How many times have you ended a call with your accountant more confused than you were before?
It can be daunting at times trying to understand the financials of your business. To help we have compiled a list of common terms used in the industry along with their definition.
Accruals: The recognition of an expense or revenue that has occurred but has not yet been recorded
Balance sheet: Financial report that summarises a company’s assets (what it owns), liabilities (what it owes) and the owner or shareholder equity, at a given time. It follows the equation: asset + liabilities = equity.
Book value: The original value of an asset minus its accumulated depreciation. It shows how an asset loses value.
Creditors: A person/entity that your business owes money to
Debtors: A person/entity who owes money to your business
Trial balance: A business document in which all ledgers are compiled into debit and credit columns to ensure a company’s bookkeeping system is mathematically correct.
Depreciation: This is the decrease in the value of an asset over time.
Retained earnings: The remaining cash after paying all outstanding bills and distributing shareholder dividends.
Audit trail: A report that shows details of all the changes that have been made to a set of accounting records. The report may include details of who made the change when the change was made and the impact the change had on the business’s accounts.
Capital Allowances: A means of saving tax when your business buys a capital asset.
Goodwill: An intangible asset that forms part of a business’s capital assets. It reflects positive sentiment for a business, along with the business’s reputation and the size of its existing customer base. Usually considered when valuing a company when being purchased.
Memorandum of Association: A legal statement signed by shareholders or guarantors when they agree to form a limited company.
Off-payroll: A classification for service providers who are paid by methods other than payroll, Off-payroll applies to freelancers, consultants and contractors. The term is commonly associated with the public sector.
RTI: short for Real-Time Information. Businesses use RTI to report wages, salaries, PAYE and National Insurance to HMRC.
SA302 form: This shows an individual’s or business’s tax break down and evidence earnings based on Their latest Self Assessment tax return. It can be used to prove earnings and come in handy when you are applying for a mortgage.
Tax written down value: The original value of an asset less any capital allowances you’ve claimed on that asset.
UTR number: (Unique Taxpayer Reference number) is a 10-digit code issued by HMRC to individual taxpayers and companies who need to complete a tax return. HMRC sometimes refers to the UTR number as a ‘tax reference’.
VATable sales: Sales that your business will have to charge VAT on if it is registered for VAT.
Year end: The end of a business’s accounting year. It is short for ‘accounting year end’. The business prepares its accounts every year to the year end.