Glossary
As part of our aim of communicating with you in plain English, we are giving some simple explanations for some of the technical terms that you may come across in the worlds of accounting and tax.
Amortisation
The writing-off over time of the value of an intangible asset, such as goodwill.
Asset
Something valuable that you own, such as a bank balance, a vehicle, stock, or a
balance of money that someone owes you.
Balance sheet
A snapshot of the business at a particular date, showing the amounts
owed to other people, and the assets (such as stock, and money in the bank)
that the business owns. The total at the bottom shows the value of the
business at that date (ignoring goodwill and other intangible assets).
Called up share capital
The total face value (typically, £1 each) of all the shares that a company
has issued to its shareholders.
CIS
Construction Industry Scheme. A compulsory method of tax collection,
where a contractor in the construction industry has to deduct tax from
payments to most subcontractors who carry out work for them.
Cost of sales
Those expenses that are closely related to what the business sells, and
go up or down as sales increase or decrease. So, for a restaurant this
would be food and drink, and for a taxi driver this would be fuel.
Creditor
A person or other company that is owed money.
Current assets
Those assets that are short-term in nature. Includes bank balances, and
assets that you expect to convert into money within a year's time, such as
amounts owed by customers, and trading stock.
Current liabilities
Amounts owed to other people, which have to be paid within one year.
Debtor
Amounts owed to you by other people. Often just means amounts owed to
you by your customers.
Depreciation
The decrease in the value of a tangible asset, such as a car, over time.
Directors
The people responsible for running the company, in return for being paid
a salary. They are also often shareholders, but in law these are 2 separate roles.
Dividends
Occasional payments out of company profits to the shareholders of a
company, according to how many shares they own.
Double entry
A system of maintaining the accounting records for a business, where 2
entries are made for each transaction. Though more complicated, this
reduces the scope for errors, and it is therefore usually favoured by accountants and professional
bookkeepers.
Fixed assets
Those assets that have a long-term, ongoing role in the business. This
includes property, equipment, vehicles and goodwill.
Insolvent
Generally used to describe when a person or a company owes more to other
people than they can afford to pay, and it is unlikely that position will improve in
the foreseeable future.
Intangible assets
Those assets that you cannot touch, such as goodwill or a brand name.
Liability
A general term for an amount that is owed to someone else.
National Insurance
A form of tax, charged on earned income (ie not interest, dividends or
rent) in return for entitlements to various state benefits related to
working, and the state pension.
Overheads
Those expenses that are less likely to vary with short-term ups and
downs in the business, for example premises expenses and office salaries.
PAYE
Pay As You Earn. A compulsory method of tax collection, where an
employer has to deduct tax from most wages and salary payments to staff.
Profit and loss account
A statement which shows the profit or loss of a business, and summarises
how it has arisen. It usually covers a year, and also shows last year as a
comparison.
Provision for liabilities and charges
Liabilities of a business, where the amount owing is still uncertain.
Self assessment
A way of managing the tax system, where the onus is on the tax payer to
send information to the tax office, work out the right amount of tax due,
and pay it on time.
Shareholders
These are the owners of the business, who receive dividend payments in
return for buying shares. They do not necessarily run the business - that
is the job of the directors - but in most small companies, the shareholders
are also the directors.
Share premium
If a company has issued shares to any of its shareholders for more than
their face value (typically, £1 each), this is the extra money that the
company received for those shares.
Tangible assets
Those assets that you can touch, such as property, equipment and cars.
Tax year
This usually means the personal tax year to 5 April. Ever wondered why it is the 5th of the month?
It dates back to the year 1752, when the calendar
changed from Julian to Gregorian, and some extra days had to be found to
keep tax revenues up.