If you’re new to running your own business you’ll undoubtedly find yourself exposed to the world of accountancy and finance, and potentially hear new words and phrases. Whilst this can seem daunting, there’s no need to worry!

In this blog we look at some of the most common accounting words and phrases to help you understand your accountant and company’s accounting and tax better.

Accounts payable

If your company owes money for products or services to suppliers which were purchased on credit, then that money is referred to as accounts payable. This is also referred to as trade creditors.

Accounts receivable

Like accounts payable but almost in reverse, accounts receivable is the amount of money that’s owed to your company by your customers. Any value owed to your company is only classed as a receivable once you’ve sent your customer or client the invoice for the total amount. Accounts receivable can also be referred to as trader debtors.

Assets

Anything that your business owns which holds a monetary value is considered an asset, and is usually placed in one of the following four categories:

1. Current – which relates to cash and liquid terms
2. Fixed – items such as property and equipment
3. Prepaid and deferred – which relates to rent, interest and insurance
4. Intangible – such as trademarks and patents

Balance sheet

Your company’s balance sheet gives investors and those associated with your business a view of your company’s financial health, and the resources it can use to grow. It presents your company’s assets (what it owns), it’s liabilities (what it owes) and any equity (the company’s shareholders’ ownership).

Bookkeeping

Keeping records of your incoming and outgoing finances is called bookkeeping, and every financial transaction must be recorded, including those which just show funds moving around your business.

Cashflow forecast

Is a forecasted summary of the cash that’ll be coming into and going out of the company during any accounting period (monthly, quarterly or annually). Cash flow statements are really important to a business, as they provide a clearer understanding of where money is coming from, and who it will eventually be paid onto.

Dividends

Dividends are a share of the company profits paid to the shareholders of the company.  Dividends are only able to be paid from a company’s profits, and distributed amongst its shareholders according to the number and type of shares each shareholder owns. Understanding dividends can be confusing, so speak directly to your Vantage Accountant for more advice and support.

Goodwill

Goodwill refers to the value of your brand within it’s marketplace, and is typically an intangible asset of a certain monetary value which someone would be willing to pay for your business.

Expenses

Costs spent by your company are referred to as ‘expenses’. For some expense types you’re able to claim tax relief on them, so speak to your Vantage Accountant for more information.

Liability

If your company has an outstanding debt or recurring payments that you’re legally bound to settle, then this is classed as a liability.

There are two types of liabilities, current and long-term. Current liabilities are debts payable within 12 months, and long-term are those debts payable over a longer period of time.

Liquidity

Does your company have access to assets (both tangible and non-tangible) that could be exchanged for money? If so then your company has liquidity. If your company is trading at a particularly fast pace and converting its assets into money quickly, your company will be classed as having strong liquidity.  Poor liquidity would be a sign that your business is struggling, or going to struggle, to settle its liabilities within their payment terms.

Revenue / turnover

During a specific timeframe, the amount of money your company receives through the sale of goods or services is called the revenue or turnover.

ROI / Return on investment

ROI relates to the amount of money you’ve invested into your company versus its financial performance, and the difference. ROI % is calculated by dividing your company’s net profit by the cost of the investment.

Self-Assessment

Each year HMRC need to collect income tax from business owners, and by requiring self-assessments to be completed they’re able to see how much you owe, by when, and if it has been correctly paid. Your self-assessment allows HMRC to see your taxable income, and gains you’ve received during that tax year.

UTR / Unique Taxpayer Reference

Your company’s UTR is the ten digit number which HMRC provide you with when you register your business. The UTR is used to identify your business when dealing with tax-related issues, and you must obtain it as soon as begin trading.  You will also have a separate UTR as an individual that is used on your self-assessment tax return.

Don’t forget! The Vantage team are here to help

Accounting and tax can be confusing, and there’s nothing worse than having questions when it comes to your company’s financial success. Remember that your Vantage Accountant is always only a phone call or email away and will be happy to help explain things to you. Simply get in touch and we’ll talk through your questions and queries.