Accounting jargon buster for Business Owners

Do you speak to your accountant and suddenly feel like they are speaking a foreign language? Every profession has its own lingo and accounting is no different. The difference is, no matter what line of work you are in, you need to understand your accounts to know how well you are doing, what needs to be improved and how you can maximise the money you are making. We approach explaining our clients accounts in English, not accounting speak. It is however so important that business owners know the key terms that accountants will use. It is also useful to be educated as a business owner so that you can monitor your own financial data. So here is a jargon busting breakdown of key accounting terms you should know.

Expenses – The things you spend money on.

Allowable expenses – The things you spend money on that HMRC deem as ‘OK to put through your business accounts’ (yes this is different)

Corporation Tax – The tax you pay on the profit your business makes.

Pay As You Earn (PAYE) – Paying your employees through your business deducting tax and National Insurance from them and paying it to HMRC.

Employee – A person who works for you. It could be you as the Director.

Self-employed – A person who is not an employee of any company.

Self-assessment – A tax return submitted to HMRC by the 31st of January each year. These must be submitted by self-employed people and company Directors.

Accounts Payable – Money you owe to your suppliers.

Accounts Receivable – Money your customers owe you.

Assets – Physical things your company owns (including vehicles, computer equipment, furniture etc.)

Accrual – Something you have used in the accounting year but have not yet paid for (e.g. staff costs, you will likely pay them at the end of the month they have worked, or electricity which may be paid quarterly).

Pre-payment – Something you have paid for, but you have not used all of in your accounting year (e.g. insurance)

Balance Sheet – A snapshot of what the business owns and what it owes.

Depreciation – The value of a business owned asset as it ages and looses value.

Gross profit – Profit less the cost of what it cost to make/produce.

Nett Profit – Gross profit less all other business expenses, including marketing, salaries, rent, rates etc.

Margin – The profit you will make on a product or service you are selling, expressed as a percentage. 

Markup – The amount of profit you add to a product you have bought when you sell it. Usually this is a monetary value (e.g you bought a product for £100, and you sell it for £150. The £50 is your markup.

Overheads – The costs of running your business i.e rent, rates, salaries, heating, lighting, cleaning etc.

Profit and Loss – A report that shows how much profit the business has made or how much the company has loft at any given period.

Year End – This is the end of your financial year. Usually, it is the anniversary of the incorporation of the company but could be changed to a different date if that is more beneficial for the company.  

At Think, we are here to look after your best interests. We want you to understand what is going on in your business financially. If you have any questions about accounting terminology or how to make the most of your business, talk to our team today.