Glossary of Key Accounting Terms This glossary contains most of

Glossary of Key Accounting Terms This glossary contains most of the key accounting terms that students are likely to encounter. Words highlighted in bold are explained elsewhere in the glossary. Acid test ratio See quick ratio Accounting The provision of information to managers and owners so they can make business decisions. Accounting concept A principle underpinning the preparation of accounting information. Accounting equation The basic premise that assets equals liabilities. Accounting period The time period for which the accounts are prepared. Audited financial statements are usually prepared for a year. Accounting policies The specific accounting methods selected and followed by a company in areas such as sales, foreign currencies, stocks, goodwill and pensions. Accounting standards Accounting pronouncements which set out the disclosure and measurement rules businesses must follow to give a true and fair view when drawing up accounts. Accounting Standards Board (ASB) The Accounting Standards Board sets the UK’s accounting standards. Accruals The amounts owed to the suppliers of services at the balance sheet date, for expenses such as telephone or light and heat. Accruals concept See matching concept 402 GLOSSARY OF KEY ACCOUNTING TERMS Accumulated depreciation The total depreciation on tangible fixed assets including this year’s and prior years’ depreciation. Annual report A report produced annually by companies comprising both financial and non-financial information. Appropriation account The sharing out of partners’ profit after net profit has been calculated in the profit and loss account. Asset turnover ratio A ratio which compares sales to total assets employed. Assets Essentially, items owned or leased by a business. Assets may be tangible or intangible, current or fixed. Assets bring economic benefits through either sale (for example, stock) or use (for example, a car). Associated company A company in which 20–50 % of the shares are owned by another company or in which another company has a significant influence. Auditors A team of professionally qualified accountants independent of a company. Appointed by the shareholders on the recommendation of the directors, the auditors check and report on the accounts prepared by the directors. Auditors’ report A statement in a company’s annual report which states whether the financial statements present a ‘true and fair view’ of the company’s activities over the previous financial year. Authorised share capital The amount of share capital that a company is allowed to issue to its shareholders. Bad debts Those debts that will definitely not be paid. They are an expense in the profit and loss account and are written off debtors in the balance sheet. Balance off In double-entry bookkeeping, the accounts are balanced off and, the figures for assets and liabilities are carried forward to the next period. In effect, this signals the end of an accounting period. GLOSSARY OF KEY ACCOUNTING TERMS 403 Balance sheet A financial statement which is a snapshot of a business at a particular point in time. It records the assets, liabilities and capital of a business. Assets less liabilities equals capital. Capital is the owners’ interest in the business. Bank overdraft A business or individual owes the bank money. Bookkeeping The preparation of the basic accounts. Monetary transactions are entered into the books of account. A trial balance is then extracted, and a profit and loss account and a balance sheet are prepared. Budget A future plan which sets out a business’s financial targets. Budgeting Budgeting involves setting future targets. Actual results are then compared with budgeted results. Any variances are then investigated. Called-up share capital The amount of issued share capital that is fully paid up by shareholders. For example, a share may be issued for £1.50 and paid in three equal instalments. After two instalments the called-up share capital is £1. Capital Capital represents the owner’s interest in the business. In effect, capital is a liability as it is owed by the business to the owner (e.g., sole trader, partner or shareholder). Capital is the assets of a business less its liabilities to third parties. Capital is accumulated wealth and is increased by profit, but reduced by losses. For listed companies capital is known as equity. Capital expenditure A payment to purchase an asset with a long life such as a fixed asset. Capital expenditure and financial investment In a cash flow statement, cash flows relating to the purchase and sale of fixed assets and investments. Capital investment appraisal A method of evaluating long-term capital expenditure decisions. Capital maintenance concept A way of determining whether the ‘capital’ of a business has improved, deteriorated or stayed the same over a period of time. There is both financial and physical capital maintenance. 404 GLOSSARY OF KEY ACCOUNTING TERMS Capital reserves Reserves not distributable to shareholders as dividends (e.g., the share premium account or revaluation reserve). Carriage inwards The cost of delivering raw materials. Refers to the days when goods were delivered by horse-and-carriage. Carriage outwards The cost of delivering the finished goods. Refers to the days when goods were delivered by horse-and-carriage. Cash and bank The actual money held by the business either at the business as cash or at the bank. Cash at bank Money deposited with a bank. Cash book In large businesses, a separate book which records cash and cheque transactions. Cash budget This budget records the projected inflows and outflows of cash. Cash flow statement A financial statement which shows the cash inflows and outflows of a business. Chairman’s statement A statement in a company’s annual report which provides a personalised overview of the company’s performance over the past year. It generally covers strategy, financial performance and future prospects. Companies Acts Acts of Parliament which lay down the legal requirements for companies including accounting regulations. Company A business enterprise where the shareholders have limited liability. Conceptual framework A coherent and consistent set of accounting principles which underpin the preparation and presentation of financial statements. GLOSSARY OF KEY ACCOUNTING TERMS 405 Consistency concept An accounting principle which states similar items should be treated similarly from year to year. Corporate governance The system by which companies are directed and controlled. The financial aspects of corporate governance relate principally to internal control and the way in which the board of directors functions and reports to the shareholders on the activities and progress of the company. Cost An item of expenditure (planned or actually incurred). Cost accounting Essentially, costing and planning and control. Cost of capital The interest rate at which a business raises funds. Cost of sales Essentially the cost of directly providing the sales. Costing Recovering costs as a basis for pricing and stock valuation. Creative accounting Using the flexibility within accounting to manage the measurement and presentation of the accounts so that they serve the interests of the preparers. Credit An entry on the right-hand side of a ‘T’ account. Records principally increases in liabilities, capital or income. May also record decreases in assets or expenses. Credit control Controlling debtors by establishing credit limits for new customers, monitoring the age of debts and chasing up bad debts. Creditors Amounts owed to trade suppliers for goods supplied on credit, but not yet paid. Known as trade payables for listed companies. Creditors collection period Measures how long a business takes to pay its creditors by relating creditors to cost of sales. Current assets Those assets (e.g., stocks, debtors and cash) that a company uses in its day-to-day operations. 406 GLOSSARY OF KEY ACCOUNTING TERMS Current liabilities The liabilities that a business uses in its day-to-day operations (e.g., creditors (trade payables)). Current purchasing power A measurement system where historical cost is adjusted by general changes in the purchasing power of money (e.g., inflation), often measured using the retail price index (RPI). Current ratio A short-term test of liquidity which determines whether short-term assets cover short-term liabilities. Debenture Another name for a long-term loan. Debentures may be secured or unsecured loans. Debit An entry on the left-hand side of a ‘T’ account. Records principally increases in either assets or expenses. May also record decreases in liabilities, capital or income. Debt factoring Where the debtors are subcontracted to a third party who are paid to manage them. Debtors When sales are made on credit, but the customers have not yet paid. Known as trade receivables for listed companies. Debtors age schedule A credit control technique which profiles the age of the debts and allow old debts to be quickly identified. Debtors collection model A technique for managing working capital which seeks to maintain the most efficient level of debtors for a company. It balances the extra revenue generated by increased sales with the increased costs associated with extra sales (e.g., credit control costs, bad debts and the delay in receiving money). Debtors collection period A ratio which measures how long customers take to pay their debts by relating debtors to sales. Decision-making objective of financial reporting Providing users, especially shareholders, with financial information so that they can make decisions such as whether to buy or sell shares. GLOSSARY OF KEY ACCOUNTING TERMS 407 Depreciation Depreciation attempts to match a proportion of the original cost of the fixed assets to the accounting period in which the fixed assets were used up as an annual expense. Direct method of preparing cash flow statement Classifies operating cash flows by function or type of activity (e.g., receipts from customers). Directors Those responsible for running the business. Accountable to the shareholders who, in theory, appoint and dismiss them. Directors’ remuneration report A statement in an annual report in which companies include details of their directors’ pay. Directors’ report A narrative statement in an annual report. It supplements the financial information with information considered important for a full appreciation of a company’s activities. Discount allowed A reduction in the selling price of a good or service allowed by the business to customers for prompt payment. Treated as an expense. Discount received A reduction in the purchase price of a good or service granted to a business from the supplier for paying promptly. Treated as an income. Dividend cover A ratio showing how many times profit available to pay ordinary dividends covers actual dividends. Dividend yield A ratio showing how much dividend ordinary shares earn as a proportion of market price. Dividends A cash payment to shareholders rewarding them for investing money in a company. Double-entry bookkeeping A way of systematically recording the financial transactions of a company so that each transaction is recorded twice. Doubtful debts Debts which may or may not be paid. Usually, businesses estimate a certain proportion of their debts as doubtful. 408 GLOSSARY OF KEY ACCOUNTING TERMS Drawings Money which a sole trader or partner takes out of a business as living expenses. It is, in effect, the owner’s salary and is really a withdrawal of capital. Earnings per share (EPS) A key ratio by which investors measure the performance of a company. Economic order quantity (EOQ) A technique for managing working capital. The optimal EOQ is calculated so as to minimise the costs of ordering and holding stock. Efficiency ratios Ratios which show how efficiently a business uses its assets. Entity concept A business has a distinct and separate identity from its owner. This is obvious in the case of a large limited company where shareholders own the company and managers manage the company. However, there is also a distinction between a sole trader’s or partnership’s personal and business assets. Equity The term used for capital for a listed company. Expenses The day-to-day costs incurred in running a business, e.g., telephone, business rates and wages. Expenses are expenses even if goods and services are consumed, but not yet paid. Expenses are, therefore, different from cash paid. Financial accounting The provision of financial information on a business’s financial performance targeted at external users, such as shareholders. It includes not only double-entry bookkeeping, but also the preparation and interpretation of the financial accounts. Financial capital maintenance concept This concept is primarily concerned with monetary measurement, in particular, the measurement of the net assets. Financial Reporting Council (FRC) A UK supervisory body which ensures that the overall accounting standard-setting system is working. Financial Reporting Review Panel (FRRP) The FRRP investigates contentious departures from accounting standards and is part of the UK’s standard-setting regime. GLOSSARY OF KEY ACCOUNTING TERMS 409 Financing cash flows In a cash flow statement, they relate to the issuing or buying back of shares or loan capital. Finished goods stock The final stock after the manufacturing process is completed, for example, finished tables. The cost includes materials and other manufacturing costs (e.g., labour and manufacturing overheads). First-in-first-out (FIFO) A method of stock valuation where the stock bought first is the first to be sold. See also average cost and last-in-first-out. Fixed assets Infrastructure assets used to run the business long-term and not used in day-to-day production. Includes tangible fixed assets (e.g., motor vehicles, land and buildings, fixtures and fittings, plant and machinery) and intangible fixed assets (e.g., goodwill). Fixed assets are known as property, plant and equipment for a listed company. Fixed costs Costs that do not vary with production or sales (for example, insurance) in an accounting period and are not affected by short-term decisions. Often called fixed overheads. Fixed overheads See fixed costs. Gearing The relationship between a company’s ordinary shareholders’ funds and the debt capital. General reserve A revenue reserve created to deal with general, unspecified contingencies such as inflation. Going concern concept The business will continue into the foreseeable future. Assets, liabilities, incomes and expenses are measured on this basis. Goodwill In takeovers, the purchase price less the amount paid for the net assets. It represents the value placed on the earning power of a business over and above its net asset value. Gross profit Sales less cost of sales. Gross profit ratio This ratio relates the profit earned through trading to sales. 410 GLOSSARY OF KEY ACCOUNTING TERMS Historical cost A measurement system where monetary amounts are recorded at the date of original transaction. Historical cost convention The amount recorded in the accounts will be the original amount paid for a good or service. Horizontal analysis A form of ratio analysis which compares the figures in the accounts across time. It is used to investigate trends in the data. Impression management Managers try to influence the financial reporting process in their own favour. Includes both creative accounting and narrative enhancement. Income The revenue earned by a business, e.g., sales. Income is income, even if goods and services have been delivered but customers have yet to pay. Income thus differs from cash received. Income receivable Receivable by the business from a third party, e.g., dividends receivable (from companies) or interest receivable (from the bank). Income statement The term used in listed companies for the profit and loss account. Indirect method of preparing cash flow statement Operating cash flow is derived from the profit and loss account and balance sheet and not classified directly by function (such as receipts from sales). Indirect overheads See indirect costs. Intangible assets Fixed assets one cannot touch, unlike tangible fixed assets (such as land and buildings). Most common in companies. Interest cover A ratio showing the amount of profit available to cover the interest payable on long-term borrowings. Interest payable An expense related especially to bank loans. When paid becomes interest paid. GLOSSARY OF KEY ACCOUNTING TERMS 411 International Accounting Standards Board (IASB) An international body founded in 1973 to work for the improvement and harmonisation of accounting standards worldwide. Originally called the International Accounting Standards Committee. Interpretation of accounts The evaluation of financial information, principally from the profit and loss account and balance sheet, so as to make judgements about profitability, efficiency, liquidity, gearing, cash flow, and the success of a financial investment. Sometimes called ratio analysis. Inventory The term used for stock in a listed company. Investment ratios Measures the returns to the shareholder (dividend yield, earnings per share and price/earnings ratio) or the ability of a company to sustain its dividend or interest payments (dividend cover and interest cover). Investments Assets such as stocks and shares. Invoice discounting The sale of debts to a third party for immediate cash. Issued share capital The share capital actually issued by a company. Just-in-time A method of stock control developed in Japan. It seeks to minimise stock holding costs by the careful timing of deliveries and efficient organisation of production schedules. At its best, just-in-time delivers stock just before it is used. Last-in-first-out (LIFO) A method of stock valuation where the last stock purchased is the first sold. See also average cost and first-in-first-out. Leasing Where the assets are owned by a third party which the business pays to use them. Liabilities Amounts the business owes (e.g., creditors, bank loan). They can be short-term or long-term, third party liabilities or capital (i.e., liability owed by the business to the owner). 412 GLOSSARY OF KEY ACCOUNTING TERMS Limited liability Shareholders are only liable to lose the amount of money they initially invested. Liquidity ratios Ratios derived from the balance sheet that measure how easily a firm can pay its debts. Listed company A company quoted on a stock exchange. Loan capital Money loaned to a company by third parties who do not own the company and are entitled to interest not dividends. Loans Amounts borrowed from third parties, such as a bank. Long-term creditors Amounts borrowed from third parties and repayable after a year. The most common are long-term loans. Known as non-current liabilities for listed companies. Long-term loan A loan, such as a bank loan, not repayable within a year. Sometimes called a debenture. Management accounting The provision of both financial and non-financial information to managers for cost accounting, planning, control and performance, and decision making. It is thus concerned with the internal accounting of a business. Market value The value shares fetch on the open market, i.e., their trading value. This may differ significantly from their nominal value. Matching concept Recognises income and expenses when accrued (i.e., earned or incurred) rather than when money is received or paid. Income is matched with any associated expenses to determine the appropriate profit or loss. Also known as the accruals concept. Measurement systems The processes by which the monetary amounts of items in the financial statements are determined. Such systems are fundamental to the determination of profit and to the measurement of net assets. There are five major measurement systems: historical cost, current purchasing power, replacement cost, realisable value and present value. Monetary measurement convention Only items measurable in financial terms (for example, pounds or dollars) are included in the accounts. Atmospheric pollution is thus excluded, as it has no measurable financial value. GLOSSARY OF KEY ACCOUNTING TERMS 413 Narrative enhancement Managers use the narrative parts of the annual report to convey a more favourable impression of performance than is actually warranted, e.g., by omitting key data or stressing certain elements. Net assets Total assets less long-term loans and current liabilities. Net book value The cost of tangible fixed assets less accumulated depreciation. Net cash flow from operating activities In a cash flow statement, cash flows from the normal trading activities of a business. Net profit Sales less cost of sales less expenses. Net profit ratio A ratio which relates profit after expenses (i.e., net profit) to sales. Nominal value The face value of the shares when originally issued. Non-current liabilities The term used for long-term creditors in a listed company. Note on historical cost profits and losses A statement in the annual report which records any differences caused by departures from the historical cost convention (e.g., revaluation and subsequent depreciation of fixed assets). Notes to the accounts In a company’s annual report, they provide additional information about items in the accounts. Objective of financial statements To provide information about the financial position, performance and changes in financial position of an enterprise useful to a wide range of users in making decisions. Operating and financial review A statement in a company’s annual report which enables companies to provide a formalised, structured and narrative explanation of financial performance. It has two parts. First, the operating review covers items such as a company’s operating results, profit and dividends. Second, the financial review discusses items such as capital structure and treasury policy. The operating and financial review was introduced as a voluntary statement in 1993. It may be replaced by a business review in future. The business review is likely to be similar, but less detailed and structured. 414 GLOSSARY OF KEY ACCOUNTING TERMS Operating cash flow In a cash flow statement, operating profit adjusted for movements in working capital and non-cash flow items such as depreciation. Operating profit Net profit before taxation adjusted for interest paid and interest received. Ordinary (equity) share capital Share capital issued to the shareholders, who own the company and are entitled to ordinary dividends. Partnership Business enterprises run by more than one person, whose liability is normally unlimited. Partnership capital accounts The long-term capital invested into a partnership by the individual partners. Partnership current accounts The partners’ share of the profits of the business. The main elements are the opening balances, salaries, profit for year, drawings and closing balances. Patents An intangible asset resulting from expenditure to protect rights to an invention. Performance evaluation The monitoring and motivation of individuals often in responsibility accounting systems. Periodicity convention Accounts are prepared for a set period of time, i.e., an accounting period. Physical capital maintenance concept This concept is concerned with maintaining the physical productive capacity (i.e., operating capacity) of the business. Planning, control and performance The planning and control of future costs as well as the evaluation of performance using budgeting and standard costing. An abbreviated form of planning, control and performance evaluation. Preference share capital Share capital issued to shareholders who are not owners of the company and who are entitled to fixed dividends. GLOSSARY OF KEY ACCOUNTING TERMS 415 Prepayment The amount paid in advance to the suppliers of services, e.g., prepaid insurance. Present value A measurement system where future cash inflows are discounted back to present-day values. Price/earnings ratio A ratio which measures earnings per share against share price. Private limited company A company where trading in shares is restricted. Profit Sales less purchases and expenses. Profit and loss account A financial statement which records the income and expenses of a business over the accounting period, normally a year. Income less expenses equals profit. By contrast, where expenses are greater than income, losses will occur. The balance from the profit and loss account is transferred annually to the balance sheet where it becomes part of revenue reserves. The term income statement is used for a listed company. Profitability ratios They establish how profitably a business is performing. Property, plant and equipment The term used for fixed assets in a listed company. Provision for doubtful debts Those debts a business is dubious of collecting. Deducted from debtors in the balance sheet. Only increases or decreases in the provision are entered in the profit and loss account. Prudence concept Income and profit should only be recorded in the books when an inflow of cash is certain. By contrast, any liabilities should be provided as soon as they are recognised even though the amount may be uncertain. Introduces an element of caution into accounting. Public limited company A company where shares are bought and sold by the general public. Quick ratio Measures extreme short-term liquidity, i.e., current assets (excluding stock) against current liabilities. Sometimes called the ‘acid test ratio’. 416 GLOSSARY OF KEY ACCOUNTING TERMS Ratio analysis See interpretation of accounts. Raw material stock Stock purchased and ready for use, e.g., a carpenter with wood awaiting manufacture into tables. Realisable value A measurement system where assets are valued at what they would fetch in an orderly sale. Also known as net realisable value. Reconciliation of movements in shareholders’ funds A financial statement in the annual report which highlights major changes to the wealth of shareholders such as profit (or loss) for the year, annual dividends and new share capital. Reducing balance method of depreciation A set percentage of depreciation is written off the net book value of tangible fixed assets every year. Regulatory framework The set of rules and regulations which govern accounting practice, mainly prescribed by government and the accounting standard-setting bodies. Relevance Relevant information affects users’ economic decisions. Relevance is a prerequisite of usefulness and, for example, helps to predict future events or to confirm or correct past events. Reliability Reliable information is free from material error and is unbiased. Replacement cost A measurement system where assets are valued at the amounts needed to replace them with an equivalent asset. Reserves The accumulated profits (revenue reserves) or capital gains (capital reserves) to shareholders. Retained profits The profit a company has not distributed via dividends. An alternative to external financing. In effect, the business finances itself from its past successes. GLOSSARY OF KEY ACCOUNTING TERMS 417 Return on capital employed A ratio looking at how effectively a company uses its capital. It compares net profit to capital employed. The most common definition measures profit before tax and debenture interest against long-term capital (i.e., ordinary share capital and reserves, preference share capital, long-term loans). Return on investment A ratio often used in performance evaluation which relates income to investment. Returns on investments and servicing of finance In a cash flow statement, cash received from investments or paid on loans. Revaluation reserve A capital reserve created when fixed assets are revalued to more than the original amount for which they were purchased. The revaluation is a gain to the shareholders. Revenue expenditure Payments for a current year’s good or service such as purchases for resale or telephone expenses. Revenue reserves Reserves potentially distributable to shareholders as dividends, e.g., the profit and loss account, general reserve. Review of operations In a company’s annual report, a narrative where the chief executive reviews the individual business operations. Rights issue Current shareholders are given the right to subscribe to new shares in proportion to their current holdings. Sale and leaseback Companies sell their tangible fixed assets to a third party and then lease them back. Sales Income earned from selling goods. Secured loans Loans guaranteed (i.e., secured) by the assets of the company. Securities Exchange Commission (SEC) An independent regulatory institution in the US with quasi-judicial powers. US listed companies must file a detailed annual form, called the 10–K, with the SEC. 418 GLOSSARY OF KEY ACCOUNTING TERMS Share capital The total capital of the business is divided into shares. Literally a ‘share’ in the capital of the business. Share options Directors or employees are allowed to buy shares at a set price. They can then sell them for a higher price at a future date if the share price rises. Share premium account A capital reserve created when new shares are issued for more than their nominal value. For example, for shares issued for £150,000 with a nominal value of £100,000, the share premium account is £50,000. Shareholders The owners of the company who provide share capital by way of shares. Social and environmental accounting statement A voluntary statement produced by companies in their annual report dealing with social and environmental issues such as sustainable development. Sole trader A business enterprise run by a sole owner whose liability is unlimited. Standard costing A standardised version of budgeting. Standard costing uses preset costs for direct labour, direct materials and overheads. Actual costs are then compared with the standard costs. Any variances are then investigated. Statement of changes in equity An alternative term to the statement of total recognised gains and losses and reconciliation of movements in shareholders’ funds as produced by a listed company. Statement of directors’ responsibilities for the financial statements A statement in a company’s annual report where directors spell out their responsibilities including (i) keeping proper accounting records; (ii) preparing financial statements in accordance with the Companies Act 1985; (iii) applying appropriate accounting policies; and (iv) following all applicable accounting standards. Statement of total recognised gains and losses (STRGL) A financial statement in the annual report which attempts to highlight all shareholder gains and losses and not just those from trading. The STRGL begins with the profit from the profit and loss account and then adjusts for non-trading gains and losses. GLOSSARY OF KEY ACCOUNTING TERMS 419 Stewardship Making individuals accountable for assets and liabilities. Stewardship focuses on the physical monitoring of assets and the prevention of loss and fraud rather than evaluating how efficiently the assets are used. Stock Goods purchased and awaiting use (raw materials) or produced and awaiting sale (finished goods). Inventory is the term used for stock in a listed company. Stock turnover ratio Measures the time taken for stock to move through a business. Straight-line method of depreciation The same amount of depreciation is written off the tangible fixed assets every year. Strategic management accounting A form of management accounting which considers an organisation’s internal and external environments. Subsidiary company A company where more than half of the shares are owned by another company or which is effectively controlled by another company, or is a subsidiary of a subsidiary. ‘T’ account (ledger account) Each page of each book of account has a debit side (left-hand side) and a credit side (right-hand side). This division of the page is called a ‘T’ account. ‘T’ Account (ledger account) Assets and expenses on the left-hand side DEBIT Incomes, liabilities and capital on the right-hand side CREDIT Tangible fixed assets Fixed assets one can touch (e.g., land and buildings, plant and machinery, motor vehicles, fixtures and fittings). Tangible fixed assets are known as property, plant and equipment in listed companies. Third party liabilities Amounts owing to third parties. They can be short-term (e.g., creditors, bank overdraft) or long-term (e.g., a bank loan). Total shareholders’ funds The share capital and reserves owned by both the ordinary and preference shareholders. 420 GLOSSARY OF KEY ACCOUNTING TERMS Trade payables The term used for creditors in a listed company. Trade receivables The term used for debtors in a listed company. Trading and profit and loss account The formal name for the full profit and loss account prepared by a sole trader. Trading and profit and loss and appropriation account The formal name for the profit and loss account prepared by a company or a partnership. Trial balance A listing of debit and credit balances to check the correctness of the double-entry bookkeeping system. True and fair view Difficult to define but, essentially, a set of financial statements which faithfully, accurately and truly reflect the underlying economic transactions of the organisation. Unsecured loans Loans which are not guaranteed (i.e., secured) by a company’s assets. Urgent Issues Task Force (UITF) The UITF is part of the UK’s standard-setting process. It makes recommendations to curb undesirable interpretations of existing accounting standards or prevent accounting practices which the Accounting Standards Board considers undesirable. Users Those with an interest in using accounting information, such as shareholders, lenders, suppliers and other trade creditors, customers, government, the public, management and employees. Vertical analysis In ratio analysis, vertical analysis is where key figures in the accounts (such as sales, balance sheet totals) are set to 100 %. Work-in-progress stock Partially completed stock (sometimes called stock in process) which is neither raw materials nor finished goods. Working capital Current assets less current liabilities (in effect, the operating capital of a business).