GLOSSARY OF ACCOUNTING TERMS 373
Creditors Purchases of goods or services from suppliers on
credit to whom the debt is not yet paid. Or a
term used in the Balance Sheet to denote current
liabilities.
Current assets Amounts receivable by the business within a
period of 12 months, including bank, debtors,
inventory and prepayments.
Current liabilities Amounts due and payable by the business
within a period of 12 months, e.g. bank
overdraft, creditors and accruals.
Debt Borrowings from financiers.
Debtors Sales to customers who have bought goods or
services on credit but who have not yet paid
their debt.
Depreciation An expense that spreads the cost of an asset over
its useful life.
Direct costs Costs that are readily traceable to particular
products or services.
Discounted cash flow
(DCF)
A method of investment appraisal that discounts
future cash flows to present value using a
discount rate, which is the risk-adjusted cost of
capital.Dividend The payment of after-tax profits to shareholders
as their share of the profits of the business for an
accounting period.
Double entry The system of recording business transactions in
two accounts.
Earnings before interest
and taxes (EBIT)
The operating profit before deducting interest
and tax.Earnings before interest,
taxes, depreciation and
amortization (EBITDA)
The operating profit before deducting interest,
tax, depreciation and amortization.Economic Value Added
(EVA)
Operating profit, adjusted to remove distortions
caused by certain accounting rules, less a charge
to cover the cost of capital invested in the
business.Equity Funds raised from shareholders.
Expenses The costs incurred in buying, making or
producing goods and services.
Feedback The retrospective process of measuring
performance, comparing it with plan and taking
corrective action.