To most people who are not Accountants, the terminology we use can be down right confusing.
It’s like we’re speaking a different language…
The truth is, we’re all from “Planet Abacus” and want to learn this Earth thing you call “plain speaking”…
But we haven’t quite got a handle on it yet…
But we’re trying!
*jokes*
On a more serious note, I’m sure there are the odd few Accountants out there that give us all a bad name, by purposefully confusing people with jargon to inflate their own ego.
The good news is they few and far between.
Most Accountants want to see you thrive and achieve your dreams. Because that in turn will help us thrive and achieve OUR goals!
Super happy clients are THE best advert you could ever wish for.
Here’s an opportunity to go and grab yourself a coffee and a biscuit and settle in to learn a little bit of our language!
Below are the financial terms you’ll come across during the running of your business. You may not be aware of them all yet, but as your business progresses, you’ll gain a better understanding of them all…(And it’s not really that hard!)
Accounts Payable – Purchases you’ve made on credit. i.e. you bought some stock and need to pay in 30 days.
Accounts Receivable – Sales you’ve made on Credit. i.e. a customer has purchased something from you and is due to pay you in x number of days.
Assets – Big things you own, e.g. buildings, stock, vehicles.
Balance Date – The last day of your financial year.
Beneficiary Current Account – A detailed account showing the amount that has been distributed to a beneficiary from a Trust and the amount that has been withdrawn by the beneficiary, like a bank account. The balance shows the amount available to the beneficiary to withdraw at the end of a period. When the balance is in brackets, it is overdrawn and the beneficiary has withdrawn too much.
Cost of Goods Sold – These are the direct costs involved in getting goods / services ready to be sold, e.g. if I was a joiner, it would be the timber it took to make my product.
Creditors – People or Companies you owe money to. i.e. Suppliers
Current Assets – Cash and other assets that could be liquidated (sold) to cash within 1 year
Current Liabilities – Obligations payable within the next year, e.g. creditors, PAYE, short term loans.
Depreciation – Spreading the value of an asset over its expected useful life.
Directors’ Annual Report – A company report which presents financial information such as business activity, donations, employee remunerations, audit expenditure, etc.
Dividends – Distributions of cash or other assets from a company to its shareholders.
EBIT – Earnings Before Interest and Tax – a measure of your firm’s profit excluding interest and income tax expenses.
Gross Profit – The difference between income and cost of goods / services sold.
Liabilities – Things you owe, e.g. bank loans, creditors.
Net Loss – You’re expenses are more than your income! Net Profit
Non-Current Assets – Assets that are not expected to be consumed or sold within one year, e.g. investments, goodwill.
Non-Current Liabilities – Liabilities that are not expected to be paid within one year, e.g. bank loans, hire purchases.
Notes to the Financial Statements – Notes that clarify information presented in the financial statements, as well as expand on information where additional detail is needed.
Retained Earnings – You’ve made a profit, you’ve paid your tax and dividends and well done – you have profit leftover! This is a running total.
Share Capital – The total amount paid in by shareholders for shares in the company. When you set up a Limited Company, Companies House Defaults to £100 (£1 per share). Most people therefore pay £100 on set up.
Shareholder’s Equity – This is the amount that would be returned to shareholders if all assets were liquidated and all its debts repaid.
Work in Progress (WIP) – You’re in the middle of making your product at the end of a month/year. That is WIP.
Shareholder Current Account – This is also known as Director’s Loan Account or Current Account. When you set up a business you inenvitably end up having to inject some cash in. This is a record of that as well as any non-business related expenses you’ve had paid by the company. You can withdraw this within the year. If the number is in brackets, it means it is overdrawn and you will need to pay money into the company within 9 months of year end or face taxation fees.
Statement of Financial Performance / Profit and Loss Statement – A statement that reports on the income and expenses of an entity for a period, and the resulting net profit / loss.
Statement of Financial Position / Balance Sheet – A statement that reports on the assets, liabilities and owners’ equity of an entity at a specific date.
If it’s still a bit alien, give me a call and we can go through your questions in more detail!