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.

Absorption costing

The form of costing used for valuing inventory for external financial reporting. All the overheads which can be attributed to a product are recovered. Unlike marginal costing which can sometimes be used for inventory valuation, absorption costing includes both fixed and variable production overheads.

Acid test ratio

See quick ratio


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 Council

The Accounting Council took over from the ASB in 2012. It is the body which now sets UK accounting standards under the Accounting Council. The Accounting Council has taken over the role of the Urgent Issues Task Force (UITF).

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 revenue, foreign currencies, inventories, goodwill and pensions.

Accounting rate of return

A method of capital investment appraisal which assesses the viability of a project using annual profit and initial capital invested. ...

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