Accounting – the practice of recording income and expenditure, keeping accurate records of payments and receipts and reporting those records in standard formats.

Accrual – A cost or expense that has been incurred during the period, but not invoiced or paid as at the period end.  An accrual is shown as a liability in the balance sheet.

Amortisation – the cost of using an intangible fixed asset.  Similar to depreciation,  it is a calculated value which reduces the value of the asset over its useful economic life. Amortisation is reported as a cost in the profit and loss account.

Annual Return – a form filed each year by limited liability companies.  The form includes details of directors, shareholders, the company’s registered address, SIC code and information on the types and numbers of shares.  It is filed independently of the company’s accounts, and does not contain any accounting information other than share capital.

Assets –  these provide the potential for monetary or economic gain, or enable the company to carry out its core business.

• Tangible Fixed Assets – Property, equipment, plant, machinery, fixtures and fittings or vehicles that are owned, or in some cases leased, by the business for the purpose of carrying out work, providing services, manufacturing goods or generating profit. Fixed assets have a useful life of over one year.
• Intangible Fixed Assets – these are long-term beneficial assets that do not have physical form, they include goodwill and patents.
• Current Assets – items that the company expects to use or sell within a year. They include stock for resale, money in bank accounts and money owed by trade debtors.

Audit – the independent checking of a company’s accounts by external auditors. Not legally required for small companies.

Balance Sheet – this shows the company’s assets (what it owns and is owed), liabilities (how much it owes to others), and how it is funded.

Bookkeeping – the process of recording income and expenditure.

Capital Expenditure (Capex) – the amount spent on purchasing, building or manufacturing fixed assets for the company’s own use.

Company Secretary – the person responsible for ensuring that an incorporated company meets its legal requirements.  Small companies no longer need to appoint a company secretary, in which case someone else must carry out the company secretarial obligations.

Cost of Sales – the direct costs associated with purchasing stock, manufacturing stock or providing the services sold by the company.

Credit – A bookkeeping entry which represents income in the profit and loss account, and a liability in the balance sheet.

Debit – A bookkeeping entry which represents payments in the profit and loss account, and assets in the balance sheet.

Deferred Tax Charge – An amount of tax that will become payable in future, but relates to revenue earned in the current period.

Deferred Tax Credit – An amount of tax that will become due to the company in a future period, but relates to activity in the current period.

Depreciation – the cost of using a tangible fixed asset, spread over its estimated useful life. Depreciation reduces profit and the value of the asset.

Direct Cost – a cost which directly relates to the manufacture of a product, or provision of a service.  Direct costs usually vary with activity.

Distributable profits – the amount of profit that is available to be paid to shareholders.  The company must be able to meet its obligations to pay creditors and tax before distributing profits.

Dividend – an amount of money paid from distributable profits to shareholders of limited companies.

Liabilities – Current liabilities are amounts that the company will need to pay within one year. Long-term liabilities are those that will be payable after one year.

Profit and Loss Account (P&L) – a periodic report showing the company’s sales, costs, taxation and profit or loss generated.

Prepayment – an amount paid at the period end, but relating to the following period. A prepayment is shown on the balance sheet as a current asset.

Revenue – Transactions relating to running the company’s core business activities.  Often taken to mean sales, this term can also be used to distinguish costs of running the business from capital expenditure.

Share Capital – a balance sheet amount showing the value of shares issued and paid, as part of the funding of the business.

Tax – A amount of money payable to the government which is always seen by business owners as too high.

Transaction – a sale, purchase, payment, receipt or bookkeeping entry.

Turnover – the value of sales.  Does not include any other income such as grants, income relating to anything other than the company’s core business activity, sales of assets, or interest earned.

Working Capital – the amount of money a company has tied up in its day-to-day activities.