Accrual Basis of Accounting
Accrual accounting is the system of tracking income and expenses that recognises income when it is earned (regardless of when cash is received) and recognises expenses when they are incurred (regardless of when they are paid). See also a common alternative – “Cash Basis of Accounting”.
Assets refers to everything that the organisation owns.
An independent examination of the organisations financial records by a suitably qualified professional which verifies and attests to their accuracy as well as compliance with regulatory requirements.
A statement showing the financial position of the organisation, including assets that it owns, the liabilities that it owes, and the equity accumulated. It is also known as a “Statement of Financial Position”.
A statement that shows the transactions that have been recorded in the general ledger cash account but not the bank account. It reconciles the balance in the ledgers cash book with that of the bank statement at any one point of time and explains the details of any variances. These can include deposits in transit that haven’t yet cleared, cheques not yet presented for payment by suppliers, and other timing differences.
Voluminous amounts of structured, semi-structured and unstructured data that has the potential to be mined for information, most commonly to unearth a commercial edge over competitors or un-lock new market opportunities altogether.
A plan for expected income and expenditure over a specified time period. A budget may be further broken down into months, quarters or other periods. It usually itemises major areas of revenue and expenses (subtotals) with possible further breakdowns that give users further insight into the organisations forthcoming expectations. A budget often forms part of a broader Business Plan to support the expectations of key stakeholders.
Cash Basis of Accounting
Cash accounting is the system of tracking income and expenses based on when cash is actually exchanged. Income is recognised only when payment is received, and expenses are recognised only when they are paid. It is a simpler approach to its more developed surrogate – “Accrual Basis of Accounting”.
Cash coming into the organisation from various sources (eg. customers & financiers), versus cash flowing out to pay operating expenses, capital investment or returns to stakeholders. Positive cash flow means more came in than went out; negative cash flow means the reverse.
A cash forecast of the expected amount and timing of cash coming into, and out of, the organisation.
This can be twofold depending on the context in which it is used: it refers to either changes over a specific period of time, or “as at” a particular point of time. It may therefore represent the difference between cash inflows and outflows for any given period, or the absolute cash position of the organisation at a particular date.
Chart of Accounts
A list of the accounts that the organisation will use to classify financial transactions. These account names are usually associated with a reference number and a form of numbering hierarchy, with sub accounts often providing more detail for the overall “header” account.
Technologies which access software & data stored remotely. Users may access the service either over the internet or via a downloadable application. The cloud may be located in an offshore or foreign location. Hosted applications accessible via the cloud can have many benefits, including the ability for 2 or more people to access information online simultaneously, and eliminate the traditional method of moving data manually between parties using USB sticks, email etc.
Creditors – also referred to as Accounts Payable, are those who have provided credit terms for payment to the organisation or extended other forms of financing arrangements such as money loaned. More specifically, “Trade Creditors” are those who have supplied goods to the organisation on credit terms for regular operational transactions, and are therefore classified as trade, which will normally involve specific agreed terms for payment and associated factors such as discounts allowed if paid within terms or penalties incurred for payment outside of terms.
Current Assets are those assets owned by the organisation that will be converted into cash within one year eg. cash, debtors, stock, prepayments.
Current Liabilities are those obligations due to be paid within one year, such as creditors, any bank overdrafts, and those portions of longer-term borrowing arrangements that will fall due within the forthcoming 12 months such as some loan installment repayments (excluding interest).
Debtors – also referred to as Accounts Receivable, are those amounts owed by customers or clients who have purchased goods and/or services from the organisation on credit terms.
Equity is the organisation’s own funding accumulated through retaining earnings. It is also known as “Net Worth” and other terms appropriate to the type of organizational structure such as “Proprietors Funds”, “Partnership Funds”, “Shareholders Funds” and so forth.
A cornerstone underlying the Accounting Profession and which guides the conduct of its members, it basically translates as ‘doing the right thing’ and is taken very seriously by accountants. As Socrates defined it: “Ethics is what one ‘ought’ to do”. In it’s Annual Report on Professional Conduct 2010, the ICAA (now CAANZ) described that “A distinguishing mark of the accountancy profession is its acceptance of the responsibility to act in the public interest” (p7), signalling an increasing role and expectation of the Chartered Accounting profession to act in the wider community interest for socially good outcomes.
The costs and outlays the organisation pays to operate. For example, personnel costs, occupancy, utilities bills, computing, marketing, online presence, administration and other such overheads.
Fat Client Computing
All software required to maintain your general ledger is located on your local hard drive. It may be connected to a file server and enable remote desktop access to share resources like files, printers and email. See also “Thin Client Computing”.
Documents representing a written record of the financial aspects of the organisation. The most common financial statements are the Balance Sheet and Profit & Loss Statement (also referred to as the Income Statement). A Cashflow Statement is also commonly attached, showing how receipts and outgoings have been applied for operating, financing and investing purposes.
Fixed Assets are those assets owned by an organisation that are expected to have a useful life to the organisation longer than 1 year. For example, equipment or buildings. Fixed Assets may also be referred to as “Long Term Assets”.
Fixed costs are those expenses which are incurred whether or not the organisation delivers its goods and/or services, such as premises or utilities. They increase in a stepped fashion over time. See also Semi-Variable Costs and Variable Costs.
Or Corporate Governance in company situations, is the systems of management – both operational and structural – of an organisation. The ASX defines governance as “The system by which companies are directed and managed”, but this principle can equally be applied to other forms of entities and situations such as Partnerships, or a Board of Trustees overseeing a Charitable Foundation and so on.
Non-material assets that cannot be held or touched. They may have been internally developed over time, or purchased in an arms-length transaction from third parties. The most common example is goodwill, and can also separately include trademarks, brand or domain names, patents, rights or licences etc.
Commonly referred to as stock, this consists of goods owned by the organisation for the purpose of selling to generate income. Inventory can include raw materials, work in progress, and finished goods.
Liabilities are debts that the organisation owes to creditors.
Net Profit or Loss
Net Profit is the amount of income remaining after all expenses have been paid. It may also be known as a “Surplus”, or where total expenses exceed total income, a “Deficit”. Either way, they can be more colloquially referred to simply as the “Bottom Line” result, particularly when the business is preparing its budget or future projections, and the outcome is not known or more ambit in nature.
This macro-economic framework describes a set of external factors used in evaluating the overall environmental component of strategic management, and considers the relevant mix of political, economic, social, technological, legal and environmental influences on an organisation.
Profit & Loss Statement
A statement of financial performance over a given period of time. The summary of the income and expenses of an organisation that are recognised during an accounting period. Also known as a “P&L Statement”, and “Income Statement” or a “Statement of Financial Performance”.
These are funds set aside from the operating budget for a planned future expense, such as an allowance for systems upgrades or equipment purchases.
Retained earnings are the cumulative net profits/surpluses/deficits (which can be positive or negative) from the Profit & Loss Statement that is left to accumulate in the organisation.
Also known as a semi-fixed or mixed cost, is a cost composed of a mixture of both fixed and variable components. Costs are fixed for a set level of production or consumption and become variable after this production level is exceeded. See also Fixed Costs and Variable Costs.
Any person or organisation that has an interest in the operations of the organisation. They may provide funds, be a user of the service, or a supporter of the cause. Often there is a differentiation made between parties whose interests are considered of higher priority or preference, such as “key stakeholders”.
Also referred to as a “Strategic SWOT Analysis”, this involves evaluating your internal strengths & weaknesses and external opportunities & threats, hence the acronym “SWOT”. This should accompany preparation of your Business Plan and Budget. It can also be presented in the form of a “SLOT” where the term weakness is substituted for ‘Limitations’.
Thin Client Computing
All software required to maintain your general ledger is located on a server, such as a cloud host. There is no need to have the software installed on each desktop, which may have many advantages such as off-site security and automatic back-up, easy-access, and automatic software updates. This is becoming increasingly popular as technology advancements provide alternative solutions to traditional computing & storage methods. See also “Fat Client Computing”.
Costs directly incurred through provision of goods and/or services. These costs will increase proportionally as a direct correlation with the amount of goods and/or services delivered. See also Semi-Variable and Fixed Costs.
Outsourcing of the Chief Financial Officer role which is gaining wide appeal and increasing traction as an alternative option to directly employing a CFO, which in many cases might not be an affordable option available, particularly to emerging organisations that still lack critical mass.
A relatively new business and reporting language, meaning “eXtensible Business Reporting Language”. It is designed to improve and standardise business reporting and has many advantages such as simplifying the bookkeeping and accounting process by automating many tasks, gather data more quickly, reduce manual tasks and therefore decrease effort involved, and therefore seeks to reduce the cost of gathering and analysing data. This can free-up valuable resources to extract timely value from your data or invest more time in other aspects of the organization.
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