There is a whole vocabulary in the accounting world that may seem a little strange to you especially what finance words are used and their meaning. I’ve covered quite a lot in my book 5-Minute Finance (the. essential guide to finance for Business owners) but just as a reminder (and to add a few other variations you may hear when talking finance), here is a summary of some of the keywords and phrases.
| Accounts Payable | Also called Creditors |
| Accounts Receivable | Also called Debtors |
| Accrual | A cost that has been incurred but not yet reflected in the accounts. Accruals are liabilities. |
| Accrued Income | Income that has been earned but not yet reflected in the accounts. Accrued income is an asset. |
| Acid Test | A liquidity ration ignoring the value of stock. |
| Amortisation | Matching the “cost” of an
intangible asset to its economic life. |
| Asset | Something that is owned by the company. |
| Balance Sheet | The position of a company at a point in time, containing assets and liabilities. |
| Budget | A financial plan for future business operations. |
| Capital | Investment in a business which includes debt/borrowings and equity (shareholders’ investment). |
| Cash Flow Forecast | A view of possible future cash movements for the business. |
| Cash Flow Statement | A historic view of the cash position of a company and where the cash has come from and been used. |
| Cost | An expense to the business |
| Creditor | Someone/a business who is owed money by the business. |
| Current Assets | Assets of the company that are expected to convert into cash within 12 months. |
| Current
Liabilities | Amounts expected to be paid by the company within 12 months of the date of the Balance Sheet. |
| Debt | Investment in the company that typically attracts interest and had an expected (usually specified) repayment date. |
| Debtor | Someone/a business that owes the company money. |
| Depreciation | Method of accounting for the matching of the “cost” of fixed assets to their economic life. |
| Direct Cost | A cost that can be attributed to a product or service that has been sold. |
| Dividend | Distributed profits to the shareholders of the business. |
| Earnings | Profits (usually net profits). |
| EBIT and
EBITDA | Earnings (profits) before Interest and Tax – and Depreciation and Amortisation. |
| Equity | Investment by shareholders that is not expected to be repaid in a specific timeframe. |
| Fair value | The expected replacement cost of an asset. |
| Fixed assets | Non-current assets used to run the business. |
| Fixed costs | Any cost that does not vary directly with the scale and levels of activity. Usually overheads. (Often these will increase in steps rather than in line with volume of sales) |
| Goodwill | The difference between the fair value of a company’s net assets and the price paid by an acquirer. |
| Income
Statement | Another name for Profit and Loss Statement or P&L. |
| Indirect costs | Any cost not directly attributable to the sales of products or services also called overheads. |
| Intangible Assets | Non-physical assets such as patents, licenses and goodwill. |
| Interest | A charge made over amounts of money loaned to a business – usually a % of the amount of a loan that is outstanding. |
| Inventory | Also called stock. |
| Liability | The amount owed by the company to another person/company. |
| Liquidation | Closure of a company and the sales of all its assets to convert everything to cash, creditors are paid, and the outstanding balance is distributed to the shareholders if there is any! |
| Loan | Also known as debt – amounts borrowed by the company. |
| Loss | Where total costs have exceeded total income. |
| Market value | The amount of money an asset can be expected to be sold for. |
| Net Assets | Total assets less total liabilities - also known as shareholder capital. |
| Net Current
Assets | Current assets less current liabilities – also known as working capital. |
| Prepayment | An amount paid in advance of receiving goods or services. |
| Profit | The result of sales less costs, where sales exceed costs. |
| Profit and
Loss Account | Also known as Income Statement or P&L. It shows the trading activity of the business. |
| Receivership | If a company can no longer satisfy its creditor or other liabilities, it is put into receivership and run for the benefit of the creditors (in contrast to being run for the benefit of its shareholders). Receivership often precedes liquidation. |
| Refinancing | When a company takes out another loan to pay off an existing loan. |
| Retained
Earnings | Profits that are reinvested in the business instead of distributed as dividends to shareholders (also called Retained Profits). |
| Sale | Also referred to as Income, Revenue or Turnover. |
| Share Capital | The value of the shares in a company. |
| Shareholder | Owner of shares in a company. |
| Shareholders’
Funds | Share capital plus retained profits. |
| Statutory
Accounts | The accounts required by law under the Companies Act. |
| Variance | The difference between actual numbers and the budget or financial plan. |
| Work in
Progress | Stock that is in the process of being converted from raw materials into finished goods for sale (often call WIP). |
| Working
Capital | The net current assets used by the business to ensure that creditors and other liabilities are paid on time. |
| Working
Capital Requirement | The number of days between when a company pays for goods or services from suppliers and when it receives cash from its debtors (customers). |
Do you feel like you have no control or don’t understand your numbers? Discover how you can feel more in control of your business, make your business worth more AND make it easier and more fun to run. Click here to contact Christine by email alternatively you can book a call with the Business Mentor of the Year 2020, author and speaker. Who helps business founders get their businesses in better shape so they can enjoy a happier, richer future. She saves them THOUSANDS and increases the value of their businesses by MILLIONS.