Important Financial Terms

ACCRUAL – this is an expense incurred but not yet entered into the double entry bookkeeping system.

BAD DEBTS– this is money owing by a customer which either the customer cannot pay or which the customer will not pay and you are unwilling to take steps to force the payment. In short it’s the amount which is irrecoverable from a customer.

CASH– this is a total of bank balance plus money in petty cash box.

CURRENT ASSETS– these are assets intended for use in a short period, usually within few days, few weeks or few months e.g. cash, debtors, bills receivable etc.

CURRENT LIABILITIES – these are liabilities which must be discharged in short term, usually within few days, few weeks, few months e.g. creditors, bills payable, short term loan.

FIXED ASSETS – these assets are capital investments, which will be used for a longer time and retain at least some of their value these kind of assets are used for a year or more.

DEPRECIATION – A reduction in the value of an asset with the passage of time / due in particular to wear and tear.

PAYBACK – this measures the period of time taken for an investment to recover its cost.

RETURN ON CAPITAL EMPLOYED – this is the average increase in profits per year caused by an investment, expressed as a percentage of investment.

TRIAL BALANCE– this is listing of every balance in double entry bookkeeping system, the total debit must equal total of the credit balances.

STANDARD COSTING – this is the setting of standards for the various elements of cost, then establishing favorable or unfavorable variances by comparing actual result with standards

WORKING CAPITAL – this is the difference between current assets and current liabilities.


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