A Glossary of Key Accounting Terms

Accounting is an extremely specialist, in-depth profession with highly-qualified, exceptionally-skilled professionals at the helm of everything they do. So when you agree to have accountancy services carried out on your behalf, it’s important that you understand the jargon and terminology that surrounds it.

Where most accountancy firms will take the time to talk you through everything which concerns your case, ensuring that you’re up to speed when it comes to your individual financial affairs, RLTP Accountants are dedicated to guiding our clients throughout the entire process, so you’re never left in the dark.

With that in mind, here’s an A-Z of all of the accountancy words and terms that you might well benefit from knowing and understanding:


Account – a formal record representing particular factors, elements and aspects of a business, including resources, assets and money

Accounts payable – the amount of money that’s owed to suppliers for services and/or goods

Accounting period – a period of time whereby financial statements are prepared and produced. Usually, accounting periods are calculated annually, quarterly or monthly but rarely weekly, if at all

Accounting – a process whereby any and all financial transactions are reported and recorded

Accounts receivable – the amount of money that’s due from debtors and this usually applies after a sale or service has been completed

Accrual method – this is a system that’s used to record expenses and revenue as soon as a transaction occurs rather than when cash swaps hands. Invoices are subject to tax, whether they’ve been paid or not, when they’re paid using a credit card. It’s important to note that most businesses will use the accrual method

Accruals – salaries, the interest payable on a loan and other expenses that have since been incurred but not yet paid. Any and all estimates regarding this should be recorded in profit and loss accounts and subsequently adjusted accordingly when the invoice is received

Ageing – accounts receivable that are categories and/or sorted based on age. This is often used as a way to detect accounts that are overdue

Amortisation – a repayment of an asset that’s paid regularly over a fixed period of time

Annual report – primarily used for shareholders, this report includes a thorough breakdown of a business’ annual statements, equity cash flows, shareholders and other financial information worthy of note

Appreciation – used to describe an asset that has increased in value. The appreciation amount is usually the profit made based on the increased value. For example, if a house was bought for £250,000 and then sold on for £300,000, then the appreciation is £50,000

Arrears – bills that are due but have not yet been paid

Assets – valuable items owned by the business, such as physical property, vehicles, stocks and money. Fixed assets can also include land, buildings, outbuildings and vehicles, to name a few things

Audit – a review of financial records in order to verify accuracy and completeness but they can also be done to detect suspicious activity. Internal and external audits can be done, meaning they can be performed by in-house accountants or outsourced firms


Bad debt – money that is known to be owed to a business but cannot be paid for whatever reason. In some cases, bad debts can simply be deducted as an expense

Balance sheet – usually prepared at the end of each financial year, a balance sheet is a statement that will disclose the position of a business, financially. This will also include a summary of the business’ assets and liabilities

Bankrupt – used to describe a person or a business who has more liabilities than they do assets. Creditors are usually responsible for declaring bankruptcy, although when it comes to limited liability companies, “insolvent” will be used as opposed to “bankrupt”


Capital – this refers to money that has been invested by company owners in order to begin operations and eventually acquire assets

Capital allowances – the HMRC will provide a certain number of fixed assets to be claimed prior to a tax bill being calculated. This usually only applies when claiming for depreciation against any profits made.

Capital gains tax – when an asset is sold for a fixed price, for a profit, then that profit will then be subject to capital gains tax. Although, when it comes to determining the final amount, other things will be taken into account, including: allowances, inflations and the age of the assets

Cash accounting – a specialist method whereby only paid invoices are accounted for. The HMRC will naturally consider any invoice, whether paid or unpaid, as business revenue, with VAT being the exception. The HMRC only really require VAT on the basis of accrual, but it’s important to note that businesses that conduct the majority of sales using credit could benefit from the cash accounting scheme

Cash flow – money generated by a company over a specific accounting period

Cash flow forecast – a prediction of upcoming cash flow over a specific financial period

Chart of accounts – a list of all accounts held whereby business transactions are recorded and classified

Charge back – when the cardholder cancels credit or debit card transactions before the payment has been processed. A charge back will happen when the bank charges the seller a fee

Cost, insurance and flight (CIF) – a contract for the selling and buying of international goods once the seller agrees to pay for the shipping, insurance and freight charges incurred before the item is delivered to them. As soon as the the buyer receives their goods, the seller is no longer liable for any damages

Circulating assets – these are assets which have gone from cash to physical goods and then turned back into cash

Closing the books – making final account entries, including the balancing of profit and loss accounts at the end of the financial year

Companies house – as part of the UK government, this department collects and stores details and information surrounding limited companies. The registered business must then provide a statement annually, typically at the end of the financial year

Compensating error – a mistake that has been mitigated, or cancelled out, by the making of another mistake

Compound interest – this is when interest is applied and accrued to capital up until a particular date

Consolidated financial statements – a collection of combined financial statements of a parent company and its smaller associated businesses, otherwise known as subsidiaries

Consolidation – relates to the combination of assets, equity, liabilities and any operating accounts. These are usually brought together to form one single parent company, together with a financial statement

Cost – the price or cost associated with the making of a non-current asset that’ll be ready to use

Cost-based pricing – a pricing method whereby companies will base fees on the cost of manufacturing

Cost centre – when expense accounts are split up into separate departments. This is done to determine which department within a business is spending the most money overall

Creative accounting – a way of making accounts appear more or less attractive to shareholders than they are in reality

Credit – bookkeeping credit represents the decrease in value of company assets or expense accounts. It also refers to any increasing liability or capital. Business credit, however, is when a supplier allows the purchaser to for the goods after they’ve been received

Credit note – a document that’s sent to the client which cancels any debt they might have, usually issued for poor service or for receiving faulty or damaged goods

Creditors – a supplier who is owed money by a business

Current assets – these are assets which can be easily turned into cash

Current cost accounting – when the value of assets are calculated based on the current market value rather than historical value or based on inflation forecasts

Current liabilities – obligations that should be settled within 12 months or are essential to the smooth-running of a business. Examples of this include short-term loans, overdrafts and any credit owed

Customers’ collection period – the time it takes for a company to pay off any and all purchases

Cut-off procedures – this ensures that and and all transitions for certain accounting periods are isolated and accurately recorded. Any transactions that are not relevant will be automatically excluded


Debenture – a particular type of share used by a limited company. This is the safest type of share but it’s usually tied to an asset. If a company should buckle, then the shareholder will then own that asset

Debtors – customers or clients who owe a business or company money of any amount

Default – when a business isn’t able to meet financial obligations to a particular creditor

Deferred expenditure – expenses that aren’t included or relevant to the present accounting period will then be declared deferred expenditure and non-current assets. They’re then transferred to a profit and loss account, but not until they have become current assets

Deferred income – income that’s recorded or received before it’s actually been earned

Deficit – when liabilities or income exceed the value of assets

Depreciation – the reduction in value of particular assets over time. The depreciation amount is usually a certain percentage and calculated accurately at the end of every financial year

Derivatives – financial instruments varying in value but only according to an underlying asset, like currency or stock

Dilutive – when a company takes over another business that has a greater price/earning ratio then they do, currently and the deal is called dilutive to earnings. Companies that conduct these deals subsequently reduce their earnings per share (EPS)

Disclosure – divulging accounting information so that financial statements are able to be fully understood

Discounted cash flow – a way of assessing investment which could result in the reduction of the cash flow value

Dividend – this refers to after-tax profits which are then distributed to the company’s shareholders. Most small businesses will distribute dividends annually, at the end of the financial year whereas larger ones will release funds on a quarterly basis

Double-entry bookkeeping – every aspect of a transaction is accurately recorded twice both as a credit and a debit

Drawings – money taken by a business owner for personal use, although not to be confused with wages


Earned income – the wages, salary or service fees earned as compensation for either services or products

Earnings per share – a business’ net profit for a particular accounting period that’s then divided by their outstanding shares

EBIT – Earnings before interest and tax

EBITA – Earnings before interest, tax and amortisation

EBITDA – Earnings before interest, tax, depreciation and amortisation

Encumbrance – a sum of money that’s reserved for any business purpose

Entry – transactions recorded in a ledger or journal

Equity – the business owner’s share of the company. Equity represents the stockholders’ investments together with any losses or retained earnings. It can also represent the net worth of a person or company minus the total liabilities

Escrow – money held by a third party until the fulfillment of certain conditions are met

Exclusions – items excluded from a taxpayer’s gross income, like gifts or inheritances. Exclusions are otherwise known as excluded income

Exemption – an amount of non-taxable income

Expenditure – anything purchased for the business


Fair market value – a price that a willing buyer will pay to a seller when both parties are aware of all details about the supplied service or product

Financial statements – documents representing any and all financial data, including income statements, cash flow and balance sheets

Fiscal year – a 12-month time period chosen by the business as their individual accounting year, which can start at any point

Fixed assets – assets with a lifespan exceeding one year, like property, machinery, vehicles and other long-term investments

Fixed cost – a cost or price remaining the same, like rental agreements or employee salaries

Forecast – a prediction of company finances based on assumptions of past performances and usually includes a qualified amount

Fraud – the deliberate misuse of a business’ assets or resources

Flow of funds – a report detailing how a business’ balance sheet data progressed from one accounting period to another


GAAP – generally accepted accounting principles

Gearing – money that’s borrowed with a fixed interest with the sole purpose of leveraging the cash for additional financial gain. Gearing is sometimes known as ‘leveraging’

General ledger – a repository for compiling details about a business’ accounts. It provides the data needed for preparing accurate financial statements

Goodwill – the difference between the book value and fair value of a particular asset. An example of goodwill would be the overpayment which subsequently upholds a business’ reputation, but it could also be as simple as rewarding client for their ongoing custom/loyalty

Gross – profit margin before making any discounts or dedications

Gross margin – difference between the selling price of a product or service and the associated cost of it initially. For example, if an item is sold for £1,000 but cost £700 to make, then the gross margin would be 30%

Growth and acquisition – a method allowing a business to grow. Growth explains how a business can develop and expand operations. Buying other companies counts as both acquisition and growth


Historical cost – original price of material, stock or asset and is often used in price change accounting in order to replace current prices

HM Revenue and Customs (HMRC) – government tax authority for the UK, previously known as the Inland Revenue


IAS – International Accounting Standard

Impairment – a reduction in carrying the value of an asset that’s exceeded the depreciation period

Impersonal accounts – accounts that aren’t held in the name of a person associated with suppliers or even customers

Imprest system – used to restore petty cash to its initial value when it starts to depreciate, otherwise known as restoring the imprest

Income – cash a company receives for commercial activities

Income statement – financial statement summarising profit, revenue and expenses, otherwise known as a profit and loss account

Incorporation – the date a company was legally established

Interest – payment made to the lender of money that’s normally calculated by percentage

Inventory – stock or goods a business has for sale

Inventory obsolescence – stock that can longer be sold, such as clothing that has gone out of fashion or food that has expired

Inventory shrinkage – a reduction in stock for any reason other than sales made, such as theft or damage

Investment – buying services or products that could increase profit overall

Investors – companies or people who’ve invested cash in a business for a share of ownership


Journal – a book or collection of books used to record business transactions

Joint venture – when persons or businesses collect capital in order to supply services and goods. Joint ventures are often carried out in the form of business partnerships, making both parties responsible for company operations and outcomes


Key performance indicators – a measurement used to calculate and record the performance of a company


Leasing – a rental agreement or contract granting a company or individual the use of a business asset for a specific length of time

Ledger – a record keeping track of company transactions

Liabilities – debts or obligations owed from one place to another for services, money or goods. Current liabilities refers to money that’s due within a year, including loans and taxes. However, long-term liabilities are obligations that aren’t due for over a year, like a mortgage or bonds

Limited liability company (LTD) – a business where the owner’s liabilities are somewhat limited by the amount they’ve contributed

Limited liability partnership (LLP) – a partnership whereby all partners have limited liability status

Listed company – a business with shares available to purchase and sell on the Stock Exchange

Listing requirements – rules imposed by the Stock Exchange to businesses who have shares available to purchase or sell

Long-term liabilities – financial obligations that aren’t due for over a year, like long-term loans or mortgages

Loss – revenue which is less than expenditure


Management accounting – when reports are tailored to business managers’ or directors’ requirements instead of the needs of organisations that aren’t associated with the company. Management accounting will help to make management make better, more informed decisions

Margin – the difference between expenses and revenue

Matching – the analysis of expenses and sales for a specific accounting period to determine the amount of profit made

Maturity – the date on which liability will need to be repaid

Merger – when two organisations form one entity and subsequently share liabilities and assets, although no new entity is produced

Money laundering – disguising illegally obtained funds to make them seem legitimate and entirely legal

Moving average – presenting data on graphs to clearly display trends


Negligence – failure to inject an adequate amount of care and attention into individual cases

Net – the financial status of a business but only after expenses and other deductions have been made. The net amount will indicate the true value of a company. Otherwise known as net worth, net income or net profit

Net assets – value of assets and cash minus business liabilities

Nominal value – named value of a share once it’s been issued

Non-current assets – assets that don’t meet particular criteria of current or fixed assets. Non-current assets cannot be touched, like copyrights and trademarks, for example

Not-for-profit organisation – an organisation existing for charity or money-giving. Trustees, shareholders and others will not receive any financial gain


Opening the books – a business closing their books at the end of a financial year and opening a new set

Operating activities – non-investment activities that help to ensure a company remains fully-operational

Operating and financial review – a section of a financial document that details some of the most important information regarding financial statements

Operating cycle – length of time between the product or service and their delivery

Operating gearing – ratio of fixed operating costs against the variable operating costs

Operating risk – when the fixed operating costs is so high that is could cause a fluctuation in overall profits

Option – buying the rights to buy an asset for a particular length of time

Ordinary shares – a share of a limited business entitling owners to a portion of the dividend. Ordinary shares will carry high risks, but will offer the biggest rewards, financially

Overheads – refers to the overall running cost of a company. Funds associated with sales or production aren’t normally included in overheads, but expense accounts are, such as rent or salaries


Parent company – a business with one or more subsidiaries

Partnership – two or more people agree to work together within a business to make a profit. Each partner is liable for any debts owed by the company

Partnership deed – an agreement in writing outlining logistics of a partnership

Partnership law – legislation governing a partnership agreement, usually implemented when a partnership deed hasn’t been created

P.A.Y.E – Pay as you earn is a tax system where National Insurance and tax contributions are deducted before payment

Pay on delivery – when a purchaser exchanges cash for goods only after the goods have been received

PE ratio – often used to determine confidence in a company’s shares. This is done by multiplying the share price by net profit and then divided by shares

Perpetual inventory – this is when the inventory balance is updated regularly, usually after every transaction

Petty cash – a modest sum of money that’s usually reserved for small-value items when another form of payment won’t be suitable

Phoenix firms – a business close to insolvency but has been restructured, repackaged and subsequently sold back to the management team

Point of sale – the location where a transaction is conducted

Preference shares – shares issued by a limited company that allows the holder a choice when it comes to receiving dividends before an ordinary share is declared

Premium – an excess amount paid above face value

Pre-payments – money paid in advance. Pre-payments usually last for a particular time period, expiring on a specific date

Present value – current value of an amount in comparison to its forecasted value and is often used to analyse investment opportunities to decide whether or not it’ll be a worthwhile investment

Price-sensitive information – details that, if were released to the public, would affect the price of a share

Private limited company – a limited liability business that isn’t obligated to offer shares to the public

Profit – the revenue of a business minus any expenses

Profit loss account – a financial statement showing expenses, profit and revenue for a particular period and is otherwise known as an income statement

Profit margin – the difference between the cost of goods or services and the price they sold for, otherwise known as ‘the mark up’

Projection – an estimation of future financial statements based on hypothetical assumptions

Prospectus – a document offering shares to an investor, usually containing financial statements and supporting information

Provisions – an account set up to accommodate future payments, like a bill that’s yet to be issued

Public limited company – a business who offers shares to the public


Qualified audit opinion – report issued by an auditor when accounts do not comply with accounting practices but are fairly presented

Quality of earnings – investors’ opinions regarding profits. During times of high-inflation, the quality will be considered poor


Raw materials – materials purchased to manufacture goods, such as fabrics

Refinancing agreement – an agreement to use funding from elsewhere to replace existing financing

Realisation principle – revenue only recognised when the specific products or services that produced that revenue have been received

Rebate – partial refund for overpayments or the expected delivery of goods and services that have been cancelled

Receipt – a written confirmation of payment that can also be delivered in digital form

Registrar of companies – a government employee who maintains financial information to ensure it doesn’t breach legal policies or practices

Replacement cost – the cost associated with replacing liability or assets

Reserve account – an account used to retain earnings. These are often used to make balance sheets clearer to analyse when needed

Retained earnings – net income retained by a business rather than it being distributed to company shareholders in the form of dividends. Although, retained earnings aren’t spendable

Return on investment (ROI) – calculated by dividing the cost of investment by the gain from investment. If an investment doesn’t have a healthy ROI the it shouldn’t be committed to

Revenue – overall income of the company

Risk – the chances of financial losses


Sales – total income acquired as a result of sold goods and services

Secured loan – the borrower pledges an asset in exchange for a loan and the asset is then used a collateral by the lender

Segmental reporting – used to separate divisions of a company for specific, accurate, individual reporting

Self assessment – a self assessment allows a self-employed person to calculate their own income tax

Self-employed – working for oneself as a business owner or freelancer, for example

Shareholder – someone who holds shares in a corporation or company

Shares – a part of a company

Simple interest – interest applied to the original sum of money

Sinking fund – used to reserve money in order to pay off debts or replace wasting assets

SME – small and medium enterprises

Sole trader – someone who is self-employed or the owner of a company or business

Start-up costs – up-front cash that’s needed to start or set up a new company

Statement of cash flows – a basic financial statement depicting changes in the balance sheet and how that affects cash. Used to break down investing, operating and other financial activities

Stock – products manufactured for sale, but it also refers to shares

Stock exchange – the body who sets legal legislations for the purchasing and selling of shares, otherwise known as the stock market

Stock holding period – the average amount of time that goods are held for before a sale

Stockholders – an alternative term for shareholders

Straight-line depreciation – the estimation of wear and tear on assets based on expected use

Subordinated debt – money owed to unsecured creditors after a business has closed down/been liquidated

Subsidiary company – a business controlled by a larger, parent company

Subtotal – a combination of smaller products

Sunk costs – cash that has already been spent and now cannot be recovered

Suspense account – a temporary account used to deposit funds before the amount is transferred to the correct location


Tangible assets – physical assets such as vehicles, machinery and buildings

Tax – a compulsory monetary contribution to the government based on annual income or profits made by a company

Taxation – where the government levies tax against an individual or a business

Total cost of ownership (TCO) – the real, accurate cost of an asset

Turnover – the income of a company over a certain length of time


UK ASB system – a system for UK businesses to use that don’t report under the IASB alternative system

Undeposited funds account – accounts showing the sum of money a company received but not yet spent or even banked. This is might also be referred to as a cash-in-hand account

Unlisted company – a limited liability company not listed on the stock market

Unsecured creditor – a creditor without a claim against a certain asset. If the business in question dissolves, the unsecured creditor is obligated to take their share of what’s leftover

Unsecured loan – a debt that doesn’t have a collateral allocated to it


Valuation – a process which determines the worth of a business’ assets

Variance – difference between the estimated cost of goods or services and the actual cost of goods or services. When the actual cost exceeds the planned cost, this is known a adverse variance, but when the actual cost is cheaper than the planned cost, then this known as favourable variance

VAT – value added tax which is used to increase the price of goods and services


Wages – payments made to employees and workers for their services. Wages are often classified as business expenses

Withholdings – a sum of money withheld from an employee’s salary and paid to the right authority. Examples usually include pension schemes and national insurance

Working capital – the value of current assets minus current liabilities. Working capital is normally defined as the money, accounts receivable and stock, excluding the accounts payable. As a company develops, the need for more working capital is increased

Working capital cycle – total stock holding and customer collection period, excluding the supplier payment period

Work-in-progress – goods or services that have been partially completed with the promise of completion

Write-down – a partial reduction of an asset’s value and is a non-cash expense which could, likely, end up affecting business profits

Write-off – total reduction of an asset’s value and is a non-cash expense which might well end up affecting profits




ZBA – zero based account is a bank account that’s kept as close to zero figures as possible

ZBB – zero based budget is when a business starts without a budget and should therefore justify every cost that may result in a budget increase

RLTP Accountants is proud to provide clients throughout the East Midlands and the surrounding areas with excellent accounting services, each one performed by highly-qualified, fully-trained professionals. For more information about the accountancy services we’re pleased to offer, get in touch with a member of our specialist team today – we’re always happy to help.