Accounting Terms Explained
Accounting Terms Explained – as accountants, we are often guilty of using a lot of terminologies which makes very little sense to a lot of people. Many clients have expressed a need for a simple guide to accounting terminology so hopefully this will help.
Accounts Payable – the amount of money your business owes to suppliers. Also known as trade creditors. Accounts Receivable – the amount of money due from customers. Also known as trade debtors.
Accrual Basis – an expense/sale is accounted for by the date of invoice NOT the date it’s paid.
Accounting Period – the time period for which the accounts are prepared (usually a month, quarter or year)
Asset – something a business owns e.g. a vehicle, equipment or property.
Bookkeeping – the process of recording all business transactions.
Balance Sheet – a statement of the financial position of a business on a given date. It summarises a companies assets (what it owns), it’s liabilities (what it owes) and the shareholders’ equity (i.e. how much they have invested in the company).
Capital Expenditure – money spent on assets of a business.
Cash Flow Projection – statements of cash expected to flow into and out of a business over a particular period.
Corporation Tax – tax payable by companies based on the taxable profits.
Cost Of Sales – costs directly related to the goods or services provided. e.g. materials and labour.
Creditor – a person or company a business owes money to.
Current Asset – an asset which is expected to be converted into cash within a year. e.g. stock held, cash and debtors.
Debtor – an entity which owes your business money.
Depreciation – an accounting method that is used to track the value of an asset over time.
Dividend – an amount paid to the shareholders of the company.
Fixed Asset – assets which will be held by the company for more than a year such as land and equipment.
Gross – before making deductions.
Intangible Assets – something that cannot be touched e.g. intellectual property. Unlike tangible assets which take a physical form.
Inventory – stock held for use in production or resale.
Liabilities – a financial debt or obligation.
Net – after making deductions.
Net Assets – assets minus liabilities.
Net Profit – sales minus cost of sales and all administrative costs.
Profit – sales minus expenses.
Work In Progress – the cost of partly completed goods or services.
Feel free to get in touch below if you feel there are any other words which should be added to the list or if you have any questions.