): The financial value of goods and services sold to customers.

Rights issue (Business Accounting Vol 2 - Chapter 4): An issue of shares to existing shareholders.

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Sale or return (Business Accounting Vol 1 - Chapter 29): Goods passed to a customer on the understanding that a sale will not occur until they are paid for. As a result, these goods continue to belong to the seller.

Sales (Business Accounting Vol 1 - Chapter 3): Goods sold by the business in which it normally deals which were bought with the prime intention of resale.

Sales Day Book (Business Accounting Vol 1 - Chapter 11): Book of original entry for credit sales. Also called the Sales Journal.

Sales invoice (Business Accounting Vol 1 - Chapter 14): A document showing details of goods sold and the prices of those goods.

Sales Ledger (Business Accounting Vol 1 - Chapter 11): A ledger for customers' personal accounts.

Sensitivity analysis (Business Accounting Vol 1 - Chapter 22): Altering volumes and amounts so as to see what would be likely to happen if they were changed. For example, a company may wish to know the financial effects of cutting its selling price by £1 a unit. Also called 'what if' analysis.

Separate determination concept (Business Accounting Vol 1 - Chapter 10): The amount of each asset or liability should be determined separately.

Share discount (Business Accounting Vol 2 - Chapter 4): Where a share was issued at a price below its par, or nominal value, the shortfall was known as a discount. However, it is no longer legal under the Companies Acts to issue shares at a discount.

Share premium (Business Accounting Vol 2 - Chapter 4): Where a share is issued at a price above its par, or nominal value, the excess is known as a premium.

Shares (Business Accounting Vol 1 - Chapter 45): The division of the capital of a limited company into parts.

Shares at no par value (Business Accounting Vol 2 - Chapter 4): Shares which do not have a fixed par, or nominal value.

Sinking fund (Business Accounting Vol 2 - Chapter 5): An external fund set up to meet some future liability such as the redemption of debentures. Cash is paid into the fund at regular intervals to accumulate with compound interest to the required future sum.

Smart card (Business Accounting Vol 1 - Chapter 12): A card that holds details on a computer chip instead of a traditional magnetic stripe.

Standard cost (Business Accounting Vol 1 - Chapter 29 and Business Accounting Vol 2 - Chapter 39): What you would expect something to cost.

Standard costing (Business Accounting Vol 2 - Chapter 39): A control technique that compares standard costs and standard revenues with actual costs and actual revenues in order to determine differences (variances) that may then be investigated.

Standard rate (of VAT) (Business Accounting Vol 1 - Chapter 19): The VAT rate usually used.

Standard-rated business (Business Accounting Vol 1 - Chapter 19): A business that charges VAT at the standard rate on its sales.

Standing order (Business Accounting Vol 1 - Chapter 12): A medium used to enable payments to be made automatic-
ally at given dates into a bank account for an amount agreed by the payer.

Statement (Business Accounting Vol 1 - Chapter 16): A copy of a customer's personal account taken from the supplier's books.

Statement of Affairs (Business Accounting Vol 1 - Chapter 35): A statement from which the capital of the owner can be found by estimating assets and liabilities. Then Capital = Assets - Liabilities. It is the equivalent of the balance sheet.

Stock (Business Accounting Vol 1 - Chapter 1): Goods in which the business normally deals that are held with the
intention of resale. They may be finished goods, partly finished goods, or raw materials awaiting conversion into finished goods which will then be sold. (Also known as inventory.)

Stock turnover (Business Accounting Vol 1 - Chapter 34): The number of times stock is sold in an accounting period. (Also known as 'stockturn'.)

Stocktaking (Business Accounting Vol 1 - Chapter 29): The process of physically identifying the stock on hand at a given point in time.

Straight line method (Business Accounting Vol 1 - Chapter 26): A method of calculating depreciation that involves deducting the same amount every accounting period from the original cost of the fixed asset.

Subjectivity (Business Accounting Vol 1 - Chapter 10): Using a method that other people may not agree to, derived from one's own personal preferences.

Subsidiary company (Business Accounting Vol 2 - Chapter 16): The outdated term for what is now known as a
‘subsidiary undertaking’.

Subsidiary undertaking (Business Accounting Vol 2 - Chapter 16): An undertaking which is controlled by another undertaking or where that other undertaking exercises a dominating influence over it.

Substance over form (Business Accounting Vol 1 - Chapter 10): Where real substance takes precedence over legal form.

Sunk costs (Business Accounting Vol 2 - Chapter 44): A cost which has already occurred and cannot, therefore, be avoided whatever decision is taken. It should be ignored when taking a decision.

Super profits (Business Accounting Vol 1 - Chapter 42): Net profit less the opportunity costs of alternative earnings and alternative returns on capital invested that have been foregone.

Supply chain (Business Accounting Vol 2 - Chapter 46): Everything within the two end-points of the continuous sequence running from demand forecasting through to receipt of payment from customers.

Supply chain management (Business Accounting Vol 2 - Chapter 46): The system of control over the information and/or item flows both within and outwith the organisation that comprise the supply chain.

Suspense account (Business Accounting Vol 1 - Chapter 33): An account in which you can enter the amount equal to the difference in the trial balance while you try to find the cause of the error(s) that resulted in the failure of the trial balance to balance.

Switch (Business Accounting Vol 1 - Chapter 12): A system that allows a debit card to be used to pay for goods and services in the UK. In effect, it is the electronic version of paying by cheque.

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T-account (Business Accounting Vol 1 - Chapter 2): The layout of accounts in the accounting books.

Tax code (Business Accounting Vol 1 - Chapter 21): The number found by adding up an individual's personal allowances which is used to calculate that individual's tax liability.

Time interval concept (Business Accounting Vol 1 - Chapter 10): Financial statements are prepared at regular intervals.

Total cost (Business Accounting Vol 1 - Chapter 37): Production cost plus administration, selling and distribution expenses and finance expenses.

Trade discount (Business Accounting Vol 1 - Chapter 14): A deduction in price given to a trade customer when calculating the price to be charged to that customer for some goods. It does not appear anywhere in the accounting books and so does not appear anywhere in the financial statements.

Trading account (Business Accounting Vol 1 - Chapter 7): An account in which gross profit is calculated.

Trading and profit and loss account (Business Accounting Vol 1 - Chapter 7): A financial statement in which both gross profit and net profit are calculated.

Transposition error (Business Accounting Vol 1 - Chapter 32): Where the characters within a number are entered in the wrong sequence.

Trial balance (Business Accounting Vol 1 - Chapter 6): A list of account titles and their balances in the ledgers, on a specific date, shown in debit and credit columns.

True and fair view (Business Accounting Vol 1 - Chapter 45): The expression that is used by auditors to indicate whether, in their opinion, the financial statements fairly represent the state of affairs and financial performance of a company.

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Unpresented cheque (Business Accounting Vol 1 - Chapter 30): A cheque which has been given to a creditor but which has not yet been received and processed by the writer's bank.

Unregistered business (Business Accounting Vol 1 - Chapter 19): A business that ignores VAT and treats it as part of the cost of purchases. It does not charge VAT on its outputs. It does not need to maintain any record of VAT paid.

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Value Added Tax (VAT) (Business Accounting Vol 1 - Chapter 19): A tax charged on the supply of most goods and
services.

Variable costs (Business Accounting Vol 1 - Chapter 47): Expenses which change in response to changes in the level of activity.

Variance (Business Accounting Vol 2 - Chapter 39): The difference between budget and actual.

Variance analysis (Business Accounting Vol 2 - Chapter 40): A means of assessing the difference between a predetermined cost/income and the actual cost/income.

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Website (of a business) (Business Accounting Vol 1 - Chapter 22): A location on the Internet where businesses place information for the use of anyone who happens to want to look at it. In many cases, a business website contains copies of the latest financial statements of the business and a part of the website is devoted to promoting and selling goods and services.

'What if' analysis (Business Accounting Vol 1 - Chapter 22): Altering volumes and amounts so as to see what would be likely to happen if they were changed. For example, a company may wish to know the financial effects of cutting its selling price by £1 a unit. Also called sensitivity analysis.

Wide area network (WAN) (Business Accounting Vol 1 - Chapter 22): A group of workstations not all of which are based locally that are linked together by wires and over telephone lines.

Work certified (Business Accounting Vol 2 - Chapter 15): The value of work in progress on a contract as certified by, for example, an architect or an engineer.

Work in progress (Business Accounting Vol 1 - Chapter 37): Items not completed at the end of a period.

Working capital (Business Accounting Vol 1 - Chapter 8): Current assets minus current liabilities. The figure represents the amount of resources the business has in a form that is readily convertible into cash. Same as net current assets.

Workstation (Business Accounting Vol 1 - Chapter 22): A dumb terminal or a PC that is used to access data held in a database on a central computer.

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Zero rate (of VAT) (Business Accounting Vol 1 - Chapter 19): The VAT rate (of zero) that applies to supply of certain goods and services.

Zero-rated business (Business Accounting Vol 1 - Chapter 19): A business that only supplies zero-rated goods and
services. It does not charge VAT to its customers but it receives a refund of VAT on goods and services it purchases.

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