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Sole trader

This refers to is a type of business entity that is owned and run by a single individual, with no legal distinction between the owner and the business. As a sole trader, the owner has unlimited liability for all debts and losses of the business. Sole trader is a term normally found in financial accounting… Read more

Labour cost accounts

This refers to an account within the organisation’s chart of accounts. Labour costs accounts provides a summary of the balances on individual cost accounts (for example, production or business functions accounts). Labour cost accounts is a term normally found in financial accounting and management accounting.

Sales ledger control account

This refers to an account within the organisation’s chart of accounts which provides a summary of the balances on all individual customer accounts within the sales ledger. As a control account, the balance must be equal to the sum of all the amounts owed by your customers. The sales ledger account is a term normally… Read more

Purchase ledger control account

This refers to an account (also known as the trade creditors control account) within the organisation’s chart of accounts. The purchase ledger control provides a summary of the balances on all individual supplier accounts within the purchase ledger. As a control account, the balance must be equal to the sum of all the amounts owed… Read more

Dual effect principle

This refers to the underlying principle of double entry bookkeeping, that every transaction has a dual effect which should be recorded in two places in the accounts. The dual effect principle provides the basis for recording business transactions into the records of a business. For example, the purchase of an item of inventory by cash… Read more

Petty cash

This refers to the small amounts of cash kept on hand in a business. Petty cash is usually used to pay for small purchases such as milk for employee’s refreshments, small items of postage, reimbursing employees for minor expenditure. Petty cash spend should still be accounted for, with receipts or similar evidence of spend; in… Read more

Expenditure

This is the payment of cash, or its equivalent, to acquire goods or services. Expenditure is usually categorised as either short term (revenue or operating expense) or long-term (capital expense). The accounting treatment for each category of expenditure is different with revenue/operating expenditure being recorded within the period in which it occurs and capital expenditure… Read more

Trial balance

This refers an internal worksheet which records and balances the debits and credits of all the finance ledgers. The trial balance is used as a staging point in the production of the main final accounts, statement of profit or loss and the statement of financial position (balance sheet), ensuring all the ledger items are in… Read more

Prepaid expenses

This refers to an asset representing cash paid for goods or services which have not yet been received. Also known as deferred expenses, these include items such as rent, interest or insurance where they are paid in advance for a future period. The business carries a risk that the supplier might fail to provide the… Read more

Suspense account

This refers to the accounting convention of posting unclassified transactions until they can be confirmed. Unclassified transactions are usually kept in the suspense account until a decision has been made to their appropriate classification. For example, it may not be possible to immediately identify the relevant account for a receipt into the bank where the… Read more