We often get asked when reviewing accounts what certain things mean, so we thought it might be worth running through a few common terms with a brief explanation, although there are some less common things for the less popular letters, so here we go –
A – Accruals – charges for work done or goods delivered in a period but haven’t been invoiced until after the period ends.
B – Balance Sheet – a financial statement that states the “net book value” of a business, assets less liabilities, to show the equity in the business.
C – Creditors – money owed to suppliers at any point in time.
D – Debtors – money owed from customers at any point in time.
E – Equity – the value of funds in a business being the balance sheet value of capital & reserves.
F – Fixed Assets – long term assets that a business uses to produce its goods & services
G – Gross Profit – the profit on sales after deducting the cost of the goods sold from the sales.
H – Historical Cost – the value of an asset at its original cost, without inflation or revaluation.
I – Intangible Assets – a fixed asset that has a value, but does not physically exist, such as trademarks, copyrights, goodwill or software.
J – Joint Account – a bank account that is shared by more than one person.
K – Key Industry – a type of industry that is essential to the functioning of other industries, one that supplies raw materials for the manufacture of other products.
L – Liability – the collective term for the values of amounts owed at a point in time, for example creditors, accruals, bank loans, PAYE, VAT etc.
M – Making Tax Digital – HMRC name for the introduction of filing returns electronically, starting with VAT returns, then income tax returns in 2024 and corporation tax returns at a later date.
N – Net Profit – the profit generated by a business after deducting all business expenses.
O – Option To Tax – the election for VAT purposes to make a particular piece of land or property standard rated for VAT purposes, rather than the normal exempt rated. Supplies of the property made after an option to tax is granted are then subject to VAT being charged, such as on rental payments.
P – Prepayments – the value of something that is paid for in advance of the goods or services being provided at a later date, for example insurance paid annually in advance.
Q – Quick Assets – assets that are already cash, or can be converted to cash with minimal or no discounting, such as debtors
R – Restricted Funds – reserves built up that can only be used to spend in a specific way in a not-for-profit organisation. An Asset Replacement Reserve for example can only be used to renew fixed assets.
S – Saint & Co – if you don’t already know, Saint & Co are a firm of accountants dedicated to helping you and your business succeed. Here to help every step of the way, from payroll & accounts to succession & inheritance tax planning.
T – Tangible Assets – a fixed asset that physically exists such as a van, machine or property.
U – Unrestricted Funds – reserves built up that can be used to spend in any way that a not-for-profit organisation sees fit in order to further their work.
V – Variable Costs – the costs in a business that change in proportion to the level of sales or work done.
W – Work In Progress – the value of partially completed work awaiting completion.
X – Xero – A cloud based accounting software that can be used as a financial management tool to run your business, while also being able to file returns to HMRC and process payroll for your business.
Y – Year To Date – the period from the start of the current year up to the present, for example the businesses financial year.
Z – Zero Based Budgeting – a process that allocates funding based on an assessed value or necessity rather than on historic budget levels.
If any other terminology is unclear or not understood in your accounts, contact us and we will be happy to explain in a straightforward manner.