Ok ok…..We hold our hands up, accountants do seem to speak a different language sometimes. We can only apologise on behalf of the profession…!
Whilst we always try to explain to our clients in simple layman’s terms, sometimes as a business owner understanding some simple accounting terminology can be very useful.
Here are a few of the common terms you might have heard.
Accounts Payable
This is money owed by your company to suppliers for any products or services.
Accounts Receivable
This is money owed to your company for products or services.
An expense incurred by your company that has not yet been recorded or accounted for yet.
Money that is overdue to be paid.
Anything owned by the company that has a value and helps the company to operate. Cash, Machinery, Vans etc.
Bad Debt
Overdue payments owed to your company that you are unlikely to get.
Balance Sheet
A summary of the company financial position. Including details such as capital, assets, liabilities and expenditure. Its a snapshot of the current business state.
Book Value
As an asset is depreciated it reduces in value. Book value is the original value, minus and depreciation.
These are other companies or individuals who your business owes money to.
Closing Balance
The balance of your account at the end of the financial period. Eg Year.
The opposite of creditors: An individual or company that owes your company money.
Any authorised business expense is described as a deductible.
An asset depreciates in value over time.
Money taken from the business by the business owners.
Costs incurred by the business, excluding any fixed assets.
Borrowing money from a factoring company based on invoices due. Your company will receive a percentage of the overall invoice. The company will take a fee circa 2.5% – 10%.
Fixed Asset
An asset that is expected to remain in the company for a long time. Eg a car or building.
Gross Profit
Total revenue minus cost of sales.
Money coming into the business from the sale of your goods or services. (sales)
Other income is classed as any income not directly related to your business. Eg interest on loans.
Interim Reports
Financial statements compiled before the financial year-end. A good way to get a snapshot of the current business financial condition.
This is a debt owed by your business to another business. Eg A Credit card or loan
Books containing records of your financial accounts. General, accounts receivable and accounts payable.
The percentage of your product or services selling price that will be your profit. Expressed as a percentage. 
Increasing the cost of an item before it is sold on. Eg: Buy a chair for £20 and sell it for £35, the markup would be £15.
Net Profit
Gross profit minus your business expenses.
Any continual business costs that help the company run. Eg: Office rent, payroll, utility bills etc.
Profit and Loss Account
The day to day record of income and expenses incurred by your business during the financial year.
Wages or salary.
Pay As You Earn. Tax is deducted from employees by the employer and paid to HMRC.
Comparing and matching two records to ensure they align. Eg: Bank account with accounting software like Xero
This is the end of your financial year. Used to calculate many of the important business numbers. Eg: Turnover, Profit, Tax etc
Hopefully, you’ve learnt a word or two you didn’t know before?!
If that all seems far too confusing, just call RJF, become a client and let us deal with everything…Jargon Free!