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Account
A record of all of the transactions of a single aspect of a business that have taken place during a defined period of time. Sometimes called a Ledger although that term implies a collection of accounts
Accountant
A practitioner of accountancy, which is the measurement, disclosure and provision of assurance about financial information that helps managers, investors, tax authorities and other decision makers make resource allocation decisions
Accounts Payable
An account which contains the overall balance of the Purchase Account
Accounts Receivable
An account in which contains the overall balance of the Sales Account
Accrual Accounting
Is considered to be the standard accounting practice for most enterprises, with the exception of very small operations, where all transactions are recorded at the time they take place. It provides a more accurate picture of the current condition of the enterprise
Accruals
Charges that are incurred but no invoice is received eg interest payable on a bank loan where the bank statement has not been received. These items (or an estimate of their value) are still to be included in the Operating Statement (Profit & Loss Statement). When the real invoice is received, an adjustment can be made to correct the estimate. Accruals can also apply to Income transactions
Amortization
The depreciation, or repayment, of an intangible asset (eg. loan, mortgage) over a fixed period of time. For example: if a loan of £12,000 is amortized over 1 year with no interest, the monthly payments would be 1000 a month
Asset
What an enterprise owns or is due to receive at a particular point in time. Equipment, vehicles, buildings, accounts receivable, money in the bank, cash are all examples of the assets of a business. In the Balance Sheet these are divided into Fixed and Current Assets
Audit
The process of checking every entry in a set of books to make sure they agree with the original paperwork. In practice such checks are generally carried out on a sample of the relevant paperwork
Auditor
A body responsible for carrying out an audit on the accounts of an enterprise

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Bad Debt
Money owed to an enterprise but not paid and considered not likely to be paid in the future
Balance Sheet
A statement of the financial state of affairs of an enterprise at a specific point in time. It includes the assets and liabilities as they are at the date of the Balance Sheet
Bankruptcy
When an individual or unincorporated enterprise has greater liabilities than it has assets, the person or business can be declared by its creditors, bankrupt. The individual or owners of an unincorporated enterprise can declare bankruptcy if they feel it is necessary to do so. In the case of a limited company or corporation in the same position, the term used is insolvent
Bookkeeper
A person responsible for the recording of the financial transactions made by an enterprise
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Capital
An amount of money put into the business as opposed to money earned by the business
Capital Allowances
Although depreciation on fixed assets is shown in the Operating Statement (Profit and Loss Statement), it has to be added back again for income tax purposes. HMRC allows a percentage of the value of the fixed assets to be claimed when working out the tax bill
Capital Gains Tax
When a fixed asset is sold at a profit, the profit may be liable to  tax Calculating the tax can be a complicated affair (capital gains allowances, adjustments for inflation and different computations depending on the age of the asset are all considerations you will need to take on board).
Cash
Money in the form of banknotes and coins, as opposed to cheques or electronic transactions
Cash Accounting
As opposed to Accrual Accounting, entries are made only when cash moves ie for purchases, the entry would be made only when the items are paid for and for sales the entry is made only when the invoiced amount is received
Cash Flow
The flow of money in and out of the business over a period of time
Cash Flow Forecast
An estimate of future cash flow
Charity
An enterprise whose primary function is to provide money to other organisations without retaining any profit. Most of its employees are usually unpaid volunteers
CIF
See Costs, Insurance and Freight
COGS
See Cost of Goods Sold
Companies House
A Government Department that collects and maintains information concerning registered companies. A registered company is obliged to provide Companies House with a statement of its final accounts every year
Corporation Tax
A tax levied on the profits generated by a registered company
Cost accounting
A specific area of accounting which deals with the detailed costs of a business
Cost of Goods Sold
The direct costs of products sold during a particular period. Simplified it is:
Starting Inventory + Material Purchases + Direct Labour + Direct Expenses - Closing Inventory
Cost, Insurance, Freight
An internationally recognised term whereby a seller agrees to supply the goods, pay the insurance, and pay the freight charges until the goods reach an agreed destination
Costs
The amount of money spent on creating a product or service for sale. This will include all materials used in the product, the labour that is specifically utilised to make or provide that product and any other expenditure that can be ascribed to each product
Creative Accounting
A questionable means of making accounts appear more (or less) appealing to interested parties
Credit
A term used to identify a transaction of ‘giving’. Generally this is shown as a right hand column on an accounts page although there is no logical reason why this should be so
Credit Note
A reversal of all or part of a Sales Invoice generally associated with returned goods or unacceptable service
Creditors
Those suppliers to whom the enterprise owes money.
Credit sales
Those sales for which a period for payment following the delivery of the product or service is agreed
Current Assets
Assets that can be quickly turned to Cash. These include cash in the bank, petty cash, cash received but not yet banked, money owed to the business by its customers, the inventory of raw materials for manufacturing, and finished goods
Current Liabilities
Liabilities that are due for payment. These include bank overdrafts, short term loans (less than a year), and what the business owes its suppliers and tax liability
Customs and Excise
A Government Department replace with Her majesty’s Revenue and Customs (HMRC)
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Debit
A term used to identify a transaction of ‘receiving’. Generally this is shown as a left hand column on an accounts page although there is no logical reason why this should be so
Depreciation
The amount by which the value of an asset decreases as it gets older
Discipline
Controlled or systematic behaviour in getting things done in an enterprise
Dividends
Payments made to shareholders of a Corporation or Limited Liability Company.
Doing Your Own Accounts
A discipline for carrying out the tasks of bookkeeping and accounting by the people involved with the enterprise without the assistance of outside resources
Double-entry bookkeeping
A system that allows both entries of a transaction, where it was received and where it was given, to be entered in the accounts
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Earnings
The money that is available to the enterprise after all Costs and Expenses are subtracted from the Income but before income or corporate tax is deducted
Endorse
Marking a document to identify it during the course of recording. Such things as the status of the document in the recording sequence, dates and identity numbers
Enterprise
A term that has become to identify any type of organisation whether it be profit making or not-for-profit. Sometimes referred to as an entity
Earnings
The surplice money that is generated in a business after all of the committed outgoings have been subtracted from the total of income received and due at that time
Equity
The value of an enterprise at any point in time. It is the difference between the assets and liabilities of the enterprise
Expenses
Those outgoings that have no direct contribution to the creation of the product or service that is sold. This is to be distinguished from Costs for accounting purposes. Expenses are incurred whether or not there are any sales
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Fiscal Year
The twelve month period chosen by an enterprise to be its accounting year
Fixed Assets
Assets that have a value at the point in time of the Balance Sheet
Furniture and Fixtures
This is a class of fixed asset that includes office furniture, filing cabinets, display cases, warehouse shelving and similar items
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Gross Profit
The difference between the selling price of a product or service and the cost of that product or service. It is often shown as a percentage
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Her Majesty’s Revenue & Customs
See HMRC
HMRC (Her Majesty’s Revenue & Customs)
A non-ministerial department of the British Government primarily responsible for the collection of taxes, the payment of some forms of state support, and the detection and prevention of smuggling. Known also as the Taxman being responsible for overseeing income, corporation and value added tax!!
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Income
Money received or due to be received by an enterprise from its commercial activities
Income Tax
A tax levied on the income of an individual following deductable allowances
Intangible Assets
Assets of a non-physical or financial nature  such as a patent, trademark or an endowment policy
Inventory
The materials, parts, work in process and finished goods that are held by the enterprise to support the eventual sales
Investment
The placement of capital, generally money, in an enterprise with the expectation of obtaining some income or profit from its use
Invoice
A document that records a confirmed sales or purchase transaction. There are legal requirements as to the format and contents of an invoice to ensure that all of the necessary information is recorded
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Labour
People who contribute to the running of the enterprise. Should be identified, for accounting purposes as either Direct – that which is used to create the product or service and Indirect – those who support the enterprise other than by creating the product or service
Liabilities
What the enterprise owes at a particular point in time. Divided into Current and Long Term
Long-Term Liabilities
Those Liabilities due for payment more than a year after the time of the Balance Sheet
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Manager
Anyone who uses their management skills or has an organizational title of "manager"
Materials
Generally used to identify the materials that are used in creating the product or service
Money
The total value of liquid assets available for an enterprise, such as cash in any form and bank deposits
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Nett Profit
What remains after Expenses and Taxes are deducted from Gross Profit. Stated before tax has been subtracted from the Nett Profit it is usually referred to as Nett Profit Before Tax (NPBT). It is sometimes referred to as Retained Earnings
Net Loss
A negative Nett Profit
Nominal Account
One that is specific to transactions with other enterprises. It would be expected that, ultimately the balance of such accounts would be zero as the transactions of supply are balance with those of payment
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Operating Statement
A Statement showing Income and Outgoings resulting in the current profit or loss of an enterprise
Organised
An ability essential for the management of any enterprise
Outgoings
Money spent
Overhead
A term used for Expenses as defined here
Owner
One who has a legal right to the ownership or part ownership of an enterprise and is therefore entitled to share in the profits made by that enterprise
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Parts
Generally used to identify the parts that are used in creating the product or service
Payables
The total of money that is due to be paid at any point in time
PAYE
Pay As You Earn. A method of collecting income tax from employees by deductions made from their earnings
People
For the sake of these lessons ‘people’ is the term used to identify anyone who is involved in the enterprise
Petty Cash
A relatively small amount of money held in cash by the enterprise. It is normally used to purchase items of small value
Posting
Making an entry in the accounts
Pre-payments
Money paid in advance of the actual completion of the tranaction. Example -rents
Profit
The difference between Income and Outgoings. The profit shown from the provision of goods and/or services is known as Gross Profit. When the expenses of the enterprise are deducted the resulting figure is the Nett Profit
Profit & Loss Statement
See Operating Statement
Profit Margin
Profit expressed as a percentage of Sales. This is sometimes known as Mark-up.
Pro-forma invoice
An invoice sent to a Customer that requires payment before any goods or services would be provided.
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Receipt
Similar to an invoice recording a confirmed sales transaction but generally hand written and used for cash sales
Receivables
Money which is owed to the enterprise at any point in time resulting from the sale of goods and services
Registrar of Companies
An Government organisation responsible for monitoring all filings relating to the 1985 Companies Act, ensuring the document filings are kept up-to-date and deals with any breaches in the Companies Act
Retained Earnings
The money that is available to the enterprise after tax is deducted from Earnings and any payments made to Shareholders
Reconciliation
The procedure of checking entries made in the enterprise’s accounts with those in a bank statement
Revenue
A term used to cover all income that an enterprise receives. Includes Income from Sales, interest earned from money on deposit
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Salaries
Payments made to the permanent staff of a business for their work in the business. Generally these payments are made monthly
Sales
Those activities that will result in getting income for the enterprise
Service
An offering other than product made by an enterprise from which it is intended to charge
Shareholders
The owners of a Corporation or Limited Liability Company
Shares
Certificates issued by a Corporation or Limited Liability Company to its owners, the shareholders. They state how many shares each shareholder has bought and what percentage of the company the shareholder owns. These are also sometimes referred to as Stock.
Small Business
The definition varies according to the geographic area within which the enterprise operates. For the European Union, ‘small’ is an enterprise with less than 50 people involved. In the USA is an enterprise with less than 100
SME
Small and Medium Sized Enterprises. See Small Business
Sole Trader
A form of enterprise that involves only one person as owner and operator of the business
Start Up
An enterprise in its early days of doing business
Statutory Report
A report required to be provided by law. Examples are the returns required by HMRC related to taxation and by the Registrar of Companies related to the activities of registered Companies in the UK
Supplier
An enterprise or person providing goods and service for cash, credit or both
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Tangible Assets
Assets of a physical nature that can be seen and touched. Examples include buildings, motor vehicles, plant and equipment, furniture and fixtures
Tardiness
An attitude that results in being late, overdue or delayed. The same definition can be applied to ineffectual, slow witted, slow to act and a dullard (a fool) !!
Taxation
The process by which a Government collects money from people and enterprises in order to fund the operation of Government
Taxman
See HMRC
T Chart
A convenient way to display double entry transactions to ensure that the entries are made in the correct manner to balance
Trial Balance
A statement showing all the accounts of a business and their balances
Transaction
An event in accounting that involves two or more entries which when looked at together reflect an original document such as a sales invoice or purchase receipt.
Trustee
A legal term which refers to the holder of property on behalf of a beneficiary. In the case of Charities it is those responsible for the management of the finances of the Charity
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VAT
Value Added Tax. A tax on the added value of sales made and is the difference between the tax paid for Purchases and the tax collected on Sales
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Wages
Payments made to the direct employees of a business for their work in the business in creating the product. Generally these payments are made weekly
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Last Update 08-Jan-2012

Date first published 16-Dec-2005