"accounts Demystified" A-C

Front 1

Accounting period

Back 1

The time between two consecutive balance sheet dates (and therefore the period to which the profit and loss account and cash flowstatement relate).

Front 2

Accounts payable (Payables, Trade creditors)

Back 2

The amount a company owes to its suppliers at any given moment.

Front 3

Accounts receivable (Receivables, Trade debtors)

Back 3

The amount a company is owed by its customers at any given moment.

Front 4

Accumulated depreciation/amortisation

Back 4

The total depreciation or amortisation of an asset since the asset was purchased.

Front 5

Allotted share capital (Issued share capital)

Back 5

The amount of theauthorised share capital that has actually been allotted to shareholders.

Front 6

Amortisation

Back 6

The amount by which the book value of an intangible asset (including goodwill) is deemed to have fallen during a particularaccounting period.

Front 7

Annual report and accounts (Annual report)

Back 7

The report issued annuallyto shareholders containing the directors’ report, the auditors’ report and thefinancial statements for the year.

Front 8

Asset

Back 8

Anything of value which a company owns or is owed.

Front 9

Associated undertaking (Associate)

Back 9

Broadly speaking, a company is anassociate of an investor company if it is not a subsidiary but the investorcompany exerts a significant influence over the company. ‘Significantinfluence’ is normally assumed to occur when the investor holds in excessof 20 per cent of the company.

Front 10

Audit

Back 10

Annual inspection of a company’s books and financial statementscarried out by auditors.

Front 11

Auditors

Back 11

Accountants appointed to carry out a company’s audit.

Front 12

Auditors’ report

Back 12

Report on a company’s financial statements preparedfor the shareholders by the auditors.

Front 13

Audit trail

Back 13

Module of all accounting systems which records inchronologic order the details of every transaction posted to the system.

Front 14

Authorised share capital

Back 14

The total number of shares the directors of acompany have been authorised by the shareholders to issue.

Front 15

Average method

Back 15

Method of accounting for stock whereby, if a companyhas identical items of stock which cost different amounts to buy orproduce, the average value is used.

Front 16

Bad debt

Back 16

Money owed by a customer which will never be paid.

Front 17

Balance sheet

Back 17

Statement of a company’s assets and the claims over thoseassets at any given moment (i.e. at the balance sheet date).

Front 18

Balance sheet date

Back 18

Date at which a balance sheet is drawn up.

Front 19

Balance sheet equation

Back 19

Statement of the fundamental principle ofaccounting, whereby the assets of a company must equal the claims overthose assets (i.e. the liabilities and shareholders’ equity).

Front 20

Benchmarking

Back 20

Method of assessing a company’s performance bycomparing it against competitors or other benchmarks.

Front 21

Bond (Long-term loan, Loanstock)

Back 21

A loan which is not due to be repaidfor at least twelve months. More specifically, the bond is the certificateshowing the amount and terms of the loan.

Front 22

Books

Back 22

The records of all the transactions of a company and the effect ofthose transactions on the company’s financial position.

Front 23

Book value

Back 23

The value that an asset has in a company’s books. The bookvalue of an asset is usually different from its market value.

Front 24

Capital and reserves (Equity, Shareholders’ equity/funds)

Back 24

The share of acompany’s assets that are ‘due’ to the shareholders. Consists of share capital,share premium, retained profit, and any other reserves.

Front 25

Capital allowance

Back 25

When calculating taxable income, Revenue & Customstakes no account of depreciation on tangible fixed assets. Instead, capitalallowances are made which reduce taxable income (effectively, capitalallowances are Revenue & Customs’ method of depreciation).

Front 26

Capital employed (Net operating assets)

Back 26

The total amount of money tiedup in a business in the form of fixed assets and working capital. It is alsoequal to the sum of the equity, the debt and any corporation tax payable.

Front 27

Capital expenditure

Back 27

Money spent on fixed assets as opposed to day-todayrunning expenses.

Front 28

Capital structure (Financial structure, Funding structure)

Back 28

The relative proportions of the funding for a company that are provided by debtand equity.

Front 29

Cash flow

Back 29

The change in a company’s cash balance over a particularperiod.

Front 30

Cash flow statement

Back 30

A statement showing the reasons behind acompany’s cash flow during a particular accounting period.

Front 31

Cash in advance (Deferred revenue/income)

Back 31

A liability a company hasas a result of having received cash in payment for goods or services froma customer before those goods or services have been provided tothe customer.

Front 32

Charge (Lien)

Back 32

First claim over an asset (normally taken as security for aloan).

Front 33

Contingent liability

Back 33

A liability which may or may not arise depending onthe outcome of some future event.

Front 34

Convertible loanstock/bond

Back 34

A loan which the lender can convert intoshares in the company rather than accepting repayment of the loan.

Front 35

Convertible preference share

Back 35

A preference share which can be convertedby the holder into ordinary shares in the company.

Front 36

Corporation tax

Back 36

The tax paid by a company on its profits.

Front 37

Cost of goods sold (Cost of sales)

Back 37

All materials costs and expenses whichcan be directly ascribed to the production of the goods sold.

Front 38

Coupon

Back 38

(1) The interest payable on a bond.(2) The dividend payable on a preference share.

Front 39

Covenant

Back 39

Restriction imposed by a lender, breach of which normallyenables the lender to demand immediate repayment of the debt.

Front 40

Credit

Back 40

(1) Time given to a customer to pay for goods or services supplied.(2) In double-entry book-keeping, there are always at least two entries;one of these is always a credit, the other is always a debit.

Front 41

Creditor

Back 41

Someone who is owed money, goods or services.

Front 42

Cumulative preference shares

Back 42

Preference shares with the additionalcondition that, if any preference dividends for past years have not been paid,these must be paid in full before a dividend can be paid to the ordinaryshareholders.

Front 43

Current asset

Back 43

An asset that is expected to be turned into cash within oneyear of the balance sheet date.

Front 44

Current cost convention

Back 44

Accounting convention whereby assets arerecorded in a company’s books based on their market value or replacementcost at the balance sheet date.

Front 45

Current liability

Back 45

A liability that is expected to be paid within one year ofthe balance sheet date.

Front 46

Current ratio

Back 46

Current assets divided by current liabilities.