Glossary

There may be a number of terms used on this site which may not be familiar to you so I have given below a glossary of some of the terms used in accounting (and on this site), you may need to refer back to this page as your progress.
Profit and Loss Account– A statement of the business income and business expenditure used to calculate the businesses trading profit.
Balance Sheet– A statement showing the financial position of a business at a given date.
Fixed Asset– Is an asset of a business which is expected to last a year or more split into tangible and intangible.
Current Asset– Is an asset of a business such as stock in hand, Cash, Bank Balances, Debtors.
Debtors– A person or company who owes the business money.
Liability– A debt of the business usually split into Current Liabilities which are normally payable within a year and long term liabilities which are owed in more than a year.
Current Liability– Is a liability that is normally payable within a year.
Long Term Liability– Is a liability that is owed in more than a year.
Capital Account– Is a summary of the owners’ equity in a business.
Dividend– Is a payment due to shareholders as a return on their investment made into a company.
Gross Profit– Is a calculation of the profit after deduction direct costs from income.
Net Profit– Is a calculation of profit after taking all expenses of the business from the gross profit.
Turnover– Is the total value of all sales in the business.
Expense– Are costs directly spent in the course of the trading activities of a business (excluding direct costs).
Direct costs– Are those costs which are directly related to sales (i.e. cost of products for sale, direct labour).
Depreciation (Depn)– A calculated amount to write the cost of a tangible fixed asset off over its normal working life.
Amortisation– A calculated amount to write the cost of an intangible fixed asset off over its normal working life.
Taxable Profit– The adjusted net profit used for calculation of tax.
Input VAT– Vat reclaimable on purchases made in the course of a VAT registered business.
Output VAT– Vat payable on sales made in the course of a VAT registered business.
Debit– Is entered on the left side of a ledger which will directly correspond to an equal value credit (usually  abbreviated Dr).
Credit–Is entered on the right side of a ledger which will directly correspond to an equal value debit (usually abbreviated Cr).
Trial balance– A list of balance on accounts in the ledger split into debits and credits used to create a profit and loss and balance sheet.
Income tax– Is the tax due by an individual on his/her income.
National Insurance– Is payable by self-employed and employed people classed as either class 1A, class 1B, class 2, class3 or class 4 to pay for certain state benefits.
Corporation tax– Is the tax payable by limited companies based on their profit.
Journal–  An adjustment made using double entry methods to adjust the accounts of a business.
Invoice– A document detailing the sales in a business.
Paying in book– A book from the bank used for paying money into your account.
Cheque book–A book of cheques which are used as a method of paying for goods or services from your bank account written by the drawer and paid to the payee listed on the cheque normally takes a period of time to pay through the bank clearing system.
BACS– This is an acronym for Bankers Automated Clearing Service it is an electronic method of paying money from your bank account.
CHAPS– Clearing House Automated Payment System is a same working day transfer from one person’s bank account to another not as widely used now due to FPS but still used when banks don’t offer FPS or if transaction is above FPS limits.
FPS-Faster Payments Service used to transfer money on the same day offered by most UK banks but normally has a transaction value limit.
Bookkeeper– The person who records the financial transactions of the business.
Shareholder– The person who owns a company by virtue of their investment in the business by purchasing shares in the company.
Director– The person who runs the company and is on the board of directors and is responsible for the day to day operations of the company.
Tax Return– A document that you send to HMRC to show income during the period and used to calculate tax liability.
HMRC– HM Revenue & Customs the government body who is responsible for collection taxes on behalf of the government and the policing of the tax system formed by a merger if the Inland Revenue and HM Customs and Excise.
Stocktakes– Are a calculation of the stock value at a given date they must be prepared at the financial year end as they have a direct effect on the profit or loss of a business but they can also be taken during the year if interim management profit and loss accounts are to be prepared.
Sales Ledger–The record of sales from the business showing the amount of money received for goods or services and the amount of money owed to the business (debtors).
Purchase Ledger–The records of purchases made by the business showing the amount of money paid for goods or services and the amount of money owed by the business (creditors).
Break-Even Point–The point, at which the business income and expenditure match which results in no profit or loss.

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