Haines Watts Glossary

Accountant

Not all heroes wear capes.  [Some wear trousers and shirts. Even on dress down days.]

There are many different types of Accountant and Accountancy practices.  Haines Watts are Chartered Accountants, regulated by the Institute of Chartered Accountants in England and Wales (“ICAEW”).  Our offices comprise of staff qualified as Chartered Accountants, Chartered Certified Accounts, and Chartered Tax Advisers, as well as many other qualifications, plus those training for qualifications.

Accounting Policies

The rules used in the measurement of amounts to be included in the Accounts

Accounts

[also known as Financial Statements]

• a written statement of the financial activity and performance of a business over a period of time [Profit and Loss account], plus
• a snapshot of its assets and liabilities at the end of that same period [Balance Sheet]

Sometimes accounts will also include a statement of Accounting Policies, Cash Flow statements, and notes to the accounts

Accounts Payable

[also known as Purchase Ledger or Trade Creditors]

Money that a business owes to its suppliers

Accounts Receivable

[also known as Sales Ledger or Trade Debtors]

Money that customers owe for products or services

Accrual

Amount owing to a supplier for goods and services where the supplier has not yet invoiced for them

Accruals Basis (1)

For Accounts, most businesses are required to use the Accruals Basis – this measures income and costs based on legal and constructive obligations rather than just on whether money has been received or paid

Accruals Basis (2)

For VAT reporting, most businesses are required to use the Accruals Basis –this means that the business’s liability to VAT is calculated based on invoices issued to customers and invoices received from suppliers, regardless of whether those invoices have been paid

Administrative Expenses

[also known as Indirect Costs or Overheads]

Costs incurred in the general running of a business rather than directly incurred in generating Sales

Amortisation

Depreciation of an Intangible Asset

Asset

Anything that a business or individual owns which:

• has a value; and
• is not immediately consumed

Audit

An independent examination of a Company’s Accounts

Balance Sheet

A snapshot at a single point in time of all of the Assets and Liabilities of a business

Capital

Capital can have many meanings.  Frequently it is taken to mean the value of Assets and funds needed to run the business

Capital Expenditure

Expenditure on Assets i.e. costs that go in to the Balance Sheet

Capital Gains Tax (CGT)

Tax payable on the sale of personal assets/property

Cash Basis (1)

[also known as Receipts And Payments Basis]

Some smaller businesses are allowed to prepare their Accounts on a Cash Basis i.e. money received versus money paid out

Cash Basis (2)

Some VAT registered businesses are allowed to calculate their VAT liability based solely on cash movements [even if their Accounts are prepared on an Accruals Basis!]

Cash Flow

The amount of money coming into the business versus the amount going out

Company

Although often used as an alternative to ‘Business’ strictly a Company refers to a Limited Company

Cost Of Goods Sold

[also known as Cost Of Sales]

See Direct Costs

Cost Of Sales

See Direct Costs

Credit

[context – book-keeping; Double-Entry]

Represents wither a Liability or an Income

Credit Control

System for monitoring and collecting money owed by customers

Credit Rating

A measure of the perceived risk of borrowers when lending or when allowing customers to pay in arrears

Current Assets

Cash and other assets that typically readily convert to cash (such as Trade Debtors; Stock, etc)

Current Liabilities

Short term Liabilities and amounts payable on demand

Custom Duties

Tax payable on goods moving across international borders

Debit

[context – book-keeping; Double-Entry]

Represents either an Asset or a Cost

Deferred Tax

Notional tax adjustment applied to a Limited Company’s Accounts

Depreciation

Estimation of the reduction in value of a fixed asset over a period of time

Direct Costs

Costs incurred directly as a result of selling goods or services e.g. Stock purchased for resale, manufacturing wages, etc

Dividend

Income paid by a Company to its Shareholders

Double-Entry

[context – book-keeping; Debit and Credit]

The concept that accounts must balance and therefore for every Debit entry there must be an equal and opposite Credit entry.  Computerised accounting packages deal with the Double-Entry, so typically most businesses only need to apply the concept when processing Journals.

Interesting fact – if there is an error in a set of Accounts, because double entry applies, in fact there must always be two errors as there must be a corresponding, equal and opposite error elsewhere in the accounts [we accept that ‘interesting’ is a subjective term!]

EBITDA

A measure of profit, often used in the valuation of a business, it stands for Earnings Before Interest, Tax, Depreciation and Amortisation.  It also excludes Dividends [so it should really be EBITDAD!]

Equities

Synonymous with shares

Equity

Equity has various meanings, but often it is used in the context of the value of a Limited Company attributable to the Shareholders

Estate

[context – personal wealth]

The value of your possessions net of any debts

Financial Statements

See Accounts

GAAP (Generally Accepted Accounting Principles)

[context – measurement]

Compulsory rules applied to the measurement of Income, Expenditure, Assets and Liabilities in the Accounts [unless the business is allowed to use the Cash Basis]

Gross Profit

Profit measured only by the value of goods/services sold less the direct costs of making those Sales

Impairment

[context – measurement]

Value by which an Asset has diminished due to factors other than the mere passage of time

Income

Monies receivable from:

• sales of goods and services
• investments

Income And Expenditure Account

See Profit and Loss account

Income Tax

Tax paid by individuals on income

Indirect Costs

See Administrative Expenses

Inflation

The percentage by which the price of specific goods or services increases over a period of time

Inheritance Tax (IHT)

Tax payable on the value of an individual’s Estate on their death

Intangible Asset

Business asset that has no physical attributes e.g. goodwill, patents, websites etc

Interest

Income paid to a lender, or in respect of funds deposited, based on the value of the loan/deposit

Joint Tenants

[context – property ownership and Estate planning.  See also–Tenants In Common]

Beneficial owners own the property in equal shares which, on death, passes to the surviving owners by default

Journal

[context – book-keeping]

A manual entry to adjust the accounting records involving the creation of Debit and Credit entries which are equal and opposite.

Liability

Legal or constructive obligation to make a payment at a future date

Limited Company

Company registered at Companies House

Liquidity

Measurement of a business’s ability to pay its liabilities when they are due to be paid

Net Book Value

Value of assets net of any Depreciation, Amortisation or Impairment

Net Current Assets / (Liabilities)

Excess of Current Assets over Current Liabilities, or vice versa.  Often used as an indicator of Liquidity.

Net Present Value

Measure of the current-day value of an Asset or Liability that is due to be settled at some future point

Non-Domicile

[context – individuals]

A personal tax concept which primarily looks at where an individual’s father was born (yes, it’s archaic!).  Non-domicile status can be advantageous in certain circumstances

Overheads

See Administrative Expenses

Partnership

Two or more individuals/entities in business together but not via a Limited Company

Prepayment

Cost paid in advance where the underlying service will be consumed over a period of time

Profit And Loss Account

[also known as Income And Expenditure Account]

A written statement of the financial activity and performance of a business over a period of time

Purchase Ledger

See Accounts Payable

Receipts And Payments Basis

See Cash Basis (1) and (2)

Residence (1)

[context – country where a Business or an individual pays tax]

Generally synonymous with Income, but more often a substitute for Sales

Residence (2)

[context – Capital Gains Tax]

An individual’s ‘Private Residence’ is exempt from Capital Gains Tax to the extent that it has always been their only Private Residence throughout the period of ownership

Revenue

Generally synonymous with Income, but more often a substitute for Sales

Revenue Expenditure

Expenditure on items that are immediately consumed i.e. costs that go in to the Profit and Loss Account

Sales

Monies receivable from the sale of goods and services

Sales Ledger

See Accounts Receivable

Share Capital

The face value [nominal value] of a Limited Company’s shares in issue

Share Premium

The excess of the amount paid to a Limited Company for each share and the face value of that share i.e. if you pay a Limited Company £5 for a share which has a face value of £1, the Share Premium is £4

Shareholder

An individual, Company or institution that owns shares in a Limited Company

Stock

Goods purchased for resale

Tangible Asset

Business asset that has a physical attribute e.g. property, plant and machinery, etc

Tenants In Common

[context – property ownership and Estate planning.  See also– Joint Tenants]

Beneficial owners each own a distinct share of the property which, on death, does not pass to the surviving owners by default

Trade Creditors

See Accounts Payable

Trade Debtors

See Accounts Receivable

Transposition

Switching two numbers by accident e.g. writing 45 instead of 54; or 18 instead of 81

Another interesting fact! - the error caused by a transposition is always divisible by 9

Trust

A Trust is an entity that holds assets on behalf of the beneficial or legal owners of those assets

Turnover

Measure of goods and services sold

Value Added Tax (VAT)

In 1973 the government thought they could convince everyone of the benefit of this new tax by calling it “Value Added”.  In fact VAT is a general tax that is added on to almost all products or services sold, and paid to HMRC

Work In Progress

Measure of work undertaken not yet invoiced to the customer

Working Capital

Measure of the funds needed to run a business, often correlated with the Net Current Assets