What’s My Accountant Talking About?

So, you’ve set up a meeting with your accountant. “Bring me a list of accruals and your profit and loss for the current fiscal year,” they say.  If you’re left scrambling to find exactly what they mean, you are not alone.

Accounting, as much as any other industry, relies on relatively obscure terms. For us, this jargon is second nature, for you, the audience, though, the same is not necessarily true!

Fortunately, we can remedy that problem by explaining to you exactly what the multitude of acronyms actually mean…

Accounts Receivable

These are considered to be an asset to your business. Accounts receivables are any monies owed to you by clients that they are legally obliged to pay.

Accruals

Accruals are simply a list of expenses that have been incurred but are not yet paid. Accounts payable is a similar term meaning the same thing.

Assets

Assets are the physical items you own that have value. These could include current assets, which are things like stock, cash and accounts receivable, or fix assets, which include items such as buildings, vehicles, equipment or property.

Bad Debt

This refers to any accounts receivables that you are not able to collect. For example, if the client will not respond or they have been declared bankrupt.

Balance Sheet

This is one key piece of paper that all accounting systems agree with. A balance sheet is a snapshot in time showing your assets, liabilities and equity.

Capital

This may also be referred to as “working capital,” and is the term for the money that you have readily accessible to invest or spend on necessary business items.

Cashflow Statement

Your cashflow statement shows the movement and availability of cash through and to the business over a finite period of time.

Confirmation Statement (previously an Annual Return)

This is a snapshot of general information about a company’s directors, secretary (where one has been appointed), registered office address, shareholders, share capital and people with significant control. This must be submitted to Companies House once a year.

Depreciation

Depreciation measures the decrease in value of an item over time.

Equity

This refers to the amount of money invested in a business by its owners.

Expenses

Expenses are divided into different types for accounting purposes:

  • Fixed expenses – Costs that do not vary with changing sales or production; like, rent, wages or utility bills
  • Variable expenses – Those that do vary according to conditions, such as number of sales
  • Accrued expenses – Single expenses that are reported for accounting purposes but have not yet been paid
  • Operational expenses – Expenses that are necessary for you to conduct business, like insurance and office supplies

Fiscal Year / Accounting Year End

This refers to the time period a Company uses for preparing financial statements and for accounting purposes. Each Company has its own year-end.

Liabilities

Any debts you are responsible for paying in the short or long term.

Net Profit

The word net refers to “after all deductions”, so net profit is generally taken to mean what is left over after expenses are deducted from revenue. This figure is before tax is taken.

Profit and Loss Statement

This basically gives an overall picture of how well your business has performed in its trading activities and includes: earnings, expenses, gross profits and net profits.

Revenue

Revenue is total amount of money the company brought in from the sales of goods or services, before any expenses are subtracted.

Working Capital

This is the amount you have available to run your business after current liabilities are subtracted from current assets.

Being properly involved with the accounting side of your business can help you develop better strategies to develop and stay in control of your business going forward.