Accountancy is a wide and complex field of study and work. If you are involved in the market, be it as a student learning, or a fully-fledged chartered accountant, then you can use our glossary to remind yourself of some of the many terms you will encounter along the way.
An account is a record kept in a general ledger that is used to properly classify the financial activity of a company or an individual.
The account balance is the sum of debit entries of an account, minus the sum of the credit entries of an account. It shows whether a company or an individual is, overall, in debit, or in credit. If the result is positive, it is a debit balance; if the result is negative, it is a credit balance.
Accounting is the act of recording and reporting on the financial transactions in the general ledger. It includes the recording of the origins of a transaction, right through the processing and summarising to the financial statements.
Accounts Payable is an amount of money that is owed by a company to its creditors.
Accounts Receivable can be seen as the opposite of Accounts Payable. It is the money that is owed to a company by its debtors.
Accrual Basis is a form of accounting that records transactions when the revenues and the expenses are incurred, rather than when the money actually exchanges hands.
An asset is something of value that a company or an individual own. Buildings, land, cash in the bank, investments and equipment are all examples of assets.
An Audit can be internal or external, and involves an official investigation into the finances of a company or an individual. It is an official endorsement of accuracy, and has to be carried out by a qualified accountant or a team of accountants. It ensures that a company is following the Generally Accepted Accounting Principles (GAAP).
Automatic enrolment for pensions
Automatic enrolment is a legislature brought in to the UK increase the amount of people who are actively saving for retirement age. It makes saving an opt-out rather than an opt-in system. See here.
Bank Reconciliation is the act of comparing a company’s personal account records with their bank statement. For more information, see here.
A bank statement is a statement from the bank which lists financial transactions that have been occurred with the account that the bank holds.
A Balance Sheet is a summary of a company’s or an individual’s net assets for a specific date. It takes into account both assets and liabilities, and gives a financial snapshot of the finances of the entity.
Bookkeeping is the act of keeping records of the daily financial transactions of a business. For more information, see here.
A Budget is a prediction of how much income and expenditure will be used in a set period of time or for a certain project.
A business plan is a document that states the business’ goals and how they will be reached. For more information, see here.
Capital gains tax
Capital Gains Tax is the tax that is taken on the profits when you sell an asset which can increased in value. For more information, see here.
A sale that is made and immediately paid at point of purchase. This is the opposite of a sale on account (see below).
Cost of Goods Sold
The Cost of Goods Sold, otherwise known as COGS, is the direct cost of producing goods which are to be sold by a company. It combines both the cost of the materials and the labour cost that goes into making the product.
Company Accounts are legally required to be provided to both the Companies House and the shareholders of both large or small limited companies each accounting period. They are also called statutory accounts. For more information, see here.
Corporation tax is a tax on the profits of a company. All companies operating within the UK should be paying tax to the country. For more information, see here.
A Credit is an entry in an account that increases a liability account, or decreases an asset account. It can generally be viewed as a loss. It is written on the right-hand side or column of an account.
Credit can also refer to the ability for a customer to obtain goods or products before they have paid for them, based on the promise that payment will be made later.
Debit is an entry on in an account that decreases a liability account, or increases an asset account. It can generally be viewed as a gain. It is written on the left-hand side or column of an account.
Double-Entry Accounting is a method of bookkeeping which balances every debit and credit with a corresponding credit and debit. This means that it is easy to see where money has been taken from to pay for what.
An Expense is a cost that is required for something.
Financial Gifts are when an asset or cash of a large value is gifted to someone or an entity. There are certain rules about what can be given away and the way that it relates to inheritance tax. For more information on financial gifts, see here.
Financial Forecasting is looking ahead and predicting what the financial state of the company will be for the next fiscal year, allowing for more accurate budgeting and planning for the business. For more information, see here.
A Financial Statement (sometimes called a Financial Report) is a type of report showing a summary of financial actions over a period of time. It shows the income and outgoings of a company or individual.
A Fiscal Year is a period of 12 consecutive months that a company fixes as its financial year. In the UK, the government financial year runs from 01 April to 31 March, and is split into quarters. However, companies can choose when their Fiscal Year starts and ends, so long as it covers 12 consecutive months.
A Fixed Asset is a physical item which isn’t easy to turn into cash and has a useful life of more than one fiscal year. It includes items such as property or equipment.
The Fund Balance, otherwise known as net assets, is a representation of all of the assets that a company has. It is worked out by taking the total assets and subtracting the total liabilities. It shows how a company stands financially, by taking all assets into account, including fixed assets and liquid assets.
GAAP stands for ‘Generally Accepted Accounting Practice’ and are a set of rules which help to govern accounting across the UK and set a standard.
A General Ledger is an all-encompassing financial report on a company. It contains all assets, liabilities, revenue and expense accounts, and along with the fund balance. It covers financial transactions over the company’s entire lifetime.
An Income Statement is a report that gives a summary of revenues and expenses over a specific period of time.
Income Tax is the tax charged on salaries and other incomes that go above certain thresholds. As of April 2016, the threshold for an individual’s tax free income allowance, known as the tax-free Personal Allowance, is £11,000. For more information, see here.
Inheritance Tax is a tax that has to be paid when a person leaves a large estate to an heir, or several heirs, when they die. It is calculated on the overall value of the estate, including money, property and shares. The inheritance tax free limit is set at £325,000 per person, but this is set to steadily increase until April 2020. For more information, see the page on inheritance tax.
An invoice is a document issued to a buyer from the seller, detailing the specifics of the transaction. It will contain the type of products purchased, the amount, agreed prices. Invoices are not only used for physical products that are bought, but also for services provided.
IR35 is a legislation which prevents contractors from underpaying income tax when they are set up as a limited company, rather than as a self-employed individual, and carry out work for other companies.
A Journal Entry is a group of transactions, both credit and debit in nature, which are posted into the general ledger. It is important that journal entries have a net of zero, as debits must equal credits.
A liability can often be seen as the opposite of an asset. It is what a company or an individual owe. Loans, taxes and debt are all examples of a liability.
Net Income is the company’s total earnings (or profits). It is calculated by taking revenues and adjusting for the cost of doing business, such as subtracting the cost of goods sold (COGS), expenses and taxes.
PAYE (Pay As You Earn) is the system through which employees pay income tax. The tax payments get taken directly from the employer, and so the employee does not actually receive this money, or have to actively pay it. For a more in-depth look at PAYE, click here.
A payroll is a term for a list of all of a company’s employees, and is used to keep a record of what has been paid out in terms of salary and helps to keep a tab on tax payments. It is important to keep careful records of what is paid to employees for HMRC purposes. For more information, see here.
Self Assessment Tax Return
For people who have income from sources other than a primary salary, then they will need to fill out a self assessment tax return form to declare that income to HMRC. For more information about filling out a self assessment, see here.
A Restricted Fund is set up so that a donor’s contribution can only be used for what the donation was intended for. It prevents the money from being used for anything else.
Revenue is sometimes used as another word for income. However, income is sometimes used to mean the net of both revenue and expenses. Revenue is the money that a company receives from usual business, such as selling products to customers.
A fixed and regular payment to employees, typically paid on a monthly or four weekly basis. It is usually stated as an amount per year so that it can be more easily compared.
Sale on account
When payment for a transaction is to be collected at a later date.
A Subsidiary Ledger is a sub-group of accounts within the general ledger. The Subsidiary Ledgers tend to contain the same type of accounts within themselves, and then several Subsidiary Ledgers make up the General Ledger.
Unearned Revenue is revenue that is received during one fiscal period, which isn’t earned until the next one.
As the name suggests, the Unrestricted Fund is one which can be used for anything. It has not been assigned any particular use, and as such, gives a company some financial flexibility.
VAT (Value Added Tax) is a tax on the sale of goods and services. A company will have to fill out a tax return and submit it to HMRC every accounting period. This is often the job of and accountant. You can see more information about VAT here.