Accounting glossary: Q to Z

Q terms

This accounting glossary page defines 88 terms from Q to Z, from quick ratio and revenue to working capital and zero-based budgeting. Terms appear most common first within each letter, every definition stands alone, and IFRS, IAS or ISA references are given where they apply. The other three pages cover A to C, D to I and J to P.

Each term is defined once across the glossary, with synonyms inside the main entry, for example turnover under revenue and acid-test ratio under quick ratio.

• Quick ratio: current assets excluding inventory, divided by current liabilities; also called the acid-test ratio. Current assets of EUR 300,000, including inventory of EUR 100,000, against current liabilities of EUR 200,000 give a quick ratio of 1.0.
• Qualified opinion: an audit opinion stating that, except for the effects of a specific matter, the financial statements are presented fairly in all material respects. It is issued when misstatements, or a lack of audit evidence, are material but not pervasive (ISA 705).
• Qualitative characteristics: the attributes that make financial information useful, set out in the Conceptual Framework. The fundamental characteristics are relevance and faithful representation; the enhancing characteristics are comparability, verifiability, timeliness and understandability.
• Qualifying asset: an asset that necessarily takes a substantial period of time to get ready for its intended use or sale, such as a building, a power plant or inventory with a long production cycle (IAS 23). Borrowing costs directly attributable to it are capitalised.
• Quality of earnings: the extent to which reported profit reflects sustainable, cash-backed operating performance rather than one-off items, aggressive estimates or accounting choices. A quality of earnings review is a common part of financial due diligence.
• Quotation: a document a seller gives a prospective customer stating the price and terms on which it offers to supply goods or services, usually valid for a set period. It creates no accounting entry until the customer accepts and the goods or services are delivered.
• Quantity variance: the part of a cost variance caused by using more or less input than standard for the actual output, valued at standard price; also called a usage variance. Using 1,050 kg instead of 1,000 kg at EUR 4 per kg gives EUR 200 adverse.
• Quality management: the system an audit firm designs and operates to provide reasonable assurance that the firm and its people meet professional standards and that its reports are appropriate. ISQM 1 sets the requirements, replacing ISQC 1.

R terms (part 1)

Revenue, retained earnings, reconciliation and returns: the most common R terms.

• Revenue: income arising in the course of an entity's ordinary activities, such as sales of goods and services, also called turnover or sales. Under IFRS 15, revenue is recognised when or as control of goods or services passes to the customer, at the transaction price.
• Retained earnings: the cumulative profits of a company that have not been distributed as dividends, shown within equity. Opening retained earnings of EUR 500,000, plus profit of EUR 120,000, minus dividends of EUR 40,000 give closing retained earnings of EUR 580,000.
• Reconciliation: the process of comparing two sets of records that should agree, such as a ledger balance and a bank statement, a control account and its subsidiary ledger, or a supplier account and the supplier's statement, and explaining and resolving each difference.
• Return on equity: profit attributable to shareholders divided by average shareholders' equity, showing the return generated on the owners' investment. Profit of EUR 120,000 on average equity of EUR 800,000 gives a return on equity of 15 per cent.
• Return on assets: profit divided by average total assets, showing how efficiently a business uses its assets to generate profit. Profit of EUR 120,000 on average total assets of EUR 1,500,000 gives a return on assets of 8 per cent.
• Revenue recognition: the rules that determine when, and at what amount, revenue is recorded. IFRS 15 applies a five-step model: identify the contract, identify the performance obligations, determine the transaction price, allocate it, and recognise revenue as each obligation is satisfied.
• Receipt: a document confirming that payment has been received, showing the date, amount, payer and method of payment. For the seller it supports the cash entry that clears a receivable; for the buyer it is evidence that the bill was paid.
• Reversing entry: a journal entry made on the first day of a new period that exactly reverses an accrual or other adjusting entry from the previous period, so that the later invoice or payment can be recorded normally without counting the cost twice.

R terms (part 2)

IFRS, tax and analysis terms beginning with R.

• Related party: a person or entity related to the reporting entity, such as a parent, subsidiary, associate, joint venture, member of key management personnel or their close family (IAS 24). Related party relationships, transactions and outstanding balances must be disclosed.
• Residual value: the estimated amount an entity would currently obtain from disposing of an asset, after deducting disposal costs, if the asset were already of the age and condition expected at the end of its useful life (IAS 16). It is reviewed at least annually.
• Right-of-use asset: an asset representing a lessee's right to use an underlying asset for the lease term (IFRS 16). It is first measured at the lease liability plus initial direct costs, prepaid lease payments and restoration costs, less incentives, and then depreciated.
• Revaluation model: an IAS 16 policy under which a class of property, plant and equipment is carried at fair value at the revaluation date less later depreciation and impairment. Increases go to a revaluation surplus in other comprehensive income unless reversing an earlier decrease.
• Reverse charge: a VAT mechanism under which the customer, rather than the supplier, accounts for the VAT on a supply, recording both the output VAT and the input VAT on its own return. It applies to many cross-border business-to-business services in the EU.
• Recoverable amount: the higher of an asset's, or a cash-generating unit's, fair value less costs of disposal and its value in use (IAS 36). An impairment loss is recognised when the carrying amount exceeds the recoverable amount.
• Return on capital employed: earnings before interest and tax divided by capital employed, usually total assets minus current liabilities. EBIT of EUR 300,000 on capital employed of EUR 2,000,000 gives a return on capital employed of 15 per cent.
• Reserves: the components of equity other than share capital, such as retained earnings, share premium, revaluation surplus and foreign currency translation reserve. Reserves are not a fund of cash; they show where part of the equity came from.

S terms (part 1)

Ledger, group and share-capital terms beginning with S.

• Straight-line depreciation: a method that charges an equal amount of depreciation each year, calculated as cost minus residual value, divided by useful life. A machine costing EUR 24,000 with a residual value of EUR 4,000 and a four-year life is depreciated at EUR 5,000 a year.
• Subsidiary: an entity controlled by another entity, its parent (IFRS 10). Control exists when the parent has power over the investee, exposure or rights to variable returns from it, and the ability to use its power to affect those returns.
• Suspense account: a temporary account used to hold amounts that cannot yet be classified, or to make a trial balance agree while an error is investigated. It should be cleared to the correct accounts before financial statements are prepared.
• Source document: the original record that evidences a transaction, such as a sales invoice, supplier bill, receipt, bank statement, payroll report or delivery note. Every journal entry should be traceable to a source document, which is the basis of the audit trail.
• Subsidiary ledger: a detailed ledger that supports a control account in the general ledger, such as the sales ledger for customers, the purchase ledger for suppliers or the fixed asset register. Its total must agree with the control account balance.
• Solvency: the ability of a business to meet its long-term obligations and continue operating, meaning its assets exceed its liabilities and it can pay its debts as they fall due over time. It is assessed with gearing, interest cover and cash flow measures.
• Share capital: the amount shareholders have paid, or agreed to pay, for the nominal value of the shares a company has issued, shown in equity. It may include ordinary and preference shares, with amounts paid above nominal value recorded as share premium.
• Sales ledger: the subsidiary ledger containing an individual account for each credit customer, recording invoices, credit notes and receipts, also called the accounts receivable ledger. Its total must equal the trade receivables control account.

S terms (part 2)

Reporting, control, costing, equity and tax terms beginning with S.

• Statement of changes in equity: the financial statement showing the movement in each component of equity during a period, including profit or loss, other comprehensive income, share issues, dividends and other transactions with owners, reconciling opening to closing balances.
• Segregation of duties: an internal control that divides the key stages of a transaction, namely authorising it, recording it and holding custody of the related assets, between different people, so that no one person can both commit and conceal an error or fraud.
• Sunk cost: a cost that has already been incurred and cannot be recovered, such as money already spent on market research. Sunk costs are irrelevant to future decisions because they are the same whichever option is chosen.
• Standard costing: a system that sets predetermined costs for materials, labour and overheads per unit and compares them with actual costs, analysing the differences as price, usage, rate and efficiency variances. IAS 2 permits standard costs for inventory if the results approximate cost.
• Share premium: the amount received on issuing shares above their nominal or par value. Issuing 10,000 shares of EUR 1 nominal value at EUR 3 each records EUR 10,000 of share capital and EUR 20,000 of share premium.
• Share-based payment: a transaction in which an entity receives goods or services, often employee services, in exchange for its equity instruments or for cash based on their value, such as share options (IFRS 2). Equity-settled awards are expensed at grant-date fair value over the vesting period.
• Stocktake: a physical count of the inventory on hand at a date, compared with the accounting records to confirm quantities and identify losses, damage and obsolete items. Auditors attend material stocktakes under ISA 501 to obtain evidence of existence and condition.
• Sales tax: a tax collected by the seller when goods or services are sold to the final consumer, as in most US states. Unlike VAT it is not usually charged at each stage of the supply chain, so businesses do not reclaim input tax.

S terms (part 3)

Audit, tax reporting, closing, leasing, currency and ownership terms beginning with S.

• Substantive procedures: audit procedures designed to detect material misstatements at the assertion level, comprising tests of details, such as vouching and confirmations, and substantive analytical procedures (ISA 330). They are required for each material class of transactions, account balance and disclosure.
• Statutory audit: an audit of financial statements required by law, such as the audit that companies in the EU and the UK must obtain once they exceed national size thresholds. The thresholds, auditor qualifications and exemptions are set by national company law.
• SAF-T: Standard Audit File for Tax, an OECD-developed standard format for exporting accounting and tax data from an accounting system to a tax authority. Several European countries, including Portugal, Norway, Poland, Lithuania and Romania, require a national variant.
• Soft close: a faster period-end close that relies more on estimates and materiality thresholds, with fewer detailed reconciliations, often used for monthly management reporting. The period can be reopened for late adjustments before the final, or hard, close.
• Short-term lease: a lease that, at the commencement date, has a lease term of twelve months or less and contains no purchase option (IFRS 16). A lessee may elect to expense the payments on a straight-line basis instead of recognising a right-of-use asset.
• Spot exchange rate: the exchange rate for immediate delivery of a currency (IAS 21). A foreign-currency transaction is first recorded at the spot rate on the transaction date, although an average rate may be used when rates do not fluctuate significantly.
• Sole trader: an individual who owns and runs an unincorporated business alone, is personally liable for all its debts and is taxed on its profits as personal income. The business is still accounted for separately from the owner under the entity concept.
• Significant influence: the power to participate in the financial and operating policy decisions of an investee without controlling or jointly controlling those policies (IAS 28). It is presumed when an investor holds, directly or indirectly, 20 per cent or more of the voting power.

T terms (part 1)

The trial balance and T-account, plus tax, treasury and governance terms beginning with T.

• Trial balance: a list of every general ledger account with its debit or credit balance at a date. Total debits must equal total credits, and the trial balance is the starting point for period-end adjustments and for preparing the financial statements.
• T-account: a simple layout of a ledger account shaped like the letter T, with debits on the left and credits on the right, used to teach double entry and to work through postings and balances by hand.
• Tax invoice: an invoice that meets the legal requirements for VAT or GST, such as the supplier's and often the customer's tax numbers, date, sequential number, description, taxable amount, rate and tax charged, so that a business customer can reclaim the input tax.
• Tone at the top: the ethical climate set by an organisation's board and senior management through their words, actions and attitude to controls. A weak tone at the top is treated by auditors as a fraud risk factor under ISA 240.
• Transfer pricing: the prices charged for goods, services, loans and intellectual property between entities in the same multinational group. Tax authorities require them to follow the arm's length principle, generally applying the OECD Transfer Pricing Guidelines.
• Temporary difference: a difference between the carrying amount of an asset or liability in the statement of financial position and its tax base (IAS 12). Taxable temporary differences give rise to deferred tax liabilities and deductible ones to deferred tax assets.
• Treasury shares: a company's own shares that it has bought back and holds rather than cancels. Under IAS 32 their cost is deducted from equity, and no gain or loss is recognised in profit or loss on their purchase, sale, issue or cancellation.
• Tax loss carry-forward: a tax loss carried forward to reduce taxable profits of future years, within the limits of local tax law. IAS 12 recognises a deferred tax asset for it only to the extent future taxable profit is probable.

T terms (part 2)

Audit, purchasing, revenue, tax and finance terms beginning with T.

• Test of controls: an audit procedure designed to evaluate the operating effectiveness of controls in preventing, or detecting and correcting, material misstatements at the assertion level (ISA 330), such as re-performing an approval check on a sample of payments.
• Three-way match: a control that compares the purchase order, the goods received note and the supplier invoice before the invoice is approved for payment, checking that quantities, prices and terms agree across all three documents.
• Transaction price: the amount of consideration an entity expects to be entitled to in exchange for transferring promised goods or services to a customer, excluding amounts collected for third parties such as VAT (IFRS 15). It includes constrained estimates of variable consideration.
• Tax base: the amount attributed to an asset or liability for tax purposes (IAS 12). Equipment with a carrying amount of EUR 70,000 and a tax base of EUR 50,000, after faster tax depreciation, has a taxable temporary difference of EUR 20,000.
• Taxable profit: the profit for a period, determined under the rules set by the tax authorities, on which income taxes are payable (IAS 12). It differs from accounting profit because of non-deductible expenses, tax allowances and timing differences.
• Trade discount: a reduction from the list price given to a customer, for example for bulk orders or to trade buyers. Trade discounts are not recorded separately; the seller records the sale, and the buyer the purchase, at the net price.
• Transposition error: an error made by reversing two digits, such as recording 540 as 450. The resulting difference, here 90, is always divisible by 9, which is a quick test when a trial balance or reconciliation does not agree.
• Time value of money: the principle that a sum of money is worth more now than the same sum in the future, because it can be invested to earn a return in the meantime. It underlies discounting, net present value and the measurement of long-term liabilities.

U and V terms

Asset life, audit reporting, currency, tax and cost terms beginning with U and V.

• Useful life: the period over which an asset is expected to be available for use by an entity, or the number of production or similar units expected to be obtained from it (IAS 16). It is reviewed at least at each financial year end.
• Unmodified opinion: the audit opinion expressed when the auditor concludes that the financial statements are prepared, in all material respects, in accordance with the applicable financial reporting framework (ISA 700); often called an unqualified or clean opinion.
• Unrealised gain or loss: a change in the value of an asset or liability that is still held, such as retranslating a foreign-currency receivable or remeasuring an investment at fair value. It becomes a realised gain or loss when the item is sold or settled.
• Units-of-production method: a depreciation method that charges depreciation in proportion to actual output. A machine costing EUR 100,000 with no residual value and an expected output of 50,000 units is depreciated at EUR 2 per unit produced.
• Value added tax: a consumption tax charged at each stage of the supply chain, in which businesses charge output VAT on sales and deduct input VAT on purchases, so that the final consumer bears the tax. Canada's GST and HST work in the same way.
• Variable costs: costs that change in total in direct proportion to the level of activity, such as raw materials, sales commissions and packaging. Variable cost per unit stays constant within the relevant range of activity.
• Vouching: an audit technique of selecting entries in the accounting records and inspecting the supporting source documents, testing whether the recorded items occurred or exist. Tracing, which works from source documents to the records, tests completeness.
• Vertical analysis: expressing each line of a financial statement as a percentage of a base figure, such as revenue in the income statement or total assets in the balance sheet, so the structure of the statements can be compared across periods and companies.

W terms

Working capital, write-offs, costing and tax terms beginning with W.

• Working capital: current assets minus current liabilities: the short-term funds a business has available to run its day-to-day operations. Current assets of EUR 300,000 and current liabilities of EUR 200,000 give working capital of EUR 100,000.
• Write-off: removing an asset, or part of it, from the books because it has no remaining value, such as an uncollectable receivable, scrapped inventory or an abandoned project. The amount is charged against an existing allowance or recognised as an expense.
• Weighted average cost: an inventory cost formula valuing each unit at the weighted average cost of similar items available, per period or after each purchase (IAS 2). 100 units at EUR 10 and 200 units at EUR 13 give an average cost of EUR 12.
• Work in progress: goods or services that are only partly completed at the reporting date, such as partly manufactured products or unbilled hours on a contract. Manufacturing work in progress is inventory under IAS 2, measured at the lower of cost and net realisable value.
• Withholding tax: tax that a payer must deduct at source from certain payments, such as dividends, interest, royalties, fees to non-residents or salaries, and pay to the tax authority on the recipient's behalf. The recipient may credit it against its own tax liability.
• Write-down: a reduction in the carrying amount of an asset to a lower value while it stays on the books, such as reducing inventory to net realisable value under IAS 2 or an asset to its recoverable amount under IAS 36.
• Weighted average cost of capital: the average rate a company pays for its finance, weighting the cost of equity and after-tax cost of debt by their proportions. With 60 per cent equity at 12 per cent and 40 per cent debt at 5 per cent, it is 9.2 per cent.
• Warranty provision: a provision for the expected cost of repairing or replacing goods sold under an assurance-type warranty (IAS 37), usually estimated from past claim rates. A warranty that provides an extra service is instead a separate performance obligation under IFRS 15.

X, Y and Z terms

Digital reporting, closing, investment return, zakat and budgeting terms from X to Z.

• XBRL: eXtensible Business Reporting Language, an open standard for tagging financial statement data so that computers can read it. EU listed companies file annual reports in the European Single Electronic Format, with the IFRS consolidated statements tagged in Inline XBRL.
• Year-end close: the process of finalising a financial year's accounts, including all month-end tasks plus year-end adjustments, closing entries that transfer the year's profit to retained earnings, locking the year and preparing the annual financial statements for audit.
• Year-to-date: the period from the start of the financial year to the current date or reporting date. Year-to-date figures, abbreviated YTD, compare cumulative results with the budget and with the same period of the previous year.
• Yield: the income return on an investment expressed as a percentage of its price or value. A bond priced at EUR 950 that pays annual interest of EUR 57 has a current yield of 6 per cent.
• Zakat: an Islamic obligation to pay a share of qualifying wealth each year. In Saudi Arabia, companies owned by Saudi and GCC nationals pay zakat assessed by the Zakat, Tax and Customs Authority, generally 2.5 per cent of the zakat base for a Hijri year, pro rata for a Gregorian year.
• Zero-based budgeting: a budgeting method in which every cost must be justified from zero for each new period, instead of starting from the previous year's budget and adjusting it. It challenges existing spending but takes more time to prepare.
• Zero-rated supply: a sale of goods or services that is taxable for VAT but at a rate of 0 per cent, such as exports in many countries. The supplier charges no VAT on the sale but can still recover the input VAT on related purchases.
• Z-score: Altman's Z-score, a formula published in 1968 that combines five weighted ratios, covering working capital, retained earnings, EBIT, market value of equity and sales, each scaled by total assets or total liabilities, to predict the risk of corporate bankruptcy.

Q to Z terms in Skyline Nexus ERP

The Trial Balance in Skyline Nexus ERP has two view modes, Simple and Opening / Movement / Closing, runs as of a date or for a date range, shows a Difference column, and exports to Excel or PDF. The Sub-Ledger report sits under Ledger Reports beside the General Ledger. A posted journal is never edited in place: Reverse Journal Entry creates a mirror-image posted journal with a Reversal Date and a reason, and marks the original as reversed.

At year end, Close Fiscal Year in Skyline Nexus is refused while any journal in the year is not yet posted; when it succeeds, it posts the closing entries through the Income Summary account to Retained Earnings and locks every period of the year. For VAT, the VAT Analysis report reads input and output VAT from the VAT GL accounts. In Saudi Arabia, the Zakat Returns working paper pulls account balances towards the zakat base, and the return is then filed on the ZATCA portal.