Accounting Definitions

This page holds our Financial Expert™ Definitions of accounting jargon and terms. Cut through accounting jargon with our explainers.

Each definition page is much more than an accounting definition.

Beyond the definition, we provide a deeper explanation in plain english and give more context to how the word is used.

We also explore deeper into the topic and link to connected topics.

This is designed to provide a more rounded experience to help you discover more about accounting, finance & business topics.

Accounting definitions:

Click on each term below to be taken to our explainer guide.

Asset
Balance Sheet
Budget
Capital
Capital Expenditure
Cost of Goods Sold (COGS)
Debenture
Deferred Consideration
Equity
Escrow
Financial Statements
General Ledger
Generally Accepted Accounting Principles (GAAP)
Goodwill
Gross Margin
Gross Profit
Holding Company
Income
Income Statement
International Financial Reporting Standards (IFRS)
Joint Venture (JV)
Journal
Liability
Onerous Contract
Overdraft
Overhead
Profit
Quality of Earnings
Turnover
Variable Cost
Year to Date (YTD)

Accounting definitions
Accounting definitions are essential to understanding financial statements

Other sources of accounting definitions

When researching accounting topics, the following online resources are considered as authority sources:

IFRS definitions

IFRS.org is the home of the IASB who officially set the International Financial Reporting Standards themselves.

If you need to understand the precise definition or criteria for an accounting term this is the best place to go.

If you don’t know the name of the IFRS standard, begin browsing at https://www.ifrs.org/issued-standards/list-of-standards/

Other local GAAP definitions

For the official definition of local Generally Accepted Accounting Principles (GAAP) rules, such as UK GAAP, the authority source is the official standard which you should find at the website of the local standard setter.

In the UK, this is the Financial Reporting Council or FRC, and the website for standards is found at https://www.frc.org.uk/accountants/accounting-and-reporting-policy/uk-accounting-standards

Other company law

However, be aware that sometimes a disclosure requirement for financial statements, such as the format of the balance sheet or income statement might be set out in other laws.

In the UK, many company requirements come ‘Companies Act’ rules. The various iterations of the Companies Act can be found on the UK Government website.

For example, this page sets out prescribed formats for UK company law financial statements:

https://www.legislation.gov.uk/uksi/2008/409/schedule/1/made/data.xht

It’s often useful to use a search engine to understand first which section and companies act sets the standard. Then you can use the government website to navigate to the relevant section to read the full context of the requirement.

Interpretations and advice

Often with a subject area as complex as accounting, a straight forward definition is only the starting point.

Professional financial advisers from large and small accounting firms will be able to advise on the nuances and the general practice seen in companies.

Illustrative financial statements / Model financial statements

One excellent way to gain insights into the practical application of accounting standards, (and in particular the disclosure requirements) is to look at illustrative financial statements.

Illustrative financial statements are an annual report, published on behalf of a fictitious company which has every asset, liability, financial arrangement under the sun.

They are produced by the big four accounting firms and are updated on an annual basis. They provide ‘show’ rather than tell, how accounting disclosures can be made to comply with the latest rules.

Illustrative accounts aren’t able to show every conceivable accounting complexity, but they get very close. As a result, they’re a comprehensive reference guide which can give you some additional confidence in how to interpret a disclosure rule.

EY – IFRS, listed group, 2019

https://www.ey.com/en_gl/ifrs-technical-resources/good-group-illustrative-financial-statements-december-2019

pwc – IFRS, listed group, 2019

https://www.pwc.com/gx/en/services/audit-assurance/assets/pwc-illustrative-ifrs-consolidated-financial-statements-for-2019-year-ends.pdf

Deloitte – IFRS, listed group, 2019

https://www.iasplus.com/en/news/2019/11/mfs

KPMG – IFRS, listed group, 2020

https://home.kpmg/content/dam/kpmg/xx/pdf/2020/09/2020-ifs.pdf

Model accounts are written to demonstrate the best practise disclosure for most accounting scenarios. They are typically based on a listed business (which must comply with a tougher set of rules than private businesses).

Therefore, you may find that model accounts disclosures are more detailed and insightful than the minimum disclosure that an auditor would accept is GAAP compliant.

This is a free resource after all though, so on balance, model accounts are still a very useful source of accounting information.

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