Accounting Period
A term covered by a profit and loss account. A financial year is any 12-month accounting period that a business chooses to adopt as opposed to the calendar year, which runs from January 1 to December 31
Accounts Payable (A/P)
Amounts owed by one organisation top another in respect of goods or services purchased. Accounts Payable is classified as a Current Liability because the obligation is generally due within 12 months from the initial transaction date
Accrual
Adjustment made at the end of an accounting period to recognise expenses that have been incurred during the period but for which no invoice has yet been received
Aged Creditors Report
A list of all trade creditors at a specific date, analysed by length of time that they have been outstanding
Aged Debtors Report
A list of all trade debtors at a specific date, analysed by length of time that they have been due
Assets
Items owned by a business (e.g. property, stock, cash)
Audit
An examination of financial accounts and records in order to assure compliance with accounting rules and regulations, prevent and detect fraudulent activity and to review efficiency of financial operations
BACS
Bankers Automated Clearing Services
BACSTEL-IP
The upgraded BACSTEL service, for making BACS payments
Balance Sheet
Statement of a company’s assets and liabilities at a specific date
Base Rate
Annual interest rate on which lending charges are calculated by British banks
Benefits in Kind
Non-cash salary provided to employees; e.g. company car, health insurance
BIC (Bank Identifier Code)
This enables international money transfers and comprises the Bank Code, Country Code and Location Code
BoE
Bank of England
Book Value
The value at which an asset is shown in the company’s books/balance sheet
Bought Ledger (B/L)
The section of the Nominal Ledger in which details of suppliers and amounts owed to them are held. Also known as Purchase Ledger
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Capital Employed
Total long-term funds in the balance sheet (Net operating assets). Can be defined as Total assets less current liabilities
Capital Expenditure (Capex)
Investment in fixed assets
CHAPS
Clearing House Automated Payments System. CHAPS is an electronic bank-to-bank same-say value payment made within the UK in either sterling or euro.
Chart of Accounts (COA)
The account codes which give structure to the General Ledger. May include nominal codes, expense codes, cost centre codes, project codes
Credit Note
Document showing details of a refund due to a customer. Must show the equivalent details of an invoice
Creditor
Someone to whom money is owed
Current Assets
Assets (stock, debtors) expected to be turned into cash within one year of the balance sheet date
Current Liabilities
Liabilities (trade creditors, accruals, overdrafts, short term loans) expected to be paid within one year of the balance sheet date
Current Ratio
Current assets divided by current liabilities
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Debtor
Someone who owes money
Depreciation
A charge (expense) in the profit and loss account against the book value of a tangible fixed asset. It represents the “wearing out” of an asset during an accounting period
Dividends
Payment made to shareholders out of retained profit
DDI
Direct Debit Instruction
Direct Debit
Payment of an agreed amount, collected directly from the customer’s bank account. The amount and the date may vary payment to payment
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Earnings
Profits of an organisation
EBIT
Earnings before interest and tax; i.e. operating profit
EBITDA
Earnings before interest, tax, depreciation and amortisation
EDI
Electronic Data Interchange; the electronic transfer of data from computer to computer
EFT
Electronic Funds Transfer: Any process of electronically transferring funds to or from an account
EIPP
Electronic Invoice Presentment & Payment; i.e. web-invoicing
ERP
Enterprise Resource Planning. Features vary from system to system; typically they will include document control, human resource management and salaries
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Factor Company
A company which will collect payment of an invoice on behalf of a supplier; i.e. the invoice will be issued from the supplier, but payment must be made to a third party
FDA-10
A UK based trade association representing the factoring, invoice discounting and asset-based lending industries
Finance Lease
A lease where the lesee (the user) has the majority of the risks and rewards of ownership of the asset. For accounting purposes, finance leases are shown as if the lesee has bought the asset with a loan from the lessor
Fixed Assets
Assets (e.g. buildings, computers) used on a long-term continuing basis to operate a business (i.e. not bought to be sold to customers)
Fixed Cost
A cost that remains the same, regardless of whether output increases or decreases; e.g. rent is fixed – it does not vary with the level of sales
FRS
Financial Reporting Standard
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Gearing
Ratio of debt to equity used to fund a company
General Ledger (G/L)
A book or computer programme which holds details of each of the general ledger accounts. Also known as Nominal Ledger
Goods Received Note (GRN)
Document showing description of goods and the quantity received. Usually checked against a Purchase Order (PO) before payment
Gross Cost
The total cost of goods or services, including VAT
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Historic Cost
Generally, assets are recorded at the cost of purchase, not at current market value or replacement cost
IBAN
International Bank Account Number; used for international payments, primarily in Europe
Input Tax
The VAT charged on top of the cost of the goods or services acquired from an organisation which is VAT registered
Intangible Fixed Assets
Fixed assets that cannot be physically touched; e.g. Patents, licences, intellectual property
Journal Entry
Posting of an adjustment (e.g. accruals, depreciation) to the accounts
KPIs
Key Performance Indicators. Measures of how well a department or a business is performing; e.g. number of invoices processed per employee
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Leverage
See Gearing
Liabilities
Debts of the business; amounts owed to others (e.g. suppliers)
Liquidity
The ability of a company to pay day-to-day bills (short term liabilities)
Long-Term Liabilities
Amounts owed that do not have to be repaid within one year. Also known as Creditors falling due after more than one year
Long-Term Loan
A loan which is not due to be repaid for at least twelve months
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Management Accounts
These usually comprise the profit and loss account and balance sheet, but there is no rule as to what financial information is presented, or how, as these accounts are for internal use only, to assist the company directors with managing the business. Usually prepared monthly
Net Assets
The total assets of a company less its total liabilities
Net Book Value (NBV)
The value of a fixed asset as shown in the balance sheet: cost less accumulated depreciation
Net Cost
The cost of goods or services, excluding VAT
Nominal Ledger (N/L)
A book or computer programme which holds details of each of the nominal accounts. Also known as General Ledger
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Operating Lease
The lessee pays a rental for using the asset, usually for a period of time that is less than the useful life of the asset
Operating Cost
Also known as Overheads. The indirect costs incurred in running an organisation; e.g. heat, light, marketing costs, hr, finance
Operating Profit
The trading profit, before finance charges and tax
Output VAT
If an organisation is VAT registered, it must charge VAT to its customers. Also known as output tax
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PAT
Profit after tax
PBIT
Profit before interest and tax; i.e. operating profit
PBT
Profit before Tax
Prepayments
Payments received in advance of the receipt of goods or services (e.g. telephone line rental paid three months in advance)
Procure to Pay
The steps that need to be taken between someone firstly making the decision to buy goods and finally making the payment for those goods
P-Card
Also known as a procurement card or purchasing card. A cost effective means of payment typically used to purchase low-cost, non-capital items; e.g. stationery, travel expenses
Pro-Forma Invoice
A pro-forma invoice shows a description of goods to be sold, quantity and price. However, it is not a VAT invoice and cannot be used to reclaim VAT. Often issued when giving a quotation to a potential new customer
Provision
An amount charged to the profit and loss account in respect of expected losses
Purchase Ledger (P/L)
The section of the Nominal Ledger in which details of suppliers and amounts owed to them are held
Purchase Ledger Control Account
Shows the total amount owed to all suppliers. Should reconcile to the total balance due on each individual supplier account
Purchase Order (PO)
Document describing goods or services to be delivered, quantity and cost. Invoices are normally checked against a PO prior to payment
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Remittance Advice
Document sent to supplier when payment is made, to show allocation of payment against invoices
Revenue Expenditure
Expenses charged to the profit and loss account (e.g. travel, office supplies) as opposed to capital expenditure (e.g. computer hardware)
ROI
Return on Investment
RTGS
Real-Time Gross Settlement system.
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Sales Ledger
Record of all sales and customer details
SEPA (single Euro payments area)
This creates a zone for the Euro in which all electronic payments are considered domestic;
i.e. National borders are ignored in order to simplify payments and allow
faster transfer of Euro payments from one country to another. The SEPA zone includes
the 27 EU members and also Liechtenstein, Iceland, Norway and Switzerland
Settlement Discount
Discount given by a supplier as a reward for prompt payment of an invoice
Short-Term Loan
Loan that is due to be repaid within twelve months of the balance sheet date
Standing Order
Payment of an agreed amount, collected directly from the customer’s bank account. The amount to be paid is fixed and is paid on a specified regular date
Statutory Accounts
Unlike management accounts, these accounts must be prepared in a set format, prescribed by company law, and be published in the public domain
Supplier Statement
A document issued by a supplier to their customer, showing all outstanding invoices due for payment
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Tangible Fixed Asset
Fixed assets that can be physically seen and touched; e.g. computers, desks, cars
Trade Creditors
Amounts owed to suppliers (Accounts Payable)
Trade Debtors
Amounts due from customers (Accounts Receivable)
Trial Balance
A list of all balances on the Nominal Ledgers (General Ledgers) at a specific date
Turnover
Total sales in an accounting period; normally shown net of VAT
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Variable Cost
A cost that changes as output changes; e.g. the cost of telephone calls will increase as the sales team make more calls
VAT
Value Added Tax
Vendor
Supplier
Working Capital
The money needed to operate the business. Defined as Current Assets less Current Liabilities, it represents the amount of day-to-day liquidity available to a business
Year End
The financial accounting date at which a company prepares its statutory financial statements; i.e. the profit and loss account and balance sheet are prepared in accordance with company law and made public
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Glossary of Terms
