Banking Glossary


This is a Financial Glossary defining terms relating to the banking profession.

Browse the glossary using this index

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A

ABC Bank

A fictitious or made up name for a bank.

Absa

Amalgamated Banks of South Africa Limited (Absa) is one of the four major banks in South Africa. Absa is listed on the JSE

Account conduct

The way a bank account has been operated by the client.

When assessing for credit purposes, a lender will look for indications of responsible or irresponsible handling of financial affairs by the client. Refer to drawer cheques, direct debits that were returned due to insufficient funds, the sums of money moving in and out of the account and the number of days the account remains in credit or debit all indicate how an account is conducted.

 

Accounting conventions

The fundamental assumptions that govern the practice of accounting (e.g. consistency and prudence). (Source: Dictionary of Accounting, 4th Edition)

Accounting standard

An authoritative statement issued by a governing accounting body that specifies how a particular type or category of financial transaction and other accounting matter should be reflected in financial statements.

For example, in South Africa, all companies listed on the Johannesburg Stock Exchange are required comply with the International Financial Reporting Standards. These accounting standards were issued by the International Accounting Standards Board.

The Accounting Standards Board is the governing accounting body in South Africa issuing accounting standards for the government and the public sector.

Accounts receivable

Debtors

Accrual

  1.  A gradual increase in value by regular or increasing amounts.
  2.  In marriage, ‘accrual’ is used to describe the accumulation of financial  worth by both partners from the start of a marriage until its end.
  3.  In accounting, ‘accrual basis’ is a method of preparing Annual Financial  Statements based on revenue invoiced and costs received rather than  on a cash basis.For example, you invoice Joe Smith R10, 000 on 28th   February. Your year end is 28th February. On an ‘accrual basis’ this  would be recorded as income in that financial year even if payment was  not received until 25th March. On a cash basis, the same payment  would fall into the following tax year.

Acid test ratio

(Also known as the ‘quick ratio’).  A ratio of current assets less inventory divided by current liabilities.

Acid test ratio        =              (Current assetsInventory)/Current Liabilities.

The acid test ratio is one of a range of ratios used to measure the degree of liquidity of a company. In this case, the financial analyst is looking to see if the current assets, without the inventory, are capable of paying all current liabilities.

The acid test is an evolution from the current ratio by stripping out the asset value of inventory. Inventory tends to be either hard to sell or, in some cases, of little realisable value. The acid test ratio therefore tends to be a more stringent test than the current ratio.

Other liquidity ratios are the cash ratio, the current ratio, the current asset ratio and the interval measure.

Acquisition

1. A purchase of an asset.

2. The purchase by a company of another company or a controlling portion of another company.

Acquisition financing

1. Finance raised to purchase an asset.

2. Finance raised to purchase another company or a controlling portion of another company.

This is normally done with merchant and investment banks acting as the agents. There are usually three components to this finance: a secured bank loan, known as senior debt; equity finance (capital raised by issuing new ordinary shares); and mezzanine financecapital loans from investors with a high rate of interest.

 


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