Accounting policies | Professional English in Use

Accounting Policies Exercises

These exercises focus on Accounting policies

Vocabulary List for Accounting Policies

Bondholder (noun)

Definition: A person or entity that owns a bond issued by a corporation or government and is entitled to receive periodic interest payments and the repayment of the principal amount.
Example: The bondholder received the annual interest payment on their investment.
Explanation: Knowing this term helps in understanding how debt instruments and their obligations are reflected in financial statements.

Worth (noun)

Definition: The value or financial worth of something, often referring to an asset or entity.
Example: The company’s net worth increased after its assets were revalued.
Explanation: Understanding “worth” is essential for evaluating the financial health and valuation of a business.

Policy (noun)

Definition: A set of guidelines or principles that govern decision-making and actions.
Example: The company’s accounting policy requires annual depreciation of fixed assets.
Explanation: Policies ensure consistent application of rules across financial statements.

Valuation (noun)

Definition: The process of determining the current worth of an asset or liability.
Example: Accurate valuation of inventory is crucial for preparing financial statements.
Explanation: Valuation methods impact the reported financial position and profitability of a business.

Measurement (noun)

Definition: The process of determining the size, amount, or value of something in accounting terms.
Example: The measurement of revenue is based on the company’s accounting policies.
Explanation: Measurement is a core concept in accounting for recording and reporting financial data.

Determine (verb)

Definition: To decide or establish something based on evidence or reasoning.
Example: The accountant determined the depreciation expense using the straight-line method.
Explanation: This term is important for describing the decision-making process in accounting calculations.

Convention (noun)

Definition: An established practice or principle in accounting, often accepted as a guideline.
Example: The company follows the historical cost convention for asset valuation.
Explanation: Accounting conventions ensure consistency and comparability in financial reporting.

Consistency (noun)

Definition: The practice of using the same accounting methods over time.
Example: Consistency in accounting policies allows for meaningful comparison of financial data.
Explanation: This principle helps maintain trust and reliability in financial statements.

Disclose (verb)

Definition: To reveal or make information publicly known, especially in financial statements.
Example: The company disclosed its new accounting policy in the annual report.
Explanation: Disclosure promotes transparency and trust in financial reporting.

Reveal (verb)

Definition: To make something visible or known that was previously hidden.
Example: The audit revealed discrepancies in the valuation of inventory.
Explanation: In accounting, revealing information is essential for transparency and compliance.

Contain (verb)

Definition: To include or have something within.
Example: The financial statements contain details about the company’s accounting policies.
Explanation: This term is important for understanding what is presented in financial documents.

Mention (verb)

Definition: To refer to or briefly discuss something.
Example: The notes to the accounts mention the assumptions used in asset valuation.
Explanation: Mentioning details ensures that important aspects of accounting policies are not overlooked.

Depreciation (noun)

Definition: The allocation of the cost of a tangible asset over its useful life.
Example: Depreciation is calculated annually for the company’s machinery.
Explanation: This concept is crucial for understanding how companies account for the wear and tear of their assets.

Provision (noun)

Definition: An amount set aside in financial statements to cover future liabilities or expenses.
Example: The company created a provision for potential legal expenses.
Explanation: Provisions reflect prudent financial planning and risk management.

Deduct (verb)

Definition: To subtract or take away from a total amount.
Example: The accountant deducted expenses from revenue to calculate net profit.
Explanation: Deduction is a key process in calculating financial results.

Estimate (verb)

Definition: To calculate or judge something approximately.
Example: The company estimated its tax liability for the upcoming year.
Explanation: Estimation is used when exact figures are not available, making it essential for forecasting and reporting.

Replace (verb)

Definition: To substitute something with another.
Example: The company replaced outdated machinery to improve efficiency.
Explanation: Replacement often involves accounting for asset disposal and acquisition.

Concern (noun)

Definition: A matter of interest or importance, often implying a risk or issue.
Example: The increasing inflation rate is a concern for accurate asset valuation.
Explanation: Concerns highlight risks or issues that may impact financial decisions.

Inflation (noun)

Definition: The rate at which the general level of prices for goods and services rises over time.
Example: Inflation affects the purchasing power and valuation of assets.
Explanation: Understanding inflation is vital for interpreting financial statements and planning.

Wordlist for Accounting policies

Word	Definition	Example
bondholder	an individual or entity that owns a bond	A bond is where an organisation assumes a debt to a bondholder by promising to repay the principal, plus interest
worth	the value or estimated monetary or intrinsic value of an asset, investment, or entity	Is currency option trading worth the risk?
policy	a set of principles, guidelines, or rules that govern decision-making, behavior, or actions within an organization, often used as a framework for planning and management	All parties have 'green' policies nowadays
valuation	the process of determining the worth or fair market value of an asset, investment, or business	The property has a valuation of $1.6 billion
measurement	the act or process of quantifying or assessing the size, amount, or extent of something, often using standardized units or criteria to obtain accurate and reliable results	A precise measurement of the room showed it to be larger than we had thought
determine	to ascertain, decide, or establish a fact, outcome, or course of action based on careful analysis, evaluation, or investigation	Determining market segmentation is essential
convention	a widely accepted practice, custom, or agreement that is followed in a particular industry, field, or society	Convention dictates that it is the man who asks the woman to marry him and not the other way round
consistency	the quality or state of being consistent, coherent, or uniform, often referring to the degree of similarity or stability in results, methods, or principles over time	We have to maintain consistency in the application of our principles
disclose	to reveal, make known, or provide information about something that was previously concealed, hidden, or unknown	She refused to disclose whether there were any seats available
reveal	to disclose or make something known that was previously concealed, hidden, or private, often through communication, presentation, or demonstration	Choices can reveal information about people's lifestyle
contain	to hold, include, or have something within, often referring to the presence or existence of certain elements, components, or characteristics	A letter contains a number of typing errors
mention	to refer to, indicate, or bring up something briefly or casually in speech, writing, or communication	He mentioned your name and said that you had met at a party
depreciation	the decline or decrease in value of an asset, investment, or property over time due to various factors such as wear and tear, obsolescence, or economic conditions	A depreciation of the dollar would make US exports cheaper especially to Japan
provision	a condition, requirement, or arrangement that is included in an agreement, contract, or policy to specify certain terms, rights, or obligations	The insurance company made a provision against claims over alleged pension fraud
deduct	to subtract, remove, or take away a certain amount or portion from a total or sum, often for the purpose of calculating taxes, expenses, or allowances	To calculate profit, deduct costs and expenses from revenue
estimate	to make an approximate calculation or assessment of something, often based on available information, experience, or judgment	Estimate is a guess or a calculation of the likely cost of something, based on the information that you have
replace	to substitute, exchange, or put something in the place of another, often to restore or upgrade its function, condition, or value	Can we replace the missing device with anything else?
concern	a matter of interest, importance, or relevance that requires attention, consideration, or action, often related to issues, problems, or risks	A discrepancy of $100 is a cause of concern
inflation	the rate or process of general increase in prices of goods and services in an economy over time, often resulting in a decrease in purchasing power of currency	Inflation decreased last month

FAQ

What are accounting policies?

Accounting policies are the principles, rules, and methods used to prepare and present financial statements consistently.

Why is consistency important in accounting?

Consistency ensures that financial statements can be compared over time, providing reliable data for decision-making.

What is the role of provisions in accounting?

Provisions are amounts set aside to cover future expenses or liabilities, reflecting prudent financial management.

How does inflation affect accounting?

Inflation impacts asset valuation, purchasing power, and long-term financial planning, requiring adjustments in policies.

Why is depreciation necessary?

Depreciation allocates the cost of tangible assets over their useful life, ensuring accurate expense reporting.