fbpx

Glossary

Glossary of Accounting Terms

There’s a lot of confusing jargon in the field of accounting. To help you make sense of it, we’ve put together this glossary on some of the most common accounting terms.

View

 

  • 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.