We know that accountancy and business can be complicated and full of jargon, we’ve collected together a list of some of the terminology you may hear and added definitions to help you to understand what these mean.
|Accountancy||Is the general practice of capturing and recording money coming into and leaving a business. This is to calculate it’s profit or loss and financial soundness of the business or company.|
|Accounts||A list and record of transactions showing money paid into and out of a company.|
|Bookkeeping is the recording of money paid into a business and money paid out.
This would include keeping records of sales of goods and services, and recording money paid out as expenses to keep a record of allowable expenses for the accountant to then calculate the profit or loss at the end of the financial year.
|Directors loan||This is money loaned to the business by the directors, it is different to an investment as it is repayable like a bank loan.|
|Dividend||A dividend is the percentage you are entitled to receive of the company’s profit. The total available profit is divided up and paid to the shareholders. For instance if there were 100 shareholders and you owned 1 share you would get 1% of the profit. If you owned 10 shares you would receive 10% of the profits.|
|Expense||Expenditure/expense – Money leaving the business would be expenses such as gas and electricity bills, rent, the cost of stock and so on.|
|Financial accounts||This involves the collection, recording and extraction of financial information, and the summary of it in the form of a profit and loss account, a balance sheet and a cash flow statement. These reports are then used to calculate the profit or loss of a company and how much tax the company may owe.|
|Float or Floating||Float & Floating are terms normally used to describe the process when a company chooses to raise funds by making shares available to the public to buy via the stock exchange, this is ‘floating on the stock exchange’.|
|HM Treasury||Her Majesty’s Treasury is the government’s economic and finance ministry, maintaining control over public spending and how much money needs to be raised through taxation to provide the services the country needs such as hospitals, roads & rail networks, police & fire services.|
|HMRC||Her Majesty’s Revenue and Customs (known as HMRC) is the UK tax authority which is responsible for collecting taxes in the UK on behalf of the Government.|
|Income||Money coming into the business this could be through sales of goods, investment from share holders or bank loans.|
|Invoice||An Invoice is a document sent to a client or customer which states how much money is due to be paid for a job that has been done or service that has been provided.|
|Ledger||Is a list of money being paid into and paid out of a business, this is termed as Income and Expenses. This data is often captured in the form of bookkeeping books, on a spreadsheet or via online systems like quickbooks or quill.
Income – Money coming into the business this could be through sales of goods, investment from share holders or bank loans.
Expenditure/expense – Money leaving the business would be expenses such as gas and electricity bills, rent, the cost of stock and so on.
|Ltd||Ltd denotes a private limited company. Limited companies are legal entities in their own right and are owned by company directors. If you wanted to buy a share you would need to privately approach the directors to invest in the company and become a director. Registering as a limited company also protects the directors as the Limited company is a legal entity if the company was to go bankrupt it limits the directors liability only to the amount of money invested and not to any further debts.|
|Management accounts||Management accounts are a set of financial reports to show the company directors, partners & shareholders how the company is performing.
These accounts reports will help business partners in management decision making, adopt management systems for planning and performance, and using financial reporting to help design a company’s accounting strategy for the future.
|Management information||Management information also called MI is information regarding specific parts of the business to show how well it is performing.This could be sales figures following a marketing campaign, or costs associated with running the business and what areas of the business are profitable and are not. This would help business leaders make strategic decisions for the business, what changes need to be made to ensure the business is profitable for it’s shareholders.|
|Management report||This is a report showing data regarding how the business is performing and is a source of business intelligence that helps business leaders make more accurate, data driven decisions about strategies and changes to the business.|
|Partnership||Is similar to a sole trader but there is more than one business owner who run the business as a joint venture.|
|Payroll||Payroll is the process of keeping records of staff employed by a company, including records of holidays taken sickness as well as handling payments for wages and the deduction of taxes and other deductibles from salaries, the payroll department would also make monthly payments from the employer to the employee.|
|Plc||PLC stands for public limited company – this is a company where the shares are available for any member of the public to buy or sell on the stock exchange. Each share has a value – so you can buy as many shares as you would like to or can afford, the companies profits are then shared out to the shareholders via a dividend – you will receive a small dividend for each share so the more shares you own the bigger percentage of the profits you will receive.
If the Public Limited Company was to go bankrupt you would lose the value of your shareholding but would not be responsible for any of the company’s unpaid debts.
|Shareholder||A shareholder is a person or a company that has invested money into a business. In exchange for their investment they will own a ‘share’ of the company which entitles them to a percentage share of the company’s profits in return.|
|Shareholder funds||Shareholder funds or Shareholder equity also referred to as the owner’s residual claim after debts have been paid, is equal to a firm’s total assets minus its total liabilities.|
|Shares||When you invest money into a business you may become a shareholder. The size of your shareholding would depend on the size of the investment you made, this in-turn would affect the size of the percentage of the profits that you were entitled to receive as a dividend.|
|Sole trader||Sole trader is when you chose to set up a business where you remain as the legal entity as a person, if the business was to fail you would lose all money that you have invested as well as being responsible for any debts left outstanding.|
|Tax||Tax is the method that the government uses to raise funds to run the country. There are various types of tax which are applied as a percentage to the cost of goods and services.|
|Tax accounting||Is a type of accounting that makes sure tax laws are followed, and to ensure that the correct level of tax is paid to the tax authorities – in the UK this is HMRC.|
|Tax Planning||This is the process of predicting when profits or gains may be made and planning ahead to ensure that it is tax efficient. For instance by ensuring that all allowable expenses are included to ensure that you are not paying too much tax or by putting money into certain investment that may attract a lower tax rate.|
|Types of Tax||A few of the main types of tax are:
VAT – Value Added Tax which is added to the cost of goods & services purchased. VAT is currently 20%.Income Tax – this is the percentage of profits which is paid in tax. The percentage paid varies depending on the level of earnings and the income threshold you fall into.Insurance premium tax – this tax is added to general insurance premiums currently 12%
Import tax or Import Duty– this is the tax paid on goods imported into the UK from abroad.
Capital Gains Tax – a tax on the profit when you sell (or ‘dispose of’) something (an ‘asset’) that’s increased in value. It’s the gain you make that’s taxed, not the amount of money you receive.
Inheritance Tax / Estate Tax – This is a tax paid based on the value of property inherited from someone who has died. There is a threshold currently £325,000 – the tax is only payable on the value above the inheritance tax threshold.
|Working Capital||Working capital is a financial metric which represents operating liquidity available to a business, organisation or other entity.|