Every industry has its own language, and accounting is no exception. On the contrary, accounting terminology is particularly complex and impossible for someone who has never studied the field to know and understand everything for UK business owners.
Even if an accountant is responsible for the majority of a company’s accounting process, it is important to consider the appropriate. It is also important to become familiar with the language of UK business owners. However, here are the top 30 accounting key terms (and their definitions) to help you when you travel.
30 of the most important accounting key terms and concepts
1. 401K & Ross 401K
A 401(k) plan is like an employee savings plan. These are provided by employers and are primarily funded by employee contributions through wage deductions. In addition to 401(k)s for private businesses, there are similar plans for other organizations, especially schools and public bodies. It is important accounting terminology that every UK business owner should know.
An asset is an identifiable asset of a company that has a positive economic value to the company. Factors a firm possesses as a result of past events and from which it derives resources from which it expects future economic profits. Basically, these are all items that correspond to the company’s property (sales). Properties consist of two categories.
3. Trade receivables
Companies with many customers need to identify receivables. Accounts receivable also include amounts billed and unpaid after a business delivers goods (or products) or services to a customer. Basically, It is important accounting terminology that every UK business owner should know.
4. Billing Cycle
The accounting period defines the period during which all financial facts of a company are recorded for the preparation of annual financial statements. Billing periods are typically 12 months long. Most often (but not always), this period is a calendar year. However, the fiscal year challenge is to reconcile the expression of organizational values and performance.
5. Balance sheet
A balance sheet is a financial report that describes the financial condition of a company at a particular point in time, usually at the end of the financial statements. It identifies what the company owns (assets) and what it owes (liabilities), i.e., the resources (equity capital, loans, etc.) used to fund the assets. It is important accounting terminology that every UK business owner should know.
6. Book value
Book value is a term commonly used in accounting to refer to a company. A company’s book value is its equity, which is the sum of the values of all the company’s assets minus its liabilities. This gives potential investors an idea of what the company will be worth after the assets are sold and all debts are paid off.
Book Value = Total Assets – Total Liabilities
7. Cash flow
It is the inflow or outflow of cash that a business experiences during a specific period of time. Cash flow, therefore, refers to the liquid form of cash flow that arises during the financial year and is generated by the normal activities of the enterprise. It is important accounting terminology that every UK business owner should know.
8. Certified Public Accountant (CPA)
Certified public accountants are licenses required to practice the profession of certified public accountants, and awards are given to certified public accountants who work to protect the public interest.
To obtain a CPA license, an accountant must complete at least 150 hours of comprehensive accounting coursework and her four-part exam.
9. Cost of Goods Sold (COGS)
The cost of goods sold is the total cost a company pays to its suppliers to sell its goods. In general, the term “cost of goods sold” can be formulated with a simple question:
What are the prices of the goods sold to customers?
Using the company’s income statement, you can determine these acquisition costs by focusing on the goods purchased and the fluctuations in inventory.
Cost of Goods Sold (COGS) = Goods Purchased + Inventory Change (Beginning Inventory – Closing Inventory). In conclusion, the Final inventory is quoted after inventory confirmation.
An accounting credit indicates that a transaction has taken place, resulting in a liability or gain. Therefore, you can use credit transactions to reduce your debit balance or increase your credit balance. It is important accounting terminology that every UK business owner should know.
11. Current Assets
Current assets are items that do not remain on the balance sheet for a long period of time and are included in determining book earnings. Includes inventory, accounts receivable, and prepaid expenses.
12. Direct Debit
Account debits represent all transactions owed to a company by a third party. For example, if a customer purchases goods or services from your company but has not yet paid for them, the transaction is classified in the Debit column.
Depreciation expense (previously called “depreciation allowance”) recognized at the end of a company’s financial year corresponds to the loss or impairment of assets. Unilateral amortization is accounting for a company’s impairment and/or a decrease in the value of a company’s assets.
Corporations can fund their operations with debt, equity, or both. Also, the stock is money invested in a company by shareholders or investors. It is important accounting terminology that every UK business owner should know.
Variable costs, also known as operating or activity costs, are related to running a business and vary according to the scope of business responsibilities.
Fixed charges, also called structure charges, are independent of the company’s activity level. Even if sales do not increase, they are cost factors for the company. These charges exist in three types included in the income statement.
- Special Expenses
16. Fixed assets
“Fixed assets” in accounting refers to assets that are useful for the company’s activities over the long term. There are three categories of fixed assets:
- Financial Assets
- Tangible Assets
- Intangible Assets.
17. Generally Accepted Accounting Principles (GAAP)
Generally Accepted Accounting Principles (GAAP) are a set of rules, standards, and principles that Canadian publicly traded companies must follow when preparing their financial statements. GAAP establishes a standardized accounting system that provides clarity and makes it easier to compare companies in different industries.
18. Gross profit (GM)
Gross profit represents the tax-free difference between the selling price and the total cost of goods and services sold and can be used to determine whether a particular activity is likely to generate a profit. For example, when setting a pricing policy, setting gross margins by product makes sense and allows negotiation of purchase costs with suppliers. Basically, It is important accounting terminology that every UK business owner should know.
19. Gross Profit (GP)
Gross profit is the amount of money a company has left after deducting all direct costs of producing or purchasing the products or services it sells. The higher the gross profit, the more a company can contribute to overhead costs and other costs, such as interest.
20. Income Statement (Income Statement)
An income statement is an annual report that lists all the income and expenses of a company for a specific period of time. That’s what makes this business profitable. Expenditure items and income items cannot be balanced. Furthermore, the difference between expenditure and income (balance) represents the profit and loss of the year and allows you to observe the surplus and shortage of resources.
For a business, inventory is the action that allows all items owned by the business to be collected on a given day. Inventory is often performed shortly before the end of the billing period but is not required. In fact, this is a practical moment that allows a better correlation between inventory and accounting records. It is important accounting terminology that every UK business owner should know.
Liabilities are part of the company’s assets and correspond to items that have a negative value to the company. This includes all of the company’s liabilities to third parties that enable the financing of its assets and cause an outflow of resources. They are symmetrical in terms of assets, and together they form the company’s balance sheet. Basically, It is important accounting terminology that every UK business owner should know.
23. Final result
Net income is the amount of book profit left in a company after all expenses have been paid. Net profit is the profit earned from sales.
24. Net Profit Margin
Net profit margin is the ratio of a company’s net profit during the fiscal year to sales for the same period. This metric allows a company to evaluate the final result obtained with each sale of its product or service. Gross profit corresponds to the first level of profit and is calculated as follows:
Revenue – Fees = Net Profit.
A salary is an amount paid to an individual for work performed. Salaries are reliably calculated on payslips. In addition, Payroll runs use many parameters that correspond to salaries and employer fees.
26. Present value (PV)
Present value (PV) represents the higher market value and value in use and similarly represents the value of future economic benefits expected from the use and sale of an asset.
An asset’s market value is greater than its value in use, and the market value is less than the asset’s net book value. To value the asset at market value on the balance sheet, the difference between these two values must be recorded as depreciation expense.
Proof of payment, or simply “receipt,” refers to a document that serves as a confirmation of payment for a product or service. After that, an invoice is issued by a lender (seller) who issues an invoice and is intended for a lessee (buyer) who receives goods or services.
28. Return on Investment (ROI)
Return on Investment (ROI) is a financial metric that measures and compares the return on investment. In general, return on investment is based on the following calculations:
The ratio of return on investment to the cost of investment. In other words, return on investment is an essential metric to compare different investments made. However, it measures your return on investment by considering the amount invested and the money gained or lost.
29. Trial Credit (TB)
A trial balance is a double-entry bookkeeping statement. Above all, This report totals all debits and credits and is used to detect recording errors. Basically, it is often created at the end of an accounting period after some records have been collected. Creating, updating, and reporting balances are common automated functions in modern accounting software. It is important accounting terminology that every UK business owner should know.
30. Variable costs (VC)
Variable costs are costs that vary depending on the scope of business of the company. Also, this term is used in cost accounting or operational accounting. However, This refers to the level of contribution and varies according to the company’s level of function.
Variable costs are offset by fixed costs. Fixed costs remain stable over a period of time, regardless of the scope of the company’s operations during that period. For instance, Variable costs change roughly in proportion to production volume. Since these costs are operating costs, i.e., production costs, they are also more or less proportional to the sales achieved.