| Accounting and Finance Glossary |
| ACCA - Association of Chartered Certified Accountants |
Professional Accountancy body for accountants. Members may have qualified in public practice or whilst working for an organisation. |
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Accounting
equation
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This
formula expresses the fundamental logic behind the Balance Sheet.
Assets = Liabilities + Equity.
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Accounts
Payable
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See Purchase Ledger
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Accounts
Receivable
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See
Sales Ledger
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| Accrual |
An accrual is a sum included in the accounts to cover income or spending which belongs to the period covered by the accounts, but which was unpaid at the accounting date. |
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Accruals concept |
This
is a fundamental accounting convention.
Basically, for a given accounting period, there must be a matching of the sales
and the expenses incurred to achieve those sales.
(the timing of the when the cash is actually received or paid over
is ignored).
Also called the "matching principle or
concept") |
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Arrears
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Bills
which are overdue for payment. If
you have not paid the last three months of rent, you would be three months
in arrears.
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Asset |
Something valuable which a business owns or has the use of,
such as factories, office buildings, vehicles, computers, stock |
| Associate
Member |
An Associate Member of a CCAB accountancy body is a fully qualified accountant who has passed a number of professional exams, roughly equivalent to degree level. |
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Audit
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The
process of checking the entries in the books to make sure that they agree
with the original sales & purchase invoices and other prime documents.
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Balance
Sheet
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The
summary of all the assets, liabilities and equity of a business.
It is usually at the end of each financial year.
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Bought
Ledger
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See
Purchase Ledger.
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Budget
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A
plan expressed in terms of money. Usually
relates to a year, but in medium term planning, it can refer to a number
of years. Click here
to read an article on budgeting.
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Capital
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The
amount of money that the owners have put into the business.
Also, capital expenditure, relates to expenditure fixed assets
(such as buildings, machinery) used in the business.
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Capital
Allowances
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The
tax equivalent of depreciation. The
depreciation in the accounts is added back and instead, an allowance
(which is usually a percentage, and depends on the asset) is claimable
against any profits, before computing the tax due.
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Capital
Gains Tax
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The
tax liability which may arise if a fixed asset is sold at a profit.
The computation can be complex since there are various Capital
gains allowances and adjustments for inflation which depends on the type
of asset and its age, amongst other factors.
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Cash
Book
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A
journal where a business's cash transactions (and sometimes bank
transactions) are recorded.
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Cash
Flow
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A
report showing the actual flow of money in and out of the business.
It is possible to be profitable but still have cash flow problems.
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| CIMA - Chartered Insitute of Management Accountants |
Professional Accountancy body for accountants. Members focus on accounting for business. Therefore, members have usually trained and qualified whilst working in an organisation's finance department. |
| CIPFA - Chartered Institute of Public Finance Accountants |
Professional Accountancy body for accountants working in the public sector. |
| Committee of Accountancy Bodies
(CCAB) |
CCAB provides a forum in which matters affecting the profession as a whole can be discussed and co-ordinated and enables the profession to speak with a unified voice to government. The four professional accountancy bodies that are members in England are: CIMA, ICAEW, CIPFA, ACCA |
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Companies
House (
UK
only)
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The
government department responsible for collecting and storing information
about limited companies. A
limited company must supply file its final accounts with Companies
annually, or face penalties.
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Corporation
Tax (CT -
UK
only)
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The
tax paid by a limited company on its profits.
In April 1999, Advanced Corporation Tax was abolished and large
companies now pay their CT in instalments.
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Cost
accounting
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An
area of management accounting which deals with establishing the costs of
running a business.
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Credit
Control
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The
managing of customer debt. The
credit control function is concerned with credit checking of potential
customers, "chasing payment" of a business's sales invoices, by
letter or telephone. Sometimes
a customer is put on "stop", which means no further
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Credit
Note
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The
opposite of a sales invoice, which wholly or partly cancels a sales
invoice.
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Creditors
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Suppliers
to whom the business owes money
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Customer Account Profitability Analysis |
Analysis of the financial impact of the
different ways in which customers are serviced. (Identifying which customers
are more profitable) |
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Debtors
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Customers
who own money to the business
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Depreciation
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The
decrease in the value of an asset, to reflect the use and passage of time.
It can be calculated on a "straight line" basis (an equal
amount over a set number of years) or a reducing balance (a set percentage
of the previous year's balance) The value
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Dividends
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Payments
to the shareholders of a limited company
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Double-entry
book-keeping
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Accepted
method of accounting for transactions.
Each transaction is recorded as a debit and credit, to show where
it came from and where it went, so that the system is self balancing.
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Drawings
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Money
taken out of a business by its owner(s) for personal use.
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Expenses
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The
cost of goods or services directly related to the running of the business.
It excludes capital items (such as machinery, buildings and so on)
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Fixed
Assets
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Assets
(such as buildings, machinery) which are used in the business but not
consumed during the day to day running of the business fixed assets.
They are depreciated over a number of accounting periods (the
length of time depending on the nature of the
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Gross
loss
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The
net balance of the trading account (if it has a debit balance)
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Gross
margin
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The
difference between the selling price and the cost of production.
It is normally expressed as a percentage.
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Gross
profit
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The
net balance of the trading account (if it has a credit balance)
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| ICAEW - Institute of Chartered Accountants England & Wales |
Professional Accountancy body for accountants. Members have usually, although not exclusively, qualified by working under a training contract in public practice. Normally qualified for audit. |
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Imprest
System
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A
method for controlling petty cash. A
fixed sum (the imprest) of cash is put in the petty cash box.
As it is spent, the receipts (or petty cash vouchers) are
collected. When this is almost
all spent, it is topped back up to the imprest amount.
At any
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Intangible
assets
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Non-physical
assets, such as a loan or endowment policy
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Invoice
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A
prime document, either a sales invoiced issued by the business or a
purchase invoice received by the business.
If a purchase invoice is lost, it is usual to request a copy
invoice. It is bad practice to
pay on a statement.
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Liabilities
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Money
that the business owes to its suppliers, bank and other debtors.
It normally consists of all the accounts on the right hand side of
a (horizontal) balance sheet.
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Long
term liabilities
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Normally
these refer to long term loans; debts which last more than one year.
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Management Accounting |
Accounts and reports which are tailor made
for the use of the managers and directors of a business (in any form they
see fit - there are no rules) as opposed to financial accounts which are
prepared for the Inland Revenue and any other parties not directly concerned
with the running of the business. |
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Matching
principle
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See accruals concept
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Net
of Tax
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The
price less any tax.
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Net
profit
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The
value of sales less the cost of sales.
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Overheads
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The
costs involved in running a business which cannot be directly attributed
to a particular product or service. Examples
may include business rates and telephone costs.
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P.A.Y.E
(
UK
only)
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Pay
as you earn. The system of
income tax where an employee's tax and national insurance contributions
are deducted from the gross pay by the employer before being paid.
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| Payment
in Advance |
A charge taken into account when preparing the financial statements, which are for, benefits to be received in a period after the accounting date. |
| Performance Indicators |
Method of measuring an organisations performance with the purpose of external comparison to other organisations or for internal use as a way of monitoring improvement, efficiency or similar. For example, businesses may measure their Earnings per Share (EPS) |
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Petty
Cash
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A
small amount of cash held by the business to pay for incidental items
where a cheque or credit payment is not appropriate.
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Petty
Cash Voucher
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A
document used to record an item of petty cash expenditure, where an
original receipt was not obtained.
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Profit
and Loss Account
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A
summary of revenue and expense accounts which shows the current profit or
loss of a business for a particular accounting period, (usually prepared
at the end of the financial year)
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Profit
margin
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The
percentage difference between the cost of a product and the price it is
sold at. It is also referred
to as the "mark-up".
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Pro-forma
invoice
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An
invoice that requires payment in advance of the goods or services being
received.
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Provision
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An
amount recorded in the accounts for an expected future liability.
A charge taken into account when preparing the financial statements, which are for, benefits to be received in a period after the accounting date.
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Purchase
Ledger
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The
account in the nominal ledger which contains the total purchases.
The Accounts Payable ledger (sometimes called the "purchase
ledger" or "bought ledger", holds the detail of payments to
the business's suppliers. To
see how this fits into the bookkeeping structure, click
here
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Raw
Materials
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The
materials bought in by a manufacturing business in order to make its
products.
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Rebate
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The
amount of refund you may get if you have paid for a service and then
cancelled it.
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Reconciling
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The
process of checking entries made in the accounts with a statement from a
third party (e.g. a bank statement or a supplier statement).
It is also one of the processes an auditor would carry out.
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| Reserves |
Reserve accounts usually reserve or apportion some of a business's capital against future purchases or liabilities (such as the replacement of capital equipment or estimates of bad debts). Some types of reserve can only be spent if certain conditions are met. |
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Retained
earnings
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The
amount of money left in the business after its owner(s) have taken their
share of the profits.
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Retainer
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A
sum of money paid in order to ensure the availability of a person's or
company's services.
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Revenue
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Sales
and other taxable income.
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Sales
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Income
from sales of goods or services. See
also Revenue
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Sales
Ledger
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The
account in the nominal ledger which contains the total sales.
The Accounts Receivable ledger (also called the "sales
ledger", holds the detail of payments to the business's customers. To
see how this fits into the bookkeeping structure, click
here
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Self
Assessment (
UK
only)
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This
came into force in the 1996/1997 tax year.
If you are self employed or receive and untaxed income, you need to
register with the Inland Revenue. You
are responsible for calculating your own income tax and for filing your
tax return by the proper dates.
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Shareholders
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The
owners of a limited company.
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SME
|
Small
and Medium Enterprises.
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Sole
trader
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Self-employed
owner of a business where the owner is legally liable for all the debts of
the business (i.e., the business is not a limited company)
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Stock
Taking
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Physically
checking the total quantity & value of the stock held by a business.
This includes raw materials, work-in-progress and finished goods
(where applicable).
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Tangible
assets
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Physical
Assets of a business.
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Trading
account
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An
account which shows the gross profit or loss of a manufacturing or retail
business, i.e. sales less the cost of sales.
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Trial
Balance
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A
statement pulling together all the balances in the accounts, usually prior
to preparing the full accounts.
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Turnover
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Sales.
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Value
Added Tax (VAT)
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An
indirect tax on the final consumer. VAT
is increases the price of goods. The
standard rate is 17.5%. VAT
registered businesses have to account for their input (VAT paid on
supplies) and output (VAT) charged on sales.
The difference is paid over.
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Work
in Progress
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The
value of partly finished goods manufactured by the business.
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Write-off
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Depreciating
an asset to zero value in the accounts.
Also, writing off a bad debt (non collectable amount owing to the
business) to zero.
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Zero
Based Budget (ZBB)
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Starting
a budget off from zero and justifying every cost.
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