Microsoft Office 2007 Key Glossary of Accounting T

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Previously mentioned the line : This phrase may be applied to numerous aspects of accounting. It means transactions, assets and so on., which can be linked together with the daily running of the company. See beneath the line .
Account: A segment in a ledger devoted to a single factor of the enterprise (eg. a Checking account, Wages account, Workplace costs account).
Accounting cycle: This covers everything from opening the books with the start from the 12 months to closing them with the stop. In other words, everything you should do in one accounting yr accounting wise.
Accounting equation: The method utilised to organize a stability sheet: assets = liability + equity .
Accounts Payable: An account inside the nominal ledger which is made up of the general stability of your Acquire Ledger.
Accounts Payable Ledger: A subsidiary ledger which retains the accounts of the business's suppliers. Just one manage account is held within the nominal ledger which reveals the entire balance of all of the accounts inside the buy ledger.
Accounts Receivable: An account in the nominal ledger which includes the general harmony from the Sales Ledger.
Accounts Receivable Ledger: A subsidiary ledger which holds the accounts of a business's buyers. Just one manage account is held inside the nominal ledger which shows the total balance of every one of the accounts from the product sales ledger.
Accretive: If a company acquires one more and says the offer is 'accretive to earnings', it means that the resulting PE ratio (price/earnings) of the acquired business is less than the acquiring organization. Illustration: Company 'A' has an earnings per share (EPS) of $1. The present reveal value is $10. This offers a P/E ratio of ten (current reveal price is 10 instances the EPS). Firm 'B' has manufactured a internet profit for your year of $20,000. If organization 'A' values 'B' at, say, $180,000 (P/E ratio=9 [180,000 valuation/20,000 profit]) then the deal is accretive because organization 'A' is effectively escalating its EPS (because it now has more shares and it paid much less for them in comparison with its very own share cost). (see dilutive )
Accruals: If through the program of a organization selected expenses are incurred but no invoice is acquired then these costs are called accruals (they 'accrue' or boost in worth). A standard example is interest payable on a mortgage exactly where you've got not but obtained a financial institution statement. These goods (or an estimate of their appeal) need to even now be integrated in the profit & loss account. When the real invoice is acquired, an adjustment may be made to correct the estimate. Accruals can also apply to the income side.
Accrual method of accounting: Most businesses use the accrual method of accounting (because it is usually required by law). When you issue an invoice on credit (ie. regardless of whether it is compensated or not), it is treated as a taxable supply on the date it was issued for income tax purposes (or corporation tax for limited companies). The same applies to bills acquired from suppliers. (This does not mean you pay income tax immediately, just that it must be included in that year's profit and loss account).
Accumulated Depreciation Account: This is an account held from the nominal ledger which holds the depreciation of the fixed asset until the conclude of the asset's useful life (either simply because it has been scrapped or sold). It is credited each 12 months with that year's depreciation, hence the harmony increases (ie. accumulates) over a period of time. Each fixed asset will have its own accumulated depreciation account.
Advanced Corporation Tax (ACT - UK only - no longer in use): This is corporation tax paid in advance when a limited organization issues a dividend. ACT is then deducted from the total corporation tax due when it has been calculated at year end. ACT was abolished in April 1999. See Corporation Tax .
Amortization: The depreciation (or repayment) of an (usually) intangible asset (eg. mortgage, mortgage) over a fixed period of time. Example: if a loan of 12,000 is amortized over one year with no curiosity, the monthly payments would be 1000 a month.
Annualize: To convert anything into a yearly figure. Eg. if profits are reported as operating at £10k a quarter, then they would be £40k if annualized. If a credit card interest rate was quoted as 1% a month, it would be annualized as 12%.
Appropriation Account: An account from the nominal ledger which shows how the internet profits of a enterprise (usually a partnership, limited firm or corporation) have been utilised.
Arrears: Bills which ought to have been paid. For illustration, if you've forgotten to pay your last 3 months rent, then you are said to be 3 months in arrears on your rent.
Assets: Assets represent what a enterprise owns or is due. Equipment, vehicles, buildings, creditors, money inside the financial institution, cash are all examples with the assets of the enterprise. Typical breakdown includes 'Fixed assets', 'Current assets' and 'non-current assets'. Fixed refers to equipment, buildings, plant, vehicles and so on. Present refers to cash, money in the lender, debtors and so on. Non-current refers to any assets which do not easily fit into the previous categories (such as Deferred expenditure ).
At cost: The 'at cost' price usually refers to the value originally compensated for something, as opposed to, say, the retail price.
Audit: The process of checking every entry inside a set of guides to make sure they agree with all the original paperwork (eg. checking a journal's entries against the original purchase and income invoices).
Audit Trail: A list of transactions inside the order they occurred.
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Bad Debts Account: An account within the nominal ledger to record the value of un-recoverable debts from buyers. Real bad debts or those which are likely to happen could be deducted as costs against tax liability (provided they refer specifically to a customer).
Bad Debts Reserve Account: An account used to record an estimate of bad debts for your year (usually as a percentage of income). This cannot be deducted as an expense against tax liability.
Balance Sheet: A summary of all of the accounts of a organization. Usually prepared with the stop of each financial year. The term 'balance sheet' implies that the combined balances of assets exactly equals the liabilities and equity (aka internet worth).
Balancing Charge: When a fixed asset is sold or disposed of, any loss or gain on the asset might be reclaimed against (or added to) any profits for income tax purposes. This is called a balancing charge.
Bankrupt: If an individual or unincorporated company has greater liabilities than it has assets, the person or business can petition for, or be declared by its creditors, bankrupt. Within the case of a limited business or corporation inside the same position, the phrase used is insolvent .
Under the line: This term is utilized to products within a company which would not normally be related with the each day managing of a company. See previously mentioned the line .
Bill: A phrase typically utilized to describe a purchase invoice (eg. an invoice from a supplier).
Bought Ledger: See Obtain Ledger .
Burn Rate: The rate at which a company spends its money. Illustration: if an organization had cash reserves of $120m and it was currently spending $10m a month, then you could say that on the latest 'burn rate' the firm will run out of cash in 1 year.
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CAGR: (Compound Annual Growth Rate) The year on 12 months growth rate required to show the change in worth (of an investment) from its initial price to its final price. If a $1 investment was worth $1.52 over three years, the CAGR would be 15% [(one x one.15) x 1.15 x 1.15]
Called-up Reveal capital: The price of unpaid (but issued shares) which a company has requested payment for. See Paid-up Reveal capital .
Capital: An amount of money put into the enterprise (often by way of a loan) as opposed to money earned by the enterprise.
Capital account: A phrase usually utilized to the owners equity in the company.
Capital Allowances (UK specific): The depreciation on a fixed asset is shown inside the Profit and Loss account, but is added back again for income tax purposes. In order to be able to claim the depreciation against any profits the Inland Revenue allow a proportion with the price of fixed assets to be claimed before working out the tax bill. These proportions (usually calculated as a percentage of the value of the fixed assets) are called Capital Allowances.
Capital Assets: See Fixed Assets .
Capital Employed (CE): Gross CE=Total assets, Internet CE=Fixed assets plus (existing assets less present liabilities).
Capital Gains Tax: When a fixed asset is sold at a revenue, the revenue may be liable to a tax called Capital Gains Tax. Calculating the tax could be a complicated affair (capital gains allowances, adjustments for inflation and different computations depending on the age of the asset are all considerations you will require to take on board).
Cash Accounting: This expression describes an accounting method whereby only invoices and bills which have been compensated are accounted for. However, for most types of organization in the UK, as far as the Inland Revenue are concerned as soon as you issue an invoice (compensated or not), it is treated as revenue and must be accounted for. An exception is VAT : Customs & Excise normally require you to account for VAT on an accrual basis, however there is an option called 'Cash Accounting' whereby only compensated goods are integrated as far as VAT is concerned (eg. if most of your product sales are on credit, you may benefit from this scheme - contact your local Customs & Excise office for the present rules and turnover limits).
Cash Book: A journal in which a business's cash income and purchases are entered. A cash book can also be used to record the transactions of a banking account. The side from the cash book which refers to the cash or checking account can be employed as a part of the nominal ledger (rather than posting the entries to cash or lender accounts held directly in the nominal ledger - see 'Three column cash book').
Cash Flow: A report which reveals the flow of money in and out with the company over a period of time.
Cash Flow Forecast: A report which estimates the cash flow inside the future (usually required by a bank before it will lend you money, or take on your account).
Cash in Hand: See Undeposited funds account .
Charge Back: Refers to a credit card order which has been processed and is subsequently cancelled by the cardholder contacting the credit card business directly (rather than through the seller). This results from the amount being 'charged back' to the seller (often incurs a small penalty or administration fee to the seller).
Chart of Accounts: A list of each of the accounts held in the nominal ledger.
CIF (Cost, Insurance, Freight [c.i.f.]): A contract (international) for the sale of goods wherever the seller agrees to supply the goods, pay the insurance, and pay the freight costs until the goods reach the destination (usually a port - rather compared to actual buyers address). After that point, the responsibility for the goods passes to the buyer.
Circulating assets: The opposite to Fixed assets . Circulating assets describe those assets that turn from cash to goods and back again (hence the term circulating). Typically, you buy some raw materials, start to manufacture a product (the asset is called work in progress at this point), produce a product (it is now stock ), sell it (it is now back to cash again).
Closing the textbooks: A phrase employed to describe the journal entries necessary to close the income and expense accounts of the company at yr conclude by posting their balances to the revenue and loss account, and ultimately to close the revenue & loss account too by posting its stability to a capital or other account.
Companies House (UK only): The title given to the government department which collects and stores information supplied by limited companies. A limited organization must supply Companies House with a statement of its final accounts every year (eg. trading and profit and loss accounts, and harmony sheet).
Compensating error: A double-entry phrase applied to a mistake which has cancelled out one more mistake.
Compound interest: Apply curiosity on the capital plus all curiosity accrued to date. Eg. A mortgage with an annually utilized rate of 10% for 1000 over two years would yield a gross total of 1210 in the stop from the period (12 months one interest=100, year two interest=110). The same mortgage with simple curiosity utilized would yield 1200 (interest on both years is 100 per year).
Contra account: An account created to offset an additional account. Eg: a Revenue contra account would be Revenue Discounts. They are accounts incorporated from the same segment of the set of textbooks, which when compared together, give the net stability. Example: Sales=10,000 Income Discounts=1,000 therefore Internet Sales=9,000. This illustration, affecting the revenue side of a organization, is also known as Contra revenue . The tell-tale sign of a contra account is that it has the oposite harmony to that expected for an account in that section (in the over instance, the Revenue Discounts balance would be shown in brackets - eg. it has a debit balance in which Product sales has a credit stability).
Management Account: An account held inside a ledger which summarises the harmony of every one of the accounts in the same or an additional ledger. Typically each subsidiary ledger will have a handle account which will be mirrored by an additional manage account in the nominal ledger (see 'Self-balancing ledgers').
Cook the publications: Falsify a set of accounts. See also creative accounting .
Corporation Tax (CT - UK only): The tax paid by a limited company on its profits. At present this is calculated at yr finish and due within 9 months of that date. From April 1999 Advanced Corporation Tax was abolished and large (UK) companies now pay CT in instalments. Small and medium-sized companies are exempted from the instalment plan.
Cost accounting: An area of management accounting which deals with the costs of a business in terms of enabling the management to manage the company more effectively.
Cost-based pricing: Wherever an organization bases its pricing policy solely on the costs of manufacturing rather than present market conditions.
Cost-benefit: Calculating not only the financial costs of the project, but also the cost of your effects it will have from a social point of view. This is not easy to perform since it requires valuations of intangible products like the cost of job losses or the effects on the environment. Genetically modified crops are a good example of exactly where cost-benefits would be calculated - and also impossible to answer with any degree of certainty!
Cost centre: Splitting up your costs by department. Eg. rather than having one particular account to handle all power costs for a company, a power account would be opened for each depatrment. You can then analyse which department is using the most power, and hopefully find of way of reducing those costs.
Cost of finished goods: The worth (at cost) of newly manufactured goods shown inside a business's manufacturing account. The valuation is based on the opening raw materials balance, much less direct costs involved in manufacturing, less the closing raw materials harmony, and significantly less any other overheads. This stability is subsequently transferred to the trading account.
Cost of Goods Sold (COGS): A system for working out the direct costs of your stock sold over a particular period. The result represents the gross profit. The system is: Opening stock + purchases - closing stock.
Cost of Income: A method for working out the direct costs of your income (including stock) over a particular period. The result represents the gross profit. The method is: Opening stock + purchases + direct expenditures - closing stock. Also, see Cost of Goods Sold .
Creative accounting: A questionable! signifies of making a companies figures appear a lot more (or less) appealing to shareholders and many others. An illustration is 'branding' where the 'value' of a brand name is added to intangible assets which increases shareholders funds (and therefore decreases the gearing ). Capitalizing costs is one more method (ie. moving them to the assets segment rather than declaring them in the Revenue & Loss account).
Credit: A column within a journal or ledger to record the 'From' side of the transaction (eg. if you buy some petrol using a cheque then the money is paid from the bank to the petrol account, you would therefore credit the financial institution when making the journal entry).
Credit Note: A income invoice in reverse. A typical illustration is in which you issue an invoice for £100, the customer then returns £25 worth of the goods, so you issue the customer with a credit note to say that you owe the customer £25.
Creditors: A list of suppliers to whom the company owes money.
Creditors (handle account): An account inside the nominal ledger which is made up of the general stability of your Purchase Ledger.
Current Assets: These include money from the financial institution, petty cash, money acquired but not but banked (see 'cash in hand'), money owed to the company by its consumers, raw materials for manufacturing, and stock bought for re-sale. They are termed 'current' because they are active accounts. Money flows in and out of them each financial 12 months and we will will need frequent reports of their balances if the organization is to survive (eg. 'do we want far more stock and have we got enough money within the financial institution to buy it?').
Current cost accounting: The valuing of assets, stock, raw materials etc. at latest market price as opposed to its historical cost .
Current Liabilities: These include lender overdrafts, short phrase loans (under a year), and what the enterprise owes its suppliers. They are termed 'current' for your same reasons outlined under 'current assets' within the previous paragraph.
Customs and Excise: The government department usually responsible for collecting sales tax (eg. VAT from the UK).
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Days Revenue Outstanding (DSO): How long on average it takes an organization to collect the money owed to it.
Debenture: This is a type of share issued by a limited business. It is the safest type of reveal in that it is really a mortgage to the firm and is usually tied to some with the company's assets so really should the business fail,Microsoft Office 2007 Key, the debenture holder will have first call on any assets left after the business has been wound up.
Debit: A column in a very journal or ledger to record the 'To' side of a transaction (eg. if you are paying money into your banking account you would debit the lender when making the journal entry).
Debtors: A list of consumers who owe money to the enterprise.
Debtors (handle account): An account inside the nominal ledger which contains the general harmony from the Revenue Ledger.
Deferred expenditure: Expenditures incurred which do not apply to the current accounting period. Instead, they are debited to a 'Deferred expenditure' account within the non-current assets area of your chart of accounts . When they become present, they can then be transferred to the revenue and loss account as normal.
Depreciation: The price of assets usually decreases as time goes by. The amount or percentage it decreases by is called depreciation. This is normally calculated on the end of every accounting period (usually a yr) at a normal rate of 25% of its last value. It is shown in both the revenue & loss account and balance sheet of the business. See straight-line depreciation .
Dilutive: If an organization acquires yet another and says the offer is 'dilutive to earnings', it signifies that the resulting P/E (price/earnings) ratio of your acquired firm is greater compared to acquiring company. Illustration: Business 'A' has an earnings per reveal (EPS) of $1. The current reveal price tag is $10. This provides a P/E ratio of ten (current share price is ten times the EPS). Organization 'B' has manufactured a internet profit for the 12 months of $20,000. If firm 'A' values 'B' at, say, $220,000 (P/E ratio=11 [220,000 valuation/20,000 profit]) then the deal is dilutive due to the fact organization 'A' is efficiently decreasing its EPS (since it now has a lot more shares and it compensated a lot more for them in comparison with its individual reveal cost). (see Accretive )
Dividends: These are payments to the shareholders of a limited business.
Double-entry book-keeping: A system which accounts for every factor of a transaction - wherever it came from and where it went to. This from and to element of the transaction (called crediting and debiting) is what the term double-entry signifies. Modern double-entry was first mentioned by G Cotrugli, then expanded upon by L Paccioli within the 15th century.
Drawings: The money taken out of a enterprise by its owner(s) for personal use. This is entirely different to wages paid to a business's employees or the wages or remuneration of the limited company's directors (see 'Wages').
EBIT: Earnings before interest and tax (profit before any curiosity or taxes have been deducted).
EBITA: Earnings before interest, tax and amortization (revenue before any interest, taxes or amortization have been deducted).
EBITDA: Earnings before interest, tax, depreciation and amortization (revenue before any interest, taxes, depreciation or amortization have been deducted).
Encumbrance: A liability (eg. a mortgage is an encumbrance on the property). Also, any money set aside (ie. reserved) for any purpose.
Entry: Part of a transaction recorded within a journal or posted to a ledger.
Equity: The value of your company to the owner of your business (which is the difference between the business's assets and liabilities).
Error of Commission: A double-entry phrase which implies that one particular or both sides of the double-entry has been posted to the wrong account (but is within the same class of account). Illustration: Petrol expense posted to Vehicle maintenance expense.
Error of Ommission: A double-entry phrase which means that a transaction has been ommitted from the publications entirely.
Error of Original Entry: A double-entry phrase which means that a transaction has been entered with the wrong amount.
Error of Principle: A double-entry phrase which implies that 1 or both sides of a double-entry has been posted to the wrong account (which is also a different class of account). Instance: Petrol expense posted to Fixtures and Fittings.
Bills: Goods or services purchased directly for the managing of your enterprise. This does not include goods bought for re-sale or any items of a capital nature (see Stock and Fixed Assets ).
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FIFO: First In First Out. A method of valuing stock.
Fiscal yr: The term utilised for a business's accounting year. The period is usually twelve months which can begin in the course of any month from the calendar year (eg. 1st April 2001 to 31st March 2002).
Fixed Assets: These consist of anything which a company owns or buys for use within the enterprise and which nevertheless retains a price at 12 months end. They usually consist of major objects like land, buildings, equipment and vehicles but can include smaller items like tools. (see Depreciation )
Fixtures & Fittings: This is a class of fixed asset which includes workplace furniture, filing cabinets, display cases, warehouse shelving and the like.
Flash earnings: A news release issued by an organization that shows its latest quarterly results.
Flow of Funds: This is a report which shows how a stability sheet has changed from 1 period to the next.
FOB: An abbreviation of Free On Board. It generally forms part of an export contract wherever the seller pays all the costs and insurance of sending the goods to the port of shipment. After that, the buyer then takes full responsibility. If the goods are to travel by train, it's called FOR (Free On Rail).
Freight collect: The buyer pays the shipping costs.
Gearing (AKA: leverage): The comparison of the company's long phrase fixed interest loans in comparison to its assets. In general two different methods are utilized: 1. Harmony sheet gearing is calculated by dividing long expression loans with all the equity (or proprietor's net worth). 2. Revenue and Loss gearing: Fixed interest payments for the period divided by the revenue for that period.
General Ledger: See Nominal Ledger .
Goodwill: This is an extra value placed on the business if the owner of a enterprise decides it is worth more than the appeal of its assets. It is usually integrated exactly where the organization is to be sold as a going concern.
Gross loss: The stability of your trading account assuming it has a debit stability.
Gross margin: The difference between the selling price tag of the product or service and the cost of that product or service often shown as a percentage. Eg. if a product sold for 100 and cost 60 to buy or manufacture, the gross margin would be 40%. Gross margin can also be expressed on a the entire revenue and costs of producing that revenue as well as on an item by item basis.
Gross profit: The balance from the trading account assuming it has a credit stability.
Growth and Acquisition (G & A): Describes a way a company can grow. Growth implies expanding through its normal operations, Acquisition signifies growth through buying up other companies.
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Historical Cost: Assets, stock, raw materials and many others. might be valued at what they originally cost (which is what the term 'historical cost' indicates), or what they would cost to replace at today's prices (see Value change accounting ).
Impersonal Accounts: These are accounts not held within the name of persons (ie. they do not relate directly to a business's customers and suppliers). There are two types, see Real and Nominal .
Imprest System: A method of topping up petty cash. A fixed sum of petty cash is placed within the petty cash box. When the petty cash balance is nearing zero, it is topped up back to its original level again (known as 'restoring the Imprest').
Income: Money obtained by a organization from its commercial activities. See 'Revenue'.
Inland Revenue: The government department usually responsible for collecting your tax.
Insolvent: A company is insolvent if it has insufficient funds (all of its assets) to pay its debts (all of its liabilities). If a company's liabilities are greater than its assets and it continues to trade, it is not only insolvent, but from the UK, is operating illegally (Insolvency act 1986).
Intangible assets: Assets of a non-physical or financial nature. An asset such as a mortgage or an endowment policy are good examples. See tangible assets .
Integration Account: See Manage Account .
Inventory: A subsidiary ledger which is usually employed to record the details of individual products of stock. Inventories can also be used to hold the details of other assets of the business. See Perpetual , Periodic .
Invoice: A phrase describing an original document either issued by a enterprise for that sale of goods on credit (a income invoice) or obtained by the organization for goods bought (a buy invoice).
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Journal(s): A book or set of books wherever your transactions are first entered.
Journal entries: A expression utilized to describe the transactions recorded within a journal.
Journal Proper: A expression used to describe the main or general journal in which other journals specific to subsidiary ledgers are also utilised.
K - no entries
Landed Costs: The entire costs involved when importing goods. They include buying, shipping, insuring and linked taxes.
Ledger: A book in which entries posted from the journals are re-organised into accounts.
Leverage: See Gearing .
Liabilities: This includes lender overdrafts, loans taken out for that organization and money owed by the company to its suppliers. Liabilities are incorporated on the right hand side of the balance sheet and normally consist of accounts which have a credit stability.
LIFO: Last In First Out. A method of valuing stock .
LILO: Last In Last Out. A method of valuing stock .
Long expression liabilities: These usually refer to long term loans (ie. a loan which lasts for far more than 1 12 months such as a mortgage).
Loss: See Web loss .
Management accounting: Accounts and reports are tailor produced for your use from the managers and directors of a enterprise (in any form they see fit - there are no rules) as opposed to financial accounts which are prepared for the Inland Revenue and any other parties not directly connected with all the enterprise. See Cost accounting .
Manufacturing account: An account used to show what it cost to produce the finished goods produced by a manufacturing enterprise.
Matching principle: A method of analysing the product sales and expenses which make up those revenue to a particular period (eg. if a builder sells a house then the builder will tie in all the raw materials and expenditures incurred in building and selling the house to one particular period - usually in order to see how much profit was manufactured).
Maturity value: The (usually projected) price of an intangible asset on the date it becomes due.
MD & A: Management Discussion and Analysis. Usually seen in a financial report. The information disclosed has deen derived from analysis and discussions held by the management (and is presented usually for the benefit of shareholders).
Memo billing (aka memo invoicing): Goods ordered and invoiced on approval. There is no obligation to buy.
Memorandum accounts: A name for that accounts held in a very subsidiary ledger. Eg. the accounts inside a sales ledger .
Minority interest: A minority curiosity represents a minority of shares not held by the holding company of a subsidiary. It implies that the subsidiary is not wholly owned by the holding company. The minority shareholdings are shown from the holding company accounts as long term liabilities .
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've got, say, 12 months of income 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 your three month period. You would then plot that single figure in place of your original monthly points on your graph. A moving average is useful for displaying trends. See Normalize .
Multiple-step income statement (aka Multi-step): An income statement (aka Profit and Loss ) which has had its revenue area split up into sub-sections in order to give a more detailed view of its revenue operations. Instance: an organization sells services and goods. The statement could show revenue from services and associated costs of those revenues in the start off of your revenue area, then show goods sold and cost of goods sold underneath. The two sections totals can then be amalgamted in the end to show all round income (or gross profit). See Single-step income statement .
Narrative: A comment appended to an entry in a journal. It can be utilised to describe the nature of your transaction, and often in particular, in which the other side with the entry went to (or came from).
Net loss: The value of expenses less income assuming the costs are greater (ie. if the revenue and loss account exhibits a debit stability).
Web of Tax: The price less any tax. Eg. if you sold some goods for $12 inclusive of $2 income tax, then the 'net of tax' price would be $10
Net revenue: The appeal of revenue much less expenses assuming the income are greater (ie. if the revenue and loss account exhibits a credit balance).
Internet worth: See Equity .
Nominal Accounts: A set of accounts held inside the nominal ledger. They are termed 'nominal' simply because they don't usually relate to an individual person. The accounts which make up a Revenue and Loss account are nominal accounts (as is the Revenue and Loss account itself), whereas an account opened for a specific customer is usually held within a subsidiary ledger (the revenue ledger in this case) and these are called personal accounts.
Nominal Ledger: A ledger which holds all the nominal accounts of a business. Exactly where the business uses a subsidiary ledger like the product sales ledger to hold customer details, the nominal ledger will usually include a management account to show the entire harmony of the subsidiary ledger (a manage account might be termed 'nominal' because it doesn't relate to a specific person).
Normalize: This expression could be utilized to many aspects of accounting. It means to average or smooth out a set of figures so they are a lot more consistent with all the general trend of the business. This is usually done using a Moving average .
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Opening the books: Every time a business closes the textbooks for a yr, it opens a new set. The new set of guides will be empty, therefore the balances from the last harmony sheet must be copied into them (via journal entries) so the company is ready to commence the new year.
Ordinary Reveal: This is a type of share issued by a limited firm. It carries the highest risk but usually attracts the highest rewards.
Original book of entry: A book which includes the details of the day to day transactions of the organization (see Journal ).
Overheads: These are the costs involved in managing a business. They consist entirely of expense accounts (eg. rent, insurance, petrol, staff wages etc.).
P.A.Y.E (UK only): 'Pay as you earn'. The name given to the income tax system wherever an employee's tax and national insurance contributions are deducted before the wages are paid.
P&L: See Profit and Loss Account
Paid-up Share capital: The value of issued shares which have been paid for. See Called-up Share capital.
Pareto optimum: An economic theory by Vilfredo Pareto. It states the optimum allocation of the society's resources will not happen whilst at least 1 person thinks he is better off and exactly where others perceive themselves to be no worse.
Pay on delivery: The buyer pays the cost of your goods (to the carrier) on receipt of them.
Periodic inventory: A Periodic Inventory is 1 whose harmony is updated on the periodic basis, ie. every week/month/year. See Inventory .
PE ratio: An equation which provides you a very rough estimate as to how much confidence there is in a company's shares (the higher it is the more confidence). The equation is: latest reveal value multiplied by earnings and divided by the number of shares . 'Earnings' implies the last published web revenue of your firm.
Perpetual inventory: A Perpetual Inventory is one whose balance is updated after each and every transaction. See Inventory .
Personal Accounts: These are the accounts of a business's buyers and suppliers. They are usually held from the Product sales and Purchase Ledgers.
Petty Cash: A small amount of money held in reserve (normally employed to obtain products of small worth wherever a cheque or other form of payment is not suitable).
Petty Cash Slip: A document employed to record petty cash payments where an original receipt was not obtained (sometimes called a petty cash voucher).
Point of Sale (POS): The place wherever a sale of goods takes place, eg. a shop counter.
Post Closing Trial Stability: This is a trial harmony prepared after the stability sheet has been drawn up, and only includes stability sheet accounts.
Posting: The copying of entries from the journals to the ledgers.
Preference Shares: This is a type of share issued by a limited organization. It carries a medium risk but has the advantage over ordinary shares in that preference shareholders get the first slice with the dividend 'pie' (but usually at a fixed rate).
Pre-payments: 1 or a lot more accounts set up to account for money compensated in advance (eg. insurance, in which part of the premium applies to the present financial year, and the remainder to the following 12 months).
Price tag change accounting: Accounting for your worth of assets, stock, raw materials and so forth. by their present market appeal instead with the far more traditional Historic Cost .
Prime book of entry: See Original book of entry .
Profit: See Gross profit , Web revenue , and Profit and Loss Account .
Profit and Loss Account: An account created up of revenue and expense accounts which displays the current profit or loss of the business (ie. whether a enterprise has earned more than it has spent inside the present 12 months). Often known as a P&L.
Revenue margin: The percentage difference between the costs of the product and the cost you sell it for. Eg. if a product costs you $10 to buy and you sell it for $20, then you've got a 100% profit margin. This is also known as your 'mark-up'.
Pro-forma accounts (pro-forma financial statements): A set of accounts prepared before the accounts have been officially audited. Often done for internal purposes or to brief shareholders or the press.
Pro-forma invoice: An invoice sent that requires payment before any goods or services have been despatched.
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Provisions: One particular or far more accounts set up to account for expected future payments (eg. exactly where a business is expecting a bill, but hasn't yet acquired it).
Obtain Invoice: See Invoice .
Obtain Ledger: A subsidiary ledger which retains the accounts of the business's suppliers. Just one manage account is held from the nominal ledger which displays the total balance of each of the accounts in the acquire ledger.
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Raw Materials: This refers to the materials bought by a manufacturing organization in order to manufacture its products.
Real accounts: These are accounts which deal with money such as financial institution and cash accounts. They also include those dealing with property and investments. Within the case of lender and cash accounts they could be held in the nominal ledger, or balanced in a very journal (eg. the cash book) wherever they can then be looked upon as a part of the nominal ledger when compiling a stability sheet. Property and investments could be held in subsidiary ledgers (with connected manage accounts if necessary) or directly in the nominal ledger itself.
Realisation principle: The principle whereby the appeal of an asset can only be determined when it is sold or otherwise disposed of, ie. its 'real' (or realised) worth.
Rebate: If you pay for a service, then cancel it, you may receive a 'rebate'. That is, you may be refunded some with the money you paid for the service. (eg. if you cancel a 1 yr insurance policy after 3 months, you may get a rebate for that remaining 9 months)
Receipt: A term typically utilised to describe confirmation of the payment - if you buy some petrol you will normally ask for a receipt to prove that the money was spent legitimately.
Reconciling: The procedure of checking entries created in a very business's publications with those on the statement sent by a third person (eg. checking a financial institution statement against your individual records).
Refund: If you return some goods you've got just bought (for whatever reason), the company you bought them from may give you your money back. This is called a 'refund'.
Reserve accounts: Reserve accounts are usually set up to make a balance sheet clearer by reserving or apportioning some of the business's capital against future purchases or liabilities (such as the replacement of capital equipment or estimates of bad debts).
A normal illustration is a company wherever they are used to hold the residue of any profit after all the dividends have been compensated. This harmony is then carried forward to the following 12 months to be considered, together together with the profits for that year, for any further dividends.
Retail: A phrase usually utilized to a shop which re-sells other people's goods. This type of business will require a trading account as well as a profit and loss account.
Retained earnings: This is the amount of money held inside a company after its owner(s) have taken their reveal of the profits.
Retainer: A sum of money compensated in order to ensure a person or organization is available when required.
Retention ratio: The proportion with the profits retained inside a organization after all of the costs (usually including tax and interest) are taken into account. The algorithm is retained profits divided by profits available for ordinary shareholders (or available for the proprietor/partners from the case of unincorporated companies).
Revenue: The revenue and any other taxable income of a business (eg. interest earned from money on deposit).
Run Rate: A forecast for the 12 months based on the present year to date figures. If a company's 1st quarter profits were, say, $25m, they may announce that the run rate for that year is $100m.
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Income: Income obtained from selling goods or a service. See Revenue .
Income Invoice: See Invoice .
Revenue Ledger: A subsidiary ledger which holds the accounts of a business's clients. A control account is held in the nominal ledger (usually called a debtors' control account) which exhibits the entire balance of each of the accounts from the sales ledger.
Self Assessment (UK only): A new style of income tax return introduced for that 1996/1997 tax yr. If you are self-employed, or receive an income which is un-taxed at source, you will will need to register using the Inland Revenue so the relevant self assessment forms might be sent to you. The idea of self assessment is to allow you to calculate your personal income tax.
Self-balancing ledgers: A system which makes use of handle accounts so that each ledger will harmony on its own. A control account in a subsidiary ledger will be mirrored with a control account from the nominal ledger.
Self-employed: The owner (or partner) of the organization who is legally liable for each of the debts of your business (ie. the owner(s) of the non-limited business).
Selling, General & Administrative expense (SG & A): The expenses involved in running a organization.
Service: A phrase usually utilized to a business which sells a service rather than manufactures or sells goods (eg. an architect or a window cleaner).
Shareholders: The owners of the limited organization or corporation.
Reveal premium: The extra paid previously mentioned the face worth of the reveal. Illustration: if a company issues its shares at $10 each, and later on you buy 1 reveal on the open market at $12, you will be paying a share premium of $2
Shares: These are documents issued by a company to its owners (the shareholders) which state how numerous shares from the business each shareholder has bought and what percentage from the organization the shareholder owns. Shares can also be called 'Stock'.
Shares issued (aka Shares outstanding): The number of shares a company has issued to shareholders.
Simple interest: Interest utilized to the original sum invested (as opposed to compound interest ). Eg. 1000 invested over two years at 10% per yr simple interest will yield a gross whole of 1200 with the finish of the period (10% of 1000=100 per yr).
Single-step income statement: An income statement wherever each of the revenues are shown as just one total rather than being split up into different types of revenue (this is the most common format for very small businesses). See Profit and Loss , Multiple-step income statement .
Sinking fund: An account set up to reduce an additional account to zero over time (using the principles of amortization or straight line depreciation). Once the sinking fund reaches the same price as the other account, both can be removed from the stability sheet.
SME: Small and Medium Enterprises (ie. small and medium size businesses). The distinction between what is 'small' and what is 'medium' varies depending on wherever you are and who you talk to.
Sole trader: See Sole-proprietor .
Sole-proprietor: The self-employed owner of a enterprise (see Self-employed ).
Source document: An original invoice, bill or receipt to which journal entries refer.
Stock: This can refer to the shares of a limited firm (see Shares ) or goods manufactured or bought for re-sale by a company.
Stock control account: An account held within the nominal ledger which retains the appeal of each of the stock held from the inventory subsidiary ledger.
Stockholders: See Shareholders .
Stock Taking: Physically checking a business's stock for whole quantities and appeal.
Stock valuation: Valuing a stock of goods bought for manufacturing or re-sale.
Straight-line depreciation: Depreciating something by the same (ie. fixed) amount every year rather than as a percentage of its previous appeal. Illustration: a vehicle initially costs $10,000. If you depreciate it at a rate of $2000 a 12 months, it will depreciate to zero in exactly 5 years. See Depreciation .
Subordinated debt: If an organization is liquidated (i.e. becomes insolvent ), the secured creditors are paid first. If any money is left, the unsecured creditors are then paid. The amount of money owed to the unsecured creditors is termed the 'subordinated debt' of the organization.
Subsidiary ledgers: Ledgers opened in addition to a business's nominal ledger. They are utilized to keep sections of a business separate from each other (eg. a Income ledger for your consumers, and a Purchase ledger for the suppliers). (See Handle Accounts )
Suspense Account: A temporary account used to force a trial balance to stability if there is only a small discrepancy (or if an account's balance is simply wrong, and you don't know why). A normal instance would be a small error in petty cash. In this case a transfer would be created to a suspense account to stability the cash account. Once the person knows what happened to the money, a transfer entry will be created inside the journal to credit or debit the suspense account back to zero and debit or credit the correct account.
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T Account: A particular method of displaying an account exactly where the debits and related information are shown on the left, and credits and linked information on the right.
Tangible assets: Assets of the physical nature. Examples include buildings, motor vehicles, plant and equipment, fixtures and fittings. See Intangible assets .
Three column cash book: A journal which deals together with the day to day cash and lender transactions of a enterprise. The side of the transaction which relates directly to the cash or banking account is usually balanced within the journal and utilized as a part of the nominal ledger when compiling a balance sheet (ie. only the side which details the sale or buy needs to be posted to the nominal ledger ).
Total Cost of Ownership (TCO): The real amount an asset will cost. Illustration: An accounting application retails at $1000. Support - which is mandatory, costs a further $200 per annum. Assuming the software will be in use for 5 years, TCO will be $2000 (1000+5x200=2000).
Trading account: An account which exhibits the gross revenue or loss of the manufacturing or retail enterprise, i.e. sales less the cost of revenue.
Transaction: Two or much more entries manufactured within a journal which when looked at together reflect an original document such as a product sales invoice or purchase receipt.
Trial Stability: A statement showing every one of the accounts utilised in a very company and their balances.
Turnover: The income of the company over a period of time (usually a year).
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Undeposited Funds Account: An account utilized to show the present complete of money obtained (ie. not but banked or spent). The 'funds' can include money, cheques, credit card payments, bankers drafts and so on. This type of account is also commonly referred to as a 'cash in hand' account.
Value Added Tax (VAT - applies to a lot of countries): Value Added Tax, or VAT as it is usually called is a product sales tax which increases the price of goods. On the time of writing the UK VAT standard rate is 17.5%, there is also a rate for fuel which is 5% (this refers to heating fuels like coal, electricity and gas and not 'road fuels' like petrol which is nevertheless rated at 17.5%).
VAT is added to the value of goods so within the UK, an item that sells at £10 will be priced £11.75 when 17.5% VAT is added.
Wages: Payments created to the employees of the company for their work on behalf of your company. These are classed as expense items and must not be confused with 'drawings' taken by sole-proprietors and partnerships (see Drawings ).
Work in Progress: The worth of partly finished (ie. partly manufactured) goods.
Write-off: Depreciating an asset to zero in one go.
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Zero Based Account (ZBA): Usually applied to a personal account (checking) exactly where the balance is kept as close to zero as possible by transferring money between that account and, say, a deposit account.
Zero Based Budget (ZBB): Starting a budget at zero and justifying every cost that increases that budget.
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