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.
- 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.