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An A to Z of Accounting Terms

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Getting to grips with your business and personal finances can seem insurmountable, especially when you have to contend with the financial jargon so many accounting specialists use. Never fear, we’re here to help you understand your entity from your equity.

Read on to see a glossary of key accounting terms we think are useful for you to know.


Accounts payable


Amounts due for payment to suppliers of goods or services.


Accounts receivable


Amounts due from customers.


Accounts


Financial statements prepared at the end of a period reflecting the profit or loss of the period and financial position at the end of the period.


Accounting period


The time period for which financial statements are prepared(for example, month, quarter or year).


Accruals basis


Accounting method that records revenues and expenses when they are incurred, regardless of when cash is exchanged. The term"accrual" refers to any individual entry recording revenue or expense in the absence of a cash transaction.


Assets


Something a business owns/uses. For example, equipment or rights to a trademark.


Audit


An official inspection of an organisation's accounts,typically by an independent body.


Bad debt


A monetary amount owed to a creditor that is unlikely to be paid.


Balance sheet


A statement of the assets, liabilities, and capital of a business or other organisation at a particular point in time, detailing the balance of income and expenditure over the preceding period.


Capital


An amount of finance provided, generally by the owners or shareholders, to enable a business to acquire assets and sustain its operations.


Capital expenditure


Spending on non-current (fixed) assets of a business.


Cash flow projections


Statements of cash expected to flow into and out of a business over a particular period.


Companies Act


Legislation to control the activities and administration of limited liability companies.


Corporation tax


Tax payable by companies, based on the taxable profits of the period.


Cost of goods sold


Materials, labour and other costs directly related to the goods sold or services provided.


Credit (terms of business)


The supplier agrees to allow the customer to make payment some time after the delivery of the goods or services. Typical trader credit periods range from 30 to 60 days, but each agreement is different.


Credit note


A document summarising the reduction in charge on an invoice, usually because the customer has returned defective goods or has received inadequate service.


Creditor


A person or organisation to whom money is owed by the business.


Current asset


An asset that is expected to be converted into cash within the trading cycle.


Current liability


A liability which is expected to be settled in the entity’s normal operating cycle, generally within 12 months after the balance sheet date.


Debit (in bookkeeping)


Entries in the debit column of a ledger account representing increases in assets, expenses, or decreases in liabilities or income.


Debtor


A person or organisation that owes money to the business.


Deferred income


Money received for goods or services which has not yet been earned.


Deferred taxation


Income and expenditure may be recognised at different times for accounting and tax purposes. Deferred tax is a way to balance this timing difference in the accounts.


Depreciation


The reduction of recorded cost of a fixed asset in a systematic manner until the value of the asset becomes zero or negligible.


Director(s)


Person(s) appointed by shareholders of a limited liability company to manage the affairs of the company.


Dividend


Amount paid to a shareholder, out of a company’s post tax profits, as a reward for investment in the company. The amount of dividend paid is proportionate to the number of shares held.


Drawings


Cash taken for personal use, in sole trader or partnership businesses, treated as a reduction of ownership interest.


Entity, entities


Something that exists independently, such as a business which exists independently of the owner.


Equity


A description applied to the ordinary share capital of an entity.


Expense


Generally the running costs of a business.


Fixed asset


A long-term tangible piece of property or equipment that a firm owns and uses in its operations to generate income. Examples are equipment, vehicles, land and buildings.


Fixed cost


One which is not affected by changes in the level of output over a defined period of time.


Forecast


Forecast estimate of future performance and position based on stated assumptions and usually including a quantified amount.


Gross


Before making deductions.


Gross profit (or margin)


Sales minus cost of sales before deducting administration and selling expenses.


Historical cost


The original cost at the time of a transaction.


Intangible fixed asset


An asset, such as a right, that cannot be touched. For example, a trademark.


Inventory


Stocks of goods held for manufacture or for resale.


Invoice


A document from supplier to buyer summarising goods or services supplied and the price payable.


Joint Account


A financial account owned by two or more people who share equally in the rights and liabilities of the account.


Kashflow


Accounting software designed to take the hassle out of small business accounting


Leasing


Acquiring the use of an asset through a rental agreement.


Liabilities


Debts owed by a business.


Limited liability


the extent to which a company shareholder or director is financially responsible for their company's debts.


Liquidity


The extent to which a business has access to cash or items which can readily be exchanged for cash.


Making Tax Digital


An HMRC initiative that replaces manual tax administration with an online, digital system for reporting and paying tax.


Net assets


The value of a company's assets minus its liabilities.


Net profit


Sales minus cost of sales minus all administrative and selling costs.


Outsourcing


The decision to buy a product, or pay someone to make it for you, instead of making the product for yourself.


Partnership


Two or more persons (or companies) in business together with the aim of making a profit.


Prepayment


The payment of a bill, operating expense, or non-operating expense that settle an account before it becomes due. It is an action taken bya single individual, a corporation, or another type of organisation.


Profit


Calculated as revenue (income) minus expenses.


Profit and loss account


Financial statement presenting revenues, expenses, and profit.


Provision


A liability of uncertain timing or amount.


Quickbooks


An accounting software package geared toward small and medium-sized businesses, offering on-premises accounting applications as well as cloud-based versions that accept business payments, manage and pay bills,and payroll functions.


Reserves


The claim which owners have on the assets of a company because the company has created new wealth for them over the period since it began. The most common example is retained earnings.


Retained earnings


Accumulated past profits, not distributed in dividends,available to finance investment in assets.


Secured loan


Loan where the lender has taken a special claim on particular assets or revenues of the company to give extra protection in the event of the loan remaining unpaid.


Share capital


The total amount of cash which the shareholders have contributed to the company.


Share certificate


A document providing evidence of share ownership.


Share premium


The price paid for shares in a company over and above their nominal value.


Shareholders


Owners of a limited liability company.


Sole trader


An individual owning and operating a business alone.


Stakeholders


A general term devised to indicate all those who might have a legitimate interest in receiving financial information about a business because they have a ‘stake’ in it.


Stock


It can either be used to describe an inventory of goods held for resale or for use in business, or it refers to shares in the ownership of a company.


Tangible fixed assets


A fixed asset (also called a non-current asset) which has a physical existence. Used to differentiate it from an Intangible fixed asset.


Trade creditors


Persons or businesses who supply goods or services to a business in the normal course of trade and allow a period of credit before payment must be made.


Trade debtors


Persons or businesses who buy goods or services from a business in the normal course of trade are allowed a period of credit before payment is due.


Turnover


The sales of a business or other form of revenue from operations of the business.


Undeposited funds account


An internal “other current asset account” created by QuickBooks to hold funds until you are ready to deposit them.


VAT Registered


The process of listing your business with the government as active in production and sales.


Working capital


Finance provided to support the short-term assets of the business (stocks and debtors) to the extent that these are not financed by short-term creditors. It is calculated as current assets minus current liabilities.


Xero


A cloud-based accounting software platform for small and medium-sized businesses.


Year-to-date


The period between the first day of the calendar year and the current date.


Zero based budgeting


A method of budgeting in which all expenses must be justified and approved for each new period.

If there are any terms not covered in this glossary which you’d like clarifying, please contact our team on +44 1322555442 or email happytohelp@bluerocketaccounting.com.

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