Accounting and Finance Dictionary

Absorption costing
Absorption costing is a method of identifying and ascertaining the cost of products or services. This is done by including both fixed and variable consts. The absorption method of costing can be contrasted with variable or marginal costing methods where costs of products or services are calculated using variable costs only. The absorption costing method requires the choice of an "absorption basis: by which fixed costs can be allocated apprpriately. For example, the fixed costs of factory equipment repairs and maintenance may be allocated to the cost of producing specific products on the basis of their use of machine time. In another example, the cost of factory rent and rates may be allocated to producsts based on the amount of factory space that their production takes up.

Accounting
Accounting is a difficult term to define. However, it is formally defined by the American Accounting Association as "The classification and recording of monetary transactions, the presentation and interpretation of the results of those transactions in order to assess performance over a period and the financial position at a given date, and the monetary projection of future activiteis arising from alternative planned couses of action". Using this definition, accounting can be seen to be about the identification and recording of business transactions as a way of assisting the manangement and planning of a business.

Accounting concepts
Accounting concepts are the principles that guide the preparation of accounting information. These fundamental accounting concepts are best considered as the "building blocks" on which historical accounting information. The fundamental accounting concepts are generally taking the include" prudence", "consistency", "accruals" and "going concern"/

Accounting policies
Accounting policies are the specific accounting bases selected and consistently followed by a business. Accounting policies need to be appropriate to the circumstances of a business so that, when applied to accounting transactions, the resulting accounting information presents fairly ints results and financial position. Accouting policies are largely governed by the application of accounting standards. However,there remains a large amount of subjectively that needs to be applied when determining how to apply accounting policies.

Accounting standards
Accounting standards are authoritative statements of how particular types of transaction and other events should be reflected in financial statements. Accordingly, compliace with accounting standards will normally be necessary for financial statements to give a "true and fair view". When preparing accounts in the UK, businesses must take account of statements issued by the Accounting Stadards Board. These require the adoption of certain accounting priciples and methods. There are currently two forms of Statements of Standard Accounting Practice (SSAPs). The only difference between these is that SSAPs were issued prior to 1990. Since that date, the name has been changed to FRS. Accounting standards apply to all companies, and other kinds of entities that prepare accounts that are inteded to provide a true and fair view.