GLOSSARY OF ACCOUNTING TERMS 371
Budget A plan expressed in monetary terms covering a
future period of time and based on a defined
level of activity.
Budget cycle The annual period over which budgets are
prepared.
Budgetary control The process of ensuring that actual financial
results are in line with targets – see variance
analysis.
Capacity The maximum volume of products or services
that can be produced given limitations of space,
people, equipment or financial resources.
Capacity utilization The proportion of capacity that is able to be
utilized to fulfil customer demand for products
or services.
Capital The shareholders’ investment in the business;
the difference between the assets and liabilities
of a business.
Capital employed The total of debt and equity, i.e. the total funds
in the business.
Capitalize To make a payment that might otherwise be an
expense (in the Profit and Loss account) an asset
(in the Balance Sheet).
Capital market The market in which investors buy and sell
shares of companies, normally associated with a
Stock Exchange.
Cash accounting A method of accounting in which profit is
calculated as the difference between income
when it is receivedand expenseswhen they are paid.
Cash cost The amount of cash expended.
Cash Flow statement A financial report that shows the movement in
cash for a business during an accounting period.
Cash value added (CVA) A method of investment appraisal that calculates
the ratio of the net present value of an
investment to the initial capital investment.
Contribution The difference between the selling price and
variable costs, which can be expressed either per
unit or in total.
Controllable profit The profit made by a division after deducting
only those expenses that can be controlled by the
divisional manager and ignoring those expenses
that are outside the divisional manager’s control.