(1) To examine with intent to verify that claims being made are correct. Examples include: financial audit, manufacturing audit and energy audit. (2) The process of verifying the correctness of a set of accounts using: detailed checks on transactions and totals, broad tests on account values as well as testing internal control.

Asset pool

A category of similar type assets.

Absorption Costing

A costing approach that considers all factory overhead to be product costs that become an expense in the form of cost of goods sold only as sales occur. accelerated depreciation method: depreciation taken at a greater than normal rate.


A resource controlled by an organisation, and in which they have ownership rights. Examples include: cash, stock, debtors, vehicles, buildings and patents. Funds for the acquisition of assets are supplied by either the owners (owner’s equity) or by creditors (liabilities).

Activity based costing

A system where all overheads are accumulated, and then assigned to the products, services, or other cost objects that caused that activity.


A valuation of land, buildings, machinery ,or equipment; can be based on replacement cost, replacement cost less depreciation, or market value.

Accrual basis

An accounting process that recognizes transactions on financial statements when revenues and expenses occur, rather than when cash changes hands.

Allocated cost

An expense that is not directly traceable, and is assigned to a number of different sections.

Accounts payable

Another term for creditors.

Accounts receivable

Another term for debtors.

Accounting equation

Assets = liabilities + owner’s equity. An expression of the relationship between the major categories of accounts on the organisation’s balance sheet. A mathematical expression of the statement "all assets are supplied by debt or by the owners". This also reflects the "double entry" nature of accounting. When you deposit cash in the bank from the owner’s investment, to keep the balance sheet "balance", you have to increase an Asset (cash) and increase Proprietorship (owner’s equity).

Avoidable cost

Costs that will not continue if an ongoing operation is changed or deleted.

Administrative cost

Expenses relating to the overall managing of business affairs.

Accounting Standard

For public accountants and accountants generally, a mode of conduct, imposed by custom, law, professional body. The term contrasts with accounting policy in that the latter is formulated and is observed within a particular enterprise.


If a company acquires another and says the deal is ´accretive to earnings´. it means that the resulting PE ratio (price/earnings) of the acquired company is less than the acquiring company. Example: Company ´A´ has an earnings per share (EPS) of Re. 1. The current share price is Rs. 10. This gives a P/E ratio of 10 (current share price is 10 times the EPS). Company ´B´ has made a net profit for the year of Rs. 20.000. If company ´A´ values ´B´ at. say. Rs. 180.000 (P/E ratio=9 [180.000 valuation/20.000 profit]) then the deal is accretive because company ´A´ is effectively increasing its EPS (because it now has more shares and it paid less for them compared with its own share price). Also see dilutive

Accounting information systems

Information systems that record and report business transactions, the flow of funds through an organisations, and produce financial statements. This provides information for the planning and control of business operations, as well as for legal and historical record keeping.

Attention directing

One of the three fundamental uses of accounting; reporting and interpreting information that helps managers focus on problems in order to fix them.


One skilled in accounting. A person who offers services professionally to the public pertaining to accounting. Also known as a public accountant.

Audit trail

Printed documents and computer records that are used to trace changes in account balances from original input documents through account transformation to final information output. The audit trail provides the means by which an audit may be conducted.

Account balance

The amount remaining in an account after all additions and deductions have been made up to the current date.

Activity level variance

The differences between the master budget and flexible budget amounts.

Accounting equation

The formula used to prepare a balance sheet. ie. assets=liability+equity

Annual Report

The information provided by the directors and management of a company concerning operations and financial position for the past year.


The process of spreading the cost of an intangible asset over the expected useful life of the asset. For example: a company pays $100,000 for a patent, they amortize the cost over the 16 year useful life of the patent. Same as depreciation, which is used for tangible assets.

Accumulated depreciation

The summation of depreciation charged to past periods.

Accounting cycle

This covers everything from opening the books at the start of the year to closing them at the end and publishing of annual report. In other words. everything you need to do in one accounting year.


To accumulate a receivable or payable during a period even though no transaction occurred.