Acounting Jargon

At Your Village Accountant we hate using jargon that our clients don’t understand but unfortunately on reports and accounting statements you will see terminology you don’t necessarily understand. We have tried to put together definitions of the most commonly used words.

Abbreviated Accounts

Small companies can file these with Companies House. Abbreviated accounts do not require a profit & loss account (income/expenses) This is particularly useful if you want to hide your profit from being viewed on the  Companies House website.

Accrual 

A cost that has been incurred in the trading period but has not been paid for. Accountancy fees is often classed as an accrual as your accountant is likely to invoice you after they have completed your tax return.

Aged Creditors

These are suppliers who you haven’t paid. You can normally generate reports to see how old the debt is that you owe.

Aged Debtors

The opposite of aged creditors. They are funds that are owed to your business. You should be able to generate a report to see who owes you money and by how many days the debt is overdue.

Amortisation 

Very like depreciation but is used for intangible assets.

Assets

These are items that are valuable to the business such as stock. They appear on the top half of a balance sheet.

Balance Sheet

A report generated at any specific point in time showing all the assets, liabilities and equity of a business.

Bookkeeping

The method of documenting a detailed record of all business transactions. This can be in the form of a spreadsheet, a manual cash book or book keeping software.

Capital Allowances 

Depreciation is a disallowable expense for tax purposes which means you are not allowed to include depreciation on your tax return. Instead of this HMRC have created a uniform policy called Capital Allowances. It is the equivalent of depreciation but everyone must use the same rates as agreed by HMRC.

Cash Flow 

The flow of money in and out of the business. Many small companies find they are profitable but struggle with cash flow.

Corporation Tax

Limited companies pay Corporation tax.

Depreciation 

An accounting concept to write off the value of an asset over time.

Director 

Limited Companies must have at least one director. These are the people that oversee the running of the company. They are normally shareholders.

Dividends 

Shareholders of a limited company are entitled to dividends. These are taxed at a different rate to a salary and are paid out of the profits of the company.

Dormant 

Where a limited company has not traded at all during a year. There is therefore no profit and loss account, and the balance sheet at the beginning and end of the period is the same. Dormant companies still must file accounts with HMRC.

Equity

Equity appears at the bottom of the balance sheet. It consists of share capital and retained profits. It should balance with the net assets. 

Fixed Asset 

Large items of equipment purchased for the business. Most companies set a threshold of monetary value where once this is exceeded it is classed as a fixed asset rather than a small tool or similar. Fixed assets are normally items of equipment or vehicles that will be used in the business for a substantial amount of time.

IFRS 

International Financial Reporting Standards. These are standards that accountants have to adhere to when preparing accounts.

Intangible Fixed Asset

An asset that you cannot see or touch but something that is of value to the business such as a brand name or goodwill.

Liabilities 

These are debts that the business owes; such as business loans, finance agreements etc. These can be short term or long term.

Liquidation

This is the process before a company is closed. It is where a company’s assets are all sold off quickly to raise funds to pay the creditors.

Net Assets

The value if you add up all the assets and deduct the value of all the liabilities. If you end up with a negative figure this is not a good position to be in and suggests the company is no longer viable.

Net Book Value

This is used for fixed assets. The net book value is the cost, less all depreciation to date. In some cases, this is reflective of the market value. In other cases, it is completely different and really does depend on the current market at that particular time.

Overheads

Costs which don’t directly relate to your turnover. These are costs that are incurred regardless of what service you provide/ goods you manufacture. They are often fixed so things like rent, rates, electric, stationary etc.

Prepayment

Opposite of accruals. Something you have been invoiced for, but have not yet received the benefit. A good example of this is insurance where you pay for the whole year in advance.

Profit & Loss Account

A summary of all your sales and expenses over any given time period.

Retained Profit

The sum of all profits to date less any dividends paid out.

Self Assessment

This is your personal tax return which you complete if you are self employed or have other income not taxed by other means such as rental properties.

Share Capital

Limited Companies typically have share capital. Share holders are typically directors and other owners of the company.  There may be many shareholders all owning a very small percentage of the company each, or one person who owns 100%. Share holders are generally paid dividends.

Trial Balance

This is a list of all the accounts that make up the profit and loss account and balance sheet.