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A jargon busted summary of the key accounting terms.

One of our core values is clear communication, and as part of this we promise to be straight talking, honest and eliminate jargon.  This is why we have created this A-Z of accounting terms to help you better understand the information in your accounts.


Accounting = This is the process of identifying, recording, analysing and explaining the financial implications of business transactions and decisions to enable business owners to understand the performance of their business. This also helps them to make decisions and take actions which assist in achieving the objectives of the business.

Accounts payable= Also known as trade creditors. The amount a business owes suppliers for goods/services received but not yet paid for. The balance outstanding is shown in the balance sheet until it is paid.

Accounting period= The time frame covered by a set of financial statements. This is usually twelve months, but many businesses will also prepare financial statements monthly, quarterly or half yearly too. Accounting periods are used to estimate the profit/loss and financial position of a business for a specific period of time.

Accounts receivable= Also known as trade debtors. The amount of money owed for goods/services provided by a business to its customers who haven’t yet paid. The balance outstanding is shown in the balance sheet until it is paid.

Accrual = Amounts of money that have been earned or spent, but not yet paid in the accounting period. These are shown in the balance sheet – a debit balance shows that money is owed to the business and a credit balance shows the business owes money to others.

Accruals basis = This is an accounting method that records revenue and expenses when they are incurred, regardless of when cash is actually exchanged. This provides a more accurate view of finances as it acknowledges money that will be coming or going from the business. Certain types and sizes of business are required to use this method.

Assets = Items owned by the business that can provide future economic benefit.  Assets can be tangible which are physical items such as equipment, cash, inventory, vehicles etc or intangible which do not have a physical presence but offer long term value to the business such as patents, trademarks, goodwill etc.


Bad debt = This is the amount of debt written off from customers who are unable to pay. This is recorded as an expense in the profit and loss.

Balance sheet = Also known as the Statement of Financial Position. This is a statement which shows the assets (how much a business owns) and liabilities (how much a business owes) at any given point in time. If the total of the balance sheet is a negative number, the business owes more than it has the resources to pay i.e., it is insolvent.

Benchmarking = This is the practice of comparing key data from your business against the same data from other similar businesses.

Bonus shares = These are additional shares that are issued to existing shareholders based on the number of shares already held, at no extra cost.

Bookkeeping = This focuses on the recording and organisation of all financial transactions undertaken by a business.

Budget = A short term financial plan used to predict future income and expenses. It provides essential information for operating the business, managing unexpected challenges and turning a profit.

Business plan = A document that describes a business’ strategy, objectives, marketing, financial forecasts and other information.


Cash accounting = This is a VAT accounting method available to most businesses which enables a business to pay VAT to HMRC once it has received payment from the customer.

Cash basis = This is an accounting method that records revenue and expenses when the money is received/paid out. This is a simpler method of accounting; however it is only allowable method for sole traders and partnerships. There are certain costs which aren’t allowable for tax relief when using this method. For more information:

Cashflow = This refers to the money coming in and going out of a business. It refers to the physical cash in hand, and the cash in the business bank account(s). This is usually measured over a period of time, i.e., each month or quarter. A positive cashflow means that the business has received more cash than it has spent. On the other hand, negative cashflow means that the business has spent more money than it has earned.

Cost of sales = These are the day-to-day running costs of a business that relate directly to induvial sales the business makes. Examples would be raw materials to make goods for sale, postage of finished goods.  Businesses that sell services generally have fewer or no cost of sales.

Credit = Under double-entry bookkeeping a credit is recorded on the right-hand side of an account and indicates increases in liabilities, revenue or capital and decreases in assets or expenses.

Current asset = Cash or assets that can be converted into cash quickly. Current assets are usually used for the day-to-day expenses of running a business e.g., cash and cash equivalents, inventory, trade debtors. The balance of these is shown in the balance sheet.

Current liability= Money that a business owes that is due to be paid within a year. Typically, these could be money owed to HMRC in the form of VAT or Corporation Tax.


Debit = Under double-entry bookkeeping a debit is recorded on the left-hand side of an account and indicates increases in assets or expenses and decreases in liabilities, revenue or capital.

Depreciation = This is an accounting tool used to spread the value of a fixed asset over the years that it will be useful to the business. Depreciation is posted to the company’s profit and loss account but is not allowable for the calculation of corporation tax. There are two methods used to calculate depreciation:

  • Straight-linespreads the cost of the fixed asset equally over its expected useful life.

  • Reducing balance calculates the annual depreciation charge on the value of the fixed asset less the depreciation from the previous year.

Directors’ loan account = The director’s loan account holds a list of all the transactions that have occurred between a director and the company. This appears in the balance sheet. If this is a debit balance, this means it is overdrawn and the director owes the company money. On the other hand, if it has a credit balance, this means the company owes the director money. Depending on the balance at the end of the year, the company and director may have to pay tax on the director’s loans.

Director’s loan = Money taken from a limited company by a director that is not owed to the director i.e., related to salary, dividend, or a business expense reimbursement is often referred to as a director’s loan. Conversely, it is also possible for a director to lend the company money, either by putting cash into the company’s bank account or by spending their own money on company costs. These will be recorded in the director’s loan account and included in the company’s annual accounts.

Dividend = An amount of money paid to an individual who owns shares in a company. Only companies that issue shares can pay dividends. Dividends are paid from retained profits (profits after tax) and as such are not reflective of a business’s available cash. Directors must hold a meeting to check there is enough profit to pay dividends and they must be recorded as a board minute when issued.

Double-Entry Bookkeeping = A bookkeeping system that keeps the books balanced. Every time a transaction is posted in your business’ books, it goes in at least two places – in one account it will be a debit, and a credit in another – hence the name double-entry.

Drawings= This relates to sums of money that a sole trader or partner takes out of the business bank account.


Employment allowance= This is a reduction of employer’s national insurance (NI) of up to £4,000 (2021/22) for certain employers.

Equity = This is value of a shareholders’ investment in a limited company.

Expenses = These are a type of business cost.


FRS105 = A financial reporting standard that is available to companies in the UK that are micro-entities. This standard allows companies to keep a simpler set of accounts than those required of small, medium and large companies.

Final accounts = This term is used to describe the accounts submitted to HMRC and Companies House by limited companies and limited liability partnerships after the end of every accounting year. These are also known as year end accounts or statutory accounts.

Financial accounting = This is the recording and presentation of a business’ transactions to supply information to the owners regarding the performance of the business and their investment. The information is presented in a set of financial statements.

Financial statements= This is the collective name for the reports which contain the financial information of a business. The elements which make up the financial statements are:

  • Income statement

  • Balance sheet

  • Statement of changes in equity

  • Statement of cashflows

  • Notes explaining accounting policies and other relevant information.

Financial year = This runs from the 1st April to the 31st March of the following year. The financial year applies to companies that pay corporation tax. HMRC may change the rate of corporation tax at the beginning of a new financial year.

Fixed asset = Assets of a business that are held for more than twelve months.


Going concern = This is a concept which states that a business is assumed to continue in existence for the foreseeable future.

Gross profit = This is the total of a business’ income from sales less the day-to-day outgoings (cost of sales) that relate directly to making sales.



Income statement= This statement summarises a business’ profit or loss and shows the business’ financial performance over a given period of time.

Incorporated = A business that has registered as a limited company with Companies House.  This type of business is a separate legal entity from the owner(s); limiting an individual's liability.

Input VAT = This is the VAT added to certain goods and services when they are purchased. The amount of input VAT that’s added depends on whether the goods/services are taxed at the standard, reduced or zero rate of VAT. If the business is registered for VAT under the standard scheme, it can usually reclaim any input VAT they have paid.

Invoice accounting = This is a VAT accounting method which requires a business to pay HMRC the VAT on the invoices issued to customers regardless of whether it has been paid or not. This also enables a business to reclaim the VAT on bills before paying suppliers.


Journal = This is an accounting mechanism that moves an amount from one account to another.



Liability = The amount of money owed by a business. Liabilities can be split into two categories:

  • Current liability = Money that a business owes that is due to be paid within a year. Typically, these could be money owed to HMRC in the form of VAT or Corporation Tax.

  • Non-current liability = Money that a business owes but can be paid after a year, such as long-term borrowing, long term leases or deferred taxes.

Limited cost trader = This is appliable to businesses using the VAT flat rate scheme. HMRC states that a limited cost trader is a business that only:

  • spends less than 2% of its VAT-inclusive sales for that quarter; or

  • more than 2% of it’s VAT-inclusive sales for that quarter but less than £250 on goods (excluding food/drink for the business or its staff, capital expenditure, vehicles, parts and fuel).


Making Tax Digital (MTD) = This is a government initiative that sets out a vision for a digital tax system “to make it easier for individuals and businesses to get tax right and keep on top of their affairs”.

Management accounts= These are not required by law, but many businesses will produce these on a monthly or quarterly basis. Management accounts uses financial information to help business owners make decisions affecting the future of the business, evaluate past decisions and to make decisions about the allocation and use of a business’ resources. Managers will use this information to formulate strategies, to plan and control the business.

Micro-entity = This is the name given to a very small company. A company will be classed as a micro-entity if it has any two of the following:

  • a turnover of less than £632,000

  • £316,000 or less on its balance sheet

  • 10 employees or less


Net book value = This is how much a fixed asset is showing as worth in your business’ accounts. This is calculated as the asset’s original cost, less depreciation posted to date.

Net profit = This is the total of a business’ income less the total of it’s day-to-day running costs.

Nominal account = These are the categories in your records where transactions are posted by double-entry bookkeeping.

Non-current asset= Also known as fixed assets. These are assets of a business that are held for more than twelve months. For example, equipment, fixtures and fittings, motor vehicles, land and buildings. The value of these is shown in the balance sheet.

Non-current liability= Money that a business owes but can be paid after a year, such as long-term borrowing, long term leases or deferred taxes.


Output VAT = This is the amount of VAT that a business charges on its sale of goods/services.


P11D(b) and P11D = These are used to report end-of-year expenses and benefits to HMRC.  These expenses and benefits are used personally by an employee but are paid for by the company.  These expenses and benefits are deemed not to be "wholly, exclusively and necessary" for business purposes, therefore you will be taxed on these.  Examples of such expenses and benefits include private health insurance, a company car or non-business expenses.

P45 = This document is provided to employees when their employment ceases. It details income received and tax paid along with other information for future employers. P45's are also issued when you cease claiming Jobseekers Allowance.

P60 = This document is issued to all employees who are on a company's payroll at the end of the tax year (5th April).  This details the income received and tax paid in the tax year. You will also receive a P60 if you have income from a private pension.

Payment on account = These payments on account are required if your tax liability on your self assessment tax return exceeds £1,000 and less than 80% of your income tax is paid at source.  These are advance payments towards the following tax year's self assessment and is equal to your most recent tax liability divided by two.  The first payment is due in January and the second in July.

Payroll = The process of calculating how much to pay employees.

Petty cash = A small amount of physical cash that belongs to a business and is kept on its premises. This is typically used for small incidental office costs such as tea and coffee for staff, postage stamps etc.

Prepayment = Money that has been paid in advance for a business cost. This cost stays in the company’s balance sheet until such a point that the service has been received, at which point it moves into the profit and loss account.

Profit or loss account= This is a summary of the business’ income less day-to-day running costs over a given period. Also referred to as the P&L.



Reducing balance depreciation = This calculates the annual depreciation charge on the value of the fixed asset less the depreciation from the previous year.

Retained profit = This is the total of the accumulated profits/losses after corporation tax and dividends that has been kept in the accounts rather than paid out to shareholders. The only way that retained profits can be extracted from a company is through dividends. Also known as reserves.

RTI = This is short for Real Time Information, and these are used to report wages, salaries, PAYE and National insurance to HMRC.


Share capital = This represents the nominal value of the shares that have been issued.

  • Ordinary shares = The most common type of shares issued by a company. They carry one vote per share and entitle the owner to participate equally in the company’s dividends. They rank after preference shares with regards to rights to capital. These shares can hold different classes.

  • Preference shares = Preference shares entitle the owner to receive a fixed amount of dividend every year. This is received ahead of individuals that hold ordinary shares.

  • Non-voting shares = Non-voting ordinary shares usually carry no right to vote and no right to attend general meetings. These shares are usually given to employees so that remuneration can be paid as dividends for the purposes of tax efficiency for both parties.

Shareholder = The name given to a person who owns shares in a limited company.

Straight-line depreciation = This spreads the cost of the fixed asset equally over its expected useful life.

Statement of financial position = Also known as a Balance Sheet. It gives an overview of a company’s financial position at any given point in time. It would typically include assets, liabilities, and equities.

Statement of cashflows = This is a financial report that shows how cash has been generated by a business, and how cash has been spent in the year. The purpose of this report is to show:

  • how positive or negative cash flows have been generated

  • the main financing activities for the year

  • how the company has met its obligation to repay loans and pay dividends

  • why the reported profits differ from the cash flows during the year

Statement of changes in equity = This details any changes that have occurred to the share capital and reserves during the year.

Statement of profit or loss = Also known as the income statement. This is a summary of the business’s income and day-to-day running costs over a given period. If the business’s income is more than its costs, it has made a profit. On the other hand, if the costs exceed the income, the business has made a loss.


Trade creditors = A supplier who has sent the business goods, or provided services, which have not yet been paid for. The amounts in trade creditors will always show inclusive of VAT.

Trade debtors = A customer that has not yet paid for goods or services. If the business is VAT registered this will show inclusive of VAT.

Trial balance = A report that shows the totals of all the business’s accounts at any given point in time. This report is for internal use only and the totals on the debit and credit sides should always be equal.

Turnover = The sales a business makes over a given period of time. If the business is VAT registered, this will be the total of sales excluding VAT; this is because the VAT element is not money that the business has earned and will keep – it is money that has go be paid to HMRC.


Unincorporated = A business that is owned by individuals.  With this type of business, the owner(s) are wholly responsible and liable for the actions and results of the business.


VAT = This stands for value added tax and is applied to most goods and services. There are different rates of VAT in the UK:

  • Standard rate 20% - most sales of goods and services in the UK are subject to this rate.

  • Reduced rate for hospitality 12.5% (in place until 31st March 2022) – this is applicable to hospitality, hotel and holiday accommodation and admissions to certain attractions (

  • Reduced rate 5% - Examples of goods and services subject to this rate of VAT are domestic gas and electricity, children’s car safety sears and products to help people stop smoking.

  • Zero rated 0% - although no VAT is paid or reclaimed on these goods/services they are still considered to be subject to VAT. Examples include baby and children’s clothes, books, magazines and newspapers, flights and train tickets.

Certain goods/services are exempt or outside the scope of UK VAT.

If your business is registered for VAT, you must charge the applicable rate of VAT

VAT taxable turnover = This is the total value of everything a business sells that is not exempt from VAT. A business must register for VAT with HMRC if this exceeds the VAT registration threshold (£85,000 2021/22) over any 12 month rolling period.

VATable sales = These are the sales that a business will need to charge VAT on if they are registered for VAT.


Workplace pension = These are pension schemes that employers must set up to enable employees to save for their retirement. Under auto-enrolment, it has now become compulsory for almost all employers to set up pension schemes.



Year end = The end of a business’ accounting year.


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