A glossary of accounting jargon

We like to be as down-to-earth as possible when discussing your accounting needs.  Sometimes, it’s impossible to avoid some accounting jargon.  We thought we’d share our handy glossary of terms as a useful reference:

Account
A 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.

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