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Partnership

In the UK this refers to a business where two or more individual owners are jointly and severally liable for the business. Specifically, since 2000, a partnership is now considered to have its own legal personality. This allows partners to have some limited liability for general trading debts, not for negligence. Typical examples are accountancy,… Read more

Matching concept

This refers to an accounting ┬áconcept that states that expenses must be reported in the same accounting period as the revenue to which they refer. For example where a company pays commission to its agents for sales, the commission fees should appear in the same period as the revenues to which they refer – irrespective… Read more

Consistency principle

This refers to a principle of accounting that states that the accounting methods, practices and procedures adopted for financial accounting will be equally applied to all similar transactions and across all future accounting periods. Without this it is impossible to make valid comparisons across accounting periods. If a change in approach is required in the… Read more

Business entity convention

This refers to the legal and commercial principle that states that a business organisation is distinct in law from the individuals who own or operate it. The business entity convention emphasises that the owner of the business and the business itself are completely separate and provides continuity for the business beyond the involvement of any… Read more

International Standards on Auditing (ISAs)

This refers to the internationally agreed professional standards for carrying out financial audits. ISAs provide the framework for audit responsibilities, audit planning, audit evidence, audit reports and other specific audit topics. International Standards on Auditing is a term normally found in risk and control.

Prudence concept

This refers to a principle of accounting that states that accounts should reflect expenses and liabilities as soon as possible; while revenues and profits are only reported when they are assured. In this way the prudence concept seeks to prevent an over-optimistic presentation of the business. The prudence concept is a term normally found in… Read more

Retained earnings

This refers to profits made by the business which are not distributed to shareholders as dividends. Retained earnings are usually reinvested in the business or held in reserve to pay off debt or make future investments. In a company balance sheet the retained earnings figure represents the sum of all earnings retained since the company… Read more

Financial reporting

This is the recording of all the organisation’s financial activities. Financial reporting includes producing the main financial statements including the income statement, balance sheet, statement of financial position and cash flow statements. Within an organisation, the term can also be used for reporting information from individual business units into the corporate centre. Financial reporting is… Read more

Non-current assets

This refers to all types of asset that are not expected to turn into cash within the next 12 months. Non-current assets (fixed assets) include tangible assets such as buildings, equipment and machinery; intangible assets such as goodwill, copyrights, and patents. Non-current assets is a term normally found in financial management, accounting and reporting.

Reserves

These are funds or materials set aside for a specific or general future purpose. Specifically in financial reporting, reserves are part of the retained earnings of a company. A company’s overall reserves figure shows the net worth of the business over and above the equity issued. Reserves is a term normally found in financial management,… Read more