Accounting Glossary - Terms that may have you confused.
Get to grips with accounting terms with this handy glossary.For those of you who are feeling a little daunted by the amount of jargon that exists in accountancy I have listed some glossary terms that might help you to feel more comfortable when discussing your bookkeeping requirements.
AccountA periodical record of financial transactions.
Accrual
Recording transactions when they take place, rather than upon payment.
Advance
Loaned money, or part of a payment to be made at a later date.
Aged Debtors
Persons who have been in debt for longer than the normal timescale.
Aggregate
The total sum, everything added together.
Allowable Deductions
Income deductions allowed by the Inland Revenue, which in turn reduce your tax payment.
Allowable Expenses
Business expenses which may be claimed against your tax payment.
Allowable Losses
Losses allowed on the sale of business assets, which may be set off against gains.
Amortise
Regular repayment of a loan, covering interest due first, then reducing the principal.
Annual Accounts
Financial year end accounts.
Annual Income
Money received during a calendar year.
Appreciation
When an asset increases in value, i.e. buying
business premises which are then valued at a
higher sale price.
APR
Annual Percentage Rate (which includes fees and
other associated charges).
Asset
An item of value.
Bad Debt
A debt which will not be paid, and must be
written off as a loss in the accounts.
Balance Sheet
Statement showing the worth of your Business at
the year end, in terms of historical cost.
Bank Overdraft
Borrowing facility, repayable upon demand.
Bought Ledger
A book for recording all business purchases.
Break-even Point
Production = Fixed cost
Budget
A financial statement forecasting expected
expenditure and income. Useful as a planning
tool.
Capital Accounts
An account which deals with monetary investment
/ withdrawals made by the owners of the company.
Capital Expenditure
Purchases of fixed assets which will have a
lasting benefit to the business, i.e. premises,
machinery, equipment.
Capital Gain
Money made by selling a fixed asset.
Capital Loss
Money lost by selling a fixed asset.
Cash Accounting
The method of accounting where purchases and
sales are recorded in the accounts books when
they actually occur.
Cash Flow
Money coming in and going out of the business.
Cash Flow Forecast
A guide indicating forthcoming budgeted receipts
and payments.
Charitable Deductions
Deductions from taxable income as charity
donations.
Contingency fund
Put aside funds for use in an emergency.
Contra
The term used for off-setting debits against
credits, to zero out.
Credit Period
The time allowed between the supply and
invoicing of goods, and the payment of the
invoice.
Creditor
Persons owed money by your business. (Your
liabilities).
Current Assets
Items which are cash, or can be readily turned
into cash, i.e. cash, bank balances, debtors,
stock, work in progress.
Current Liabilities
Amounts owed to Suppliers (Creditors), and short
term loans, i.e. bank overdraft.
Debtor
Person who owe money to your business.
Defer
Put back to a later date/postpone.
Deficit
The difference between spending over income.
Depreciation
The allowance made for reduction in value of
assets, i.e. the loss in value of an aging car.
Direct Costs
Amounts directly relating to product production.
Disbursement
The payment of money.
Double-entry Book-keeping
A way of accounting whereby all transactions are
recorded twice; as a simultaneous credit and
debit.
Economic
To make enough money to provide a profitable
return.
Expenditure
The sum of money spent.
Expenses
Money paid to a person to cover their own
out-of-pocket costs when carrying out actions on
behalf of the business, i.e. travel mileage,
lunches, etc.
Financial Year
The 12 month period for which you produce your
accounts; not the same as a Calendar year.
Fixed Assets
The property and equipment owned by your
business which will continue to be of a lasting
benefit.
Frozen
Not allowed to be either changed or used.
Gross
The total prior to deductions.
Imprest System
A petty cash transactions system. Money is
advanced for small expenses, when almost spent,
receipts to the value are handed over and the
money reimbursed. The float should therefore
always remain at the same level.
Indirect Costs
Amounts not directly relating to production, but
are necessary to run the business, i.e rent,
telephone, insurances, etc.
Interim Payment
Payment made on account. Part of a dividend.
Invoice
A written note requesting payment for
goods/services supplied.
Key Ratios
A way of measuring the performance of your
business when conventional analysis cannot.
These provide a view of where the business is
at.
Liabilities
Debts of the business.
Long Term Liabilities
Amounts owing, but not due for payment within
one year.
Margin
Extra time/space allowed. Also means difference
in value of sales price and purchase price.
Net
The end value once all deductions have been
made.
Net Assets
Total assets of the business less liabilities.
Net Profit
Profit of the business once all expenses have
been met.
Notional
Probable but not exactly quantifiable.
Offset
Balance one item off against another, to cancel
each other out.
Overheads
Regular expenses made in keeping the business
running, i.e. rent, phones, wages, etc.
Per Annum
In a year. Per Capita For each person.
Prepayment
An advance payment, i.e. rental monies.
Principal
Person or company represented by an Agent.
Principle
Basic point / general rule
Profit and Loss Account
A periodic summary of income and expenditure
which shows surplus and/or deficit.
Profit Margin
Percentage difference between sales income and
cost of sales.
Prudence
Use your judgement.
Purchase Ledger
A book for recording all business expenditure.
Quick Assets
A term used to describe current assets which may
be readily cashed in if required.
Reconcile / Reconciliation
To make two statements agree.
Remuneration
Payment for services rendered.
Revenue Expenditure
Fully used up during the accounting period, i.e.
raw materials, rent, salaries.
Sales Ledger
A book for recording all business sales
(income).
Turnover
The value of sales of goods / services