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Glossary of terms

A comprehensive glossary of Accounting terms.


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Equity

The value of the business to the owner of the business (which is the difference between the business's assets and liabilities).

Historical Cost

Assets, stock, raw materials etc. can be valued at what they originally cost (which is what the term 'historical cost' means), or what they would cost to replace at today's prices.

Journal(s)

A book or set of books where your transactions are first entered.

Self-employed

The owner (or partner) of a business who is legally liable for all the debts of the business (ie. the owner(s) of a non-limited company).

Undeposited Funds Account

An account used to show the current total of money received (ie. not yet banked or spent). The 'funds' can include money, cheques, credit card payments, bankers drafts etc. This type of account is also commonly referred to as a 'cash in hand' account.

Account

A section in a ledger devoted to a single aspect of a business (eg. a Bank account, Wages account, Office expenses account).

Bill

A term typically used to describe a purchase invoice (eg. an invoice from a supplier).

Capital

An amount of money put into the business (often by way of a loan) as opposed to money earned by the business.

Debit

A column in a journal or ledger to record the 'To' side of a transaction (eg. if you are paying money into your bank account you would debit the bank when making the journal entry).

Fixed Assets

These consist of anything which a business owns or buys for use within the business and which still retains a value at year end. They usually consist of major items like land, buildings, equipment and vehicles but can include smaller items like tools.

Gearing (AKA: leverage)

The comparison of a company's long term fixed interest loans compared to its assets. In general two different methods are used: 1. Balance sheet gearing is calculated by dividing long term loans with the equity (or proprietor's net worth). 2. Profit and Loss gearing: Fixed interest payments for the period divided by the profit for the period.

Income

The amount of money or its equivalent received during a period of time in exchange for labor or services, from the sale of goods or property, or as profit from financial investments.

Ledger

A book in which entries posted from the journals are re-organised into accounts.

Moving average

A way of smoothing out (i.e. removing the highs and lows) of a series of figures (usually shown as a graph). If you have, say, 12 months of sales figures and you decide on a moving average period of 3 months, you would add three months together, divide that by three and end up with an average for each month of the three month period. You would then plot that single figure in place of the original monthly points on your graph. A moving average is useful for displaying trends.

Net loss

The value of expenses less sales assuming that the expenses are greater (ie. if the profit and loss account shows a debit balance).

Opening the books

Every time a business closes the books for a year, it opens a new set. The new set of books will be empty, therefore the balances from the last balance sheet must be copied into them (via journal  entries) so that the business is ready to start the new year.

Petty Cash

A small amount of money held in reserve (normally used to purchase items of small value where a cheque or other form of payment is not suitable).

Rebate

If you pay for a service, then cancel it, you may receive a 'rebate'. That is, you may be refunded some of the money you paid for the service. (eg. if you cancel a 1 year insurance policy after 3 months, you may get a rebate for the remaining 9 months).

Tax

A contribution for the support of a government required of persons, groups, or businesses within the domain of that government.

Wages

Payments made to the employees of a business for their work on behalf of the business. These are classed as expense items and must not be confused with 'drawings' taken by sole-proprietors and partnerships.

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