Glossary of Accounting Terms

 

• Accounting Period -

  Time period for which financial statements are prepared (e.g. month, quarter, year).

• Accounts -

  Statements prepared at the end of a financial period to show profit and loss.

• Accounts Payable -

  Money owed to suppliers of goods and services, also called trade creditors.

• Accounts Receivable -

  These are amounts that your customers owe you, also called trade debtors.

• Accruals Basis -

  One major method accounting is done. The accruals basis recognizes debits and credits as they happen, even if actual cash hasn’t been exchanged yet.

• Amortisation -

  Process similar to depreciation, usually applied to intangible fixed assets.

• Articles of Association -

  This document sets the rights of stakeholders in an LLC

• Assets -

  A thing of value that the business owns, like equipment or a trademark.

• Audit -

  An audit is the independent examination of, and expression of opinion on, financial statements of an entity.

• Bad Debt -

  This is debt that the debtor is unable to pay back.

• Balance Sheet -

  A statement showing the financial status of a company with regards to assets, liability, and ownership interest.

• Called up (Share Capital) -

  The company has called upon the shareholders who first bought the shares, to pay for their shares.

• Capital -

  Money that’s used to finance a business, often provided by the owners or shareholders.

• Capital Expenditure -

  Capital spent on fixed assets.

• Cash Flow Projections -

  Expectations of cash coming in and out of a business in a given time.

• Companies Act -

  Legislation that sets the limits and activities of LLCs

• Corporation Tax -

  Similar to income tax but for corporations. Taxes are based on profits of the given period.

• Cost of Goods Sold -

  Labour, materials, and other things related to the production of goods sold.

• Cost of Sales -

  See above: ‘cost of goods sold’.

• Credit (Terms of Business) -

  Can be called Net 30 or Net 60. This is when a supplier lets a customer pay for the product some time after the sale. In this example, it would be 30 days or 60 days.

• Credit Note -

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

• Credit Sale -

  This is when a consumer business lets the end customer pay some time after the sale.

• Creditor -

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

• Current Asset -

  This is an asset that’s expected to become cash within a specified period. A fixed asset is one that won’t become cash in the near future.

• Current Liability -

  This is a liability that’s expected to settle in the near term, usually within 12 months.

• Debit (in Bookkeeping) -

  Debits in bookkeeping track increases in assets or expenses, and decreases in liabilities or income.

• Debtor -

  Someone owing money to the business.

• Deferred Income -

  Income invoiced ahead of providing the service can be deferred to a later accounting period.

• Deferred Taxation -

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

• Depreciation -

  The decrease in value of a fixed asset over its lifetime.

• Director(s) -

  People who manage the affairs of an LLC, appointed by shareholders.

• Dividend -

  Payments made periodically to shareholders from profits. . The amount of dividend paid is proportionate to the number of shares held.

• Drawings -

  In sole trader or partnerships, an owner can convert some of their ownership to cash for personal use.

• Entity, Entities -

  A business is an entity that exists apart from its owners.

• Equity -

  Describes how the capital of a business is shared.

• Expense -

  What it costs to run the business.

• Financial Statements -

  Documents that present accounting information.

• Fixed Asset -

  An asset held for long term use by a company. Can be used for production of goods, rental to others, or administrative purposes. Examples are vehicles, land, and buildings.

• Fixed Cost -

  A cost that isn’t affected by changes in production, like rent.

• Forecast -

  An estimate of the future financial position of the company.

• Going Concern Basis -

  A basis for financial statements that assumes all operation will continue into the foreseeable future.

• Goodwill -

  The excess of the fair value of a business and the value of the underlying assets recorded in the accounts. See also intangible.

• Gross -

  Before making deductions.

• Gross Profit (or Margin) -

  Total sales minus the cost of sales, and before subtracting administration and selling expenses.

• Intangible Fixed Asset -

  A fixed asset that isn’t physical (e.g. a trademark or Goodwill).

• Inventory -

  Product and supplies held for sale or manufacture

• Invoice (Bill) -

  Summarizes goods provided and price payable

• Leasing -

  Using an asset by renting it.

• Liabilities -

  Debts owed by a business.

• Limited Liability -

  A form of a company that limits shareholders’ liability to contribute to its assets if the company is liquidated.

• Limited Liability Company -

  Company where the liability of the owners is limited to the amount of capital they have agreed to contribute.

• Liquidity -

  How much cash or access to cash a business has. Counts items that can be quickly exchanged for cash.

• Materiality -

  Describes types of information. Material information is information that influences economic decisions of investors or users.

• Memorandum (for a Company) -

  A document that outlines the main objectives of a company and the powers it has to act.

• Net Assets -

  Assets without liabilities (also ownership interest).

• Net Book Value -

  Costs of non-current (fixed)( asset minus accumulated depreciation.

• Net Profit -

  Sales minus cost of goods sold and administrative and selling costs.

• Nominal Value (of A Share) -

  The named value of a share when the share is issued.

• Ordinary Shares -

  Shares that give the holder a portion of the dividend and also a share of the net assets upon closing the business.

• Partnership -

  Two or more people who go into business together to make a profit (can be companies too).

• Prepayment -

  A payment made in advance for something that benefits the business, like rent or insurance. (Also called a prepaid expense).

• Profit -

  Calculated as revenue (income) minus expenses.

• Profit and Loss Account -

  A financial statement that shows revenue, expense, and profit. Also called income statement.

• Provision -

  This is a liability with an unknown amount or date.

• Provision for Doubtful Debts -

  This is an estimation of what debts may not be collected on. It’s reported as a trade receivable deduction in the balance sheet.

• Registrar of Companies -

  The registrar is a governmentally authorized official who keeps a record of all documents issued by a company.

• Reserves -

  A portion of the company’s assets that the owners retain when the company grows. Most common example is retained earnings.

• Retained Earnings -

  The buildup of past profits available for financing assets.

• Secured Loan -

  A loan that is secured with collateral in the event that the loan is unpaid.

• Share Capital -

  The total amount of cash that shareholders have contributed.

• Share Certificate -

  Document that provides evidence of share ownership.

• Share Premium -

  A price paid for a share that’s above the value of the share.

• Shareholders -

  Owners of a limited liability company.

• Sole Trader -

  One person who operates their own business alone.

• Stakeholders -

  People who have a stake in the company—have an interest in financial information about the business.

• Stock -

  A word with two different meanings. It can mean the inventory of goods that a business has, or the division of ownership of a company.

• Tangible Fixed Assets -

  A physical fixed asset. Used to differentiate it from an Intangible fixed asset.

• Trade Creditors -

  People or companies who provide goods or services and allow for payment a period after the goods are exchanged.

• Trade Debtors -

  People or companies who buy goods or services and pay for them a period after receiving the goods.

• Turnover -

  Revenue generation from business operation, such as sales.

• Work-in-progress -

  The cost of partially completed goods, intended for completion in the near future and recorded as an asset. Akin to stocks.

• Working Capital -

  Capital that finances the short term assets of a company. Calculated as current assets minus current liabilities.