Accounting – Terms and a brief description.

Accounting – recording and reporting the financial activity of an entity

Accounts Payableaka Creditors – money owed to suppliers of goods and services by an entity. Creditors are shown on the balance sheet as current liabilities.

Accounts Receivableaka Debtors – money owed to an entity by its customers for sales of goods and services. Debtors are shown on the balance sheet as current assets

Accrual Accounting – income is recorded in the period earned and purchases and expenses are recorded in the period incurred. Income and expenditure are accounted for even if there is no invoice issued or payment made.

Accrued expenses – a list of expenses that have been incurred and included in the financial statements, but not yet paid (sometimes estimated figures are used)

Amortisation – Gradual reduction in carrying value of assets over time. This reduction is shown as a charge in the profit and loss account. The charge is a proportion of the useful life of the asset.

Andrews Orme & Hinton Ltd – A firm of Chartered Accountants based in the west midlands

Asset – something having a value that is owned by an entity. Fixed Assets are held in the entity over a number of years and are used to generate income. Fixed Assets include – Land, Buildings, Vehicles, Computers, Office Equipment and furniture. Current Assets are usually only held for a short time and include Stocks and Work in Progress, Debtors and Prepayments and bank and cash balances.

Audit Trail – a record of every transaction, when it was done, by whom and where, used by auditors when validating the financial statements

Auditors – Internal auditors are employees of the entity checking on the day to day work of other departments, their role is primarily to detect and prevent errors and fraud. External Auditors are independent accountants who review an entity’s financial statements for accuracy and compliance with accounting standards and legislation.

Audit Report – An audit report is prepared by an independent auditor stating his opinion on the compliance and accuracy of the financial statements of an entity.

Balance Sheet – is a summary of an entities financial position at a given date. It is a financial summary of assets, Liabilities and capital and reserves.

Bookkeeping – recording the details of the day to day transactions of an entity

Budget – the financial plan or forecast of future business activity of an entity.

Capital – the proprietor`s investment in the business.

Capital Expenditure – the expenditure on fixed assets by an entity.

Capitalized Expense – expenses that are incurred in the development cost of a new fixed asset or the development cost of a new product

Chart of Accounts – a listing of the names and or numbers of an entities nominal account headings

Cash Accounting – a method in which income and expenses are recognised when they are received and paid.

Cash Flow – a detailed monthly projection of future cash coming into an entity and the cash flowing out of an entity. The monthly balance is calculated and this helps planning identifying potential cash shortages and cash surpluses.

Chartered Accountant – A member of the Institute of Chartered Accountants in England and Wales ICAEW. Members may use the letters ACA or FCA. This is the premier accounting qualification in the UK.

Cloud Accounting – A secure on-line accounting system using cloud technology similar to your email provider. The so called cloud relates to the different servers that data can be stored on in a remote location, rather than on a single server in the office.

Cost Accounting – used for recording and reporting costs associated with specific operating functions, cost centres or for establishing the costs of products.

Credit and debit –are the two sides of accounting entries in a double entry bookkeeping system. The basic rule is that for every debit there is an equal and opposite credit. Credit the account which pays out and debit the account which receives. Confusion is caused by banks, which send out bank statements to their customers, displaying entries copied from the bank`s records and from the banks not the customers point of view.

Creditor aka Accounts Payable -money owed to suppliers of goods and services by an entity. Creditors are shown on the balance sheet as current liabilities.

Debtors aka Accounts Receivable – money owed to an entity by its customers for sales of goods and services. Debtors are shown on the balance sheet as current assets

Debit and credit see above, credit and debit.

Depreciation – recognised by a charge in the profit and loss account to reflect the decrease in the value of a fixed asset over its useful life.

Dividends – amounts paid to shareholders out of current or retained earnings

Double-Entry Bookkeeping – system of accounting in which every transaction has a corresponding entry, see above credits and debits.

EBIT – Earnings Before Interest & Tax a standard measure of business performance

Entity – an individual, a charity, a joint venture, an informal association, a business (sole trader – partnership –limited company)

Equity – shares or capital introduced into the entity by the owners. This is usually a longterm investment and not withdrawn from the business by the owners.

Financial Accounting – accounting reporting an entity’s activities in financial terms to the world. As compared with some management reports for internal purposes which quote tons produced or units made or sold.

Financial Statements – a series of statements showing the financial position of an entity. These usually include a balance sheet, an income statement together with various notes and reports.

Fixed Asset –an asset that will be retained in the business over the long-term, tangible property; building, land, computers, etc. Fixed Assets are used in the business over a number of years to generate profits.

General Ledger – a record of all financial transactions within an entity

Goodwill – is an intangible asset reflecting the value of an entity in excess of its individual tangible assets.

Gross Profit – is the difference between Sales Price and Cost price of an item.

Gross Profit Percentage – is the gross profit divided by the sales value expressed as a %

Gross Margin – see Gross Profit

Historic Cost Convention – Financial Statements are recorded in £ at the accounting date. Some of the assets may have been acquired many years ago when the value of £1 had more purchasing power and had greater value than today. Attempts to account for inflation have been abandoned as impractical.

HMRC – Her Majesties Revenue and Customs the authority responsible for raising and collecting taxes

iCanetwork Ltd – a secure online book-keeping & accounting system

Impairment Review – An attempt to revalue assets of an entity in the light of current market conditions.

Income Statement – a summary of income less expenses to show the net income

Inventory – Stock A listing of items purchased for resale usually shown at cost but see below.

Inventory Valuation – the method to set the book value of unsold inventory: The preferred method is “FIFO,” first in, first out; “LIFO,” last in, first out; “average,” an average cost over a given period; “current cost,” the cost based on the last purchase; “standard,” a “calculated deemed” amount related to but not tied to a specific purchase,

Invoice – the bill of sale of an item issued by the vendor to the buyer. Usually listing what was bought or purchased and may include the terms of sale, payment, VAT will be shown and other information required by legislation.

Job Costing – system of gathering and collating costs associated with an individual job or project. Job Costing can be used to calculate a sales price which can be cost plus agreed mark up and profit.

Journal – a record where transactions are recorded or where adjustments are made to the accounting records.

Liability – money owed to creditors, suppliers or lenders and include overdrafts

Liquid Asset – cash or other property that can be easily converted to cash

Loan – money borrowed from a lender and usually repaid with interest

Net Profit or Net Income – money remaining after all expenses have been paid usually stated pre-tax

Nominal Code – A Nominal Code is used in accounting principally to group financial information together so that ultimately, summarised accounts can be produced. Businesses will have different Nominal Codes depending on the type of business they are in (a farmer would have a different Nominal Code structure to an Architect for example). A Nominal Code will relate either to an Input (a purchase) or an Output (a sale).

 

Non-Cash Expense – recognising the decrease in the value of an asset; i.e. depreciation and amortisation

Operating Income – income generated from the entities normal trading activities.

Other Income – income generated from all other sources including interest, rents, patents.

Payroll – a list of employees. May also includes gross pay, national insurance, pensions and other employment costs and employee benefits.

Posting – the process of entering data into the accounts.

Profit – see “net income”

Profit/Loss Statement – see “income statement”

Reconciliation – the process of substantiating one set of data to another, checking bank statements to the cash book and validating the balance shown on the accounts by adjusting for outstanding payments and receipts.

Reserves and Retained Earnings – the amount of net profit retained in the entity and not yet distributed to owners and shareholders.

Revenue – income before expenses. Also Inland Revenue or HMRC

Shareholder Equity – the capital and retained earnings in an entity attributed to the shareholders

Single-Entry Bookkeeping – system of accounting in which transactions are entered into one account

Statement of Account – a summary of amounts owed to a supplier, customer, vendor, lender, etc.

VAT Value Added Tax – An indirect tax levied by a registered entity on its sales.The tax is borne by the ultimate customer.

Write-down/Write-off – an accounting entry that reduces the value of an asset due to the impairment of that asset; the fall in value of a motor car owned for a few years.