Skymark Financial Jargon Buster
No jargon here! I pride myself on being a financial controller that will tell you exactly how your business is performing. However, understanding business terminology can help you increase communication efficiency in your firm.
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Accounts payable is money owed to suppliers who have sent your business goods, or supplied it with services, who you haven't yet paid. These are also known as trade creditors.
Accounts receivable is the amount of money that your customers haven't yet paid you for your goods or services. These are also known as trade debtors.
An accrual is a cost that you've had the benefit of, but you haven't yet been billed for..
A balance sheet is a report that shows how much a business owns, and owes, as at a given point in time.
Bank reconciliation is the process of checking to make sure that the balance on your bank statement matches the bank balance in your accounts.
The break-even point is how much your business needs to earn in sales to exactly cover its day-to-day running costs, with nothing left over.
Cash Flow Forecast
A cashflow forecast is a plan that shows how much money a business expects to receive in, and pay out, over a given period of time.
Companies House is a government body that stores information on all the limited companies and limited liability partnerships registered in the UK.
Cost of Sales
Costs of sales are day-to-day running costs of a business that relate directly to particular individual sales the business makes.
Depreciation is an accounting mechanism that's used to spread the value of a capital asset over the years that it'll be useful to the business.
A director’s loan is money taken from a limited company by a company director that is not a salary, dividend or business expense payment.
A dividend is a sum of money that a limited company pays out to someone who owns shares in the company, i.e. a shareholder.
Emergency Tax Code
An emergency tax code is a type of tax code that HMRC can attribute to an employee when it does not have enough information about the employee to assign them to the correct tax code.
Equity is the value of shareholders' investment in a limited company.
Expenses are a type of business cost. The word ‘expenses’ can be used to describe several different types of cost but it usually indicates that the cost can be reimbursed in some way.
The financial year runs from 1st April every year to 31st March in the following year. The financial year applies to limited companies, and other businesses that pay Corporation Tax such as non-incorporated clubs and societies.
A fixed cost is a cost that stays the same regardless of how many sales your business makes, or how active it is otherwise.
Franchising is a way of growing a business, particularly in diverse locations, without needing to recruit additional employees. A franchise is created by a franchisor, who allows individuals (known as franchisees) to buy the right to use the business's name, logo, and methods of operation.
The general ledger is all of a business’s accounts, assets, liabilities, income, expenses and capital and their contents. It's also known as a nominal ledger.
Goodwill is an intangible asset that forms part of a business’s capital assets. It reflects positive sentiment for a business, along with the business's reputation and the size of its existing customer base. Goodwill is usually taken into account by a potential buyer when the value of a business is being assessed for purchase.
Gross profit is a business's income, less its day-to-day running costs that relate directly to making particular sales. Running costs that relate directly to making sales are called 'direct costs' or 'cost of sales'. Running costs that don't relate directly to making sales are called 'indirect costs' or 'overheads'.
HMRC stands for Her Majesty's Revenue and Customs. HMRC is responsible for the collection of taxes.
Income Tax is tax that's payable on an individual's income. It's charged at different rates depending on what kind of income it relates to, for example dividend income is taxed at lower rates than most other kinds of income.
Interest is extra money that is earned on savings, and extra money that has to be paid on certain debts.
An invoice is a document that a business issues to its customers, asking the customers to pay for the goods or services that the business has supplied to them. Invoices can be issued either before or after the goods or services are supplied.
A journal is an accounting mechanism that moves an amount from one nominal account to another.
KPI stands for Key Performance Indicator. A KPI is an identified value that you measure over time to help you determine how certain areas of your business are performing.
A limited company is a type of business structure where the company has a legal identity of its own, separate from its owners (shareholders) and its managers (directors). Even if a company has only one individual involved with it and that person is the only shareholder and the only director, the company is still a separate legal entity.
Limited Company Director
A limited company director is legally responsible for the day-to-day management and running of a limited company. A limited company can have more than one director.
A liquidity ratio indicates whether a company’s current assets can pay off current debt obligations. There are two liquidity ratios that you can use to check your business: the current ratio and the quick ratio.
Making Tax Digital
Making Tax Digital is a government initiative that sets out a bold vision for a digital tax system to "make it easier for individuals and businesses to get tax right and keep on top of their affairs".
A micro-business (also known as a micro-entity) is most commonly defined in the UK as a company with 0-9 employees.
A mileage claim is one way to get tax relief on a business journey in your own vehicle, whether that’s a car, motorbike or van.
Net Book Value
The net book value is how much a fixed asset is showing as worth in your business’s accounts.
Net profit is a business's income less all of its day-to-day running costs, but before any tax or interest due to the bank, is taken off.
Nominal accounts are the categories in your records where transactions are posted in double-entry bookkeeping..
Open Banking was set up by the Competition and Markets Authority (CMA) in order to create more competition in the financial marketplace.
An operating lease is a lease where you rent an asset, rather than buying it..
Overheads are the day-to-day running costs of a business that do not relate directly to its individual sales.
A partnership is a business structure very like a sole trader except there is more than one person running and owning the business. The people who own and run a partnership are called partners.
A prepayment is money that you've paid in advance for a business cost.
Profit and Loss Report
The profit and loss report is a summary of the business's income, less its day-to-day running costs, over a given period of time.
The quick ratio is a means of measuring the ability of a company to use its cash or current assets to pay off its current liabilities. It is also often referred to as the ‘acid test’ ratio.
RTI is short for Real Time Information. Businesses use RTI to report wages, salaries, PAYE and National Insurance to HMRC.
Retained profit is the amount of a business’s net income that is kept within its accounts, rather than paid out to shareholders. Retained profit is a strong indicator of the long-term financial stability of a business.
Return on Equity
Return on Equity (ROE) is a measure of how effectively management is using a company’s assets to create profits. It’s calculated by dividing a company’s annual return (net income) by average shareholders’ equity and is expressed as a percentage.
Self Assessment is a system that HMRC uses to collect Income Tax. Individuals who have earned income that HMRC doesn't yet know about, such as profit from a business, usually have to report that income to HMRC in a Self Assessment tax return.
The solvency ratio measures a company’s ability to pay its debts. This is similar to the liquidity ratio, but it indicates whether cashflow is sufficient to meet long-term debt, rather than short-term.
Statement of Financial Position
A statement of financial position is another name for a balance sheet. It is used to provide an overview of a business’s financial position at a given point in time.
If a day-to-day running cost of your business is "allowable for tax relief" or "allowable for tax", that means you can use it to reduce the amount of profit that your business will pay tax on. Not all day-to-day running costs are allowable for tax relief.
Tax Written Down Value
The tax written down value of an asset is the original value of the asset less any capital allowances you've claimed on that asset.
A trial balance is a report that shows the total of all your business's accounts, its assets, liabilities, income, costs and capital, as at a given point in time.
A UTR number (Unique Taxpayer Reference number) is a 10-digit code issued by HMRC to individual taxpayers and companies who need to complete a tax return. HMRC sometimes refers to the UTR number as a ‘tax reference’.
A Unique Selling Proposition (USP) - alternatively called a Unique Selling Point - is a benefit or feature that distinguishes a company, service, product or brand from its competitors.
VAT Flat Rate Scheme
The VAT Flat Rate Scheme is an alternative way for small businesses to work out how much VAT to pay to HMRC each quarter.
A VAT return is a form you file with HMRC, usually four times a year, to show how much VAT you are due to pay them. If you're not registered for VAT, you won't file VAT returns.
A variable cost is a cost that changes with how many sales your business makes or how active it is.
Wrongful trading occurs when directors allow a company to keep trading even when they know that the company is unable to pay its debts.
Year end is the end of a business's accounting year. It's short for 'accounting year end'.