Accountancy Jargon – The Basics

Whether you’re a self-employed individual, a small business owner or CEO of a large agency, accountancy and tax is an inevitable part of being a working adult and we’re all bound to be faced with payroll or HMRC dilemmas at some point.

Getting to grips with understanding accountancy jargon is a tricky business, but we are here to help with a basic list to get you started:

Accounts Payable (AP): Money owed by the business or company to another business for services or goods they’ve provided.

Accounts Receivable (AR): Money owed to the business or company by its debtors (people or companies who have not paid for your services).

Accrual: An expense due but not yet recorded or invoiced.

Assets: All items or possessions owned by the business or company (money, vehicles, equipment etc).

Audit: An official inspection of a business’ accounts.

B2B and B2C: Business to business is selling to other businesses. Business to consumer is selling to the public.

Balance Sheet: A report summarising a business’ financial situation including all assets, income and expenses.

Bookkeeping: Keeping a detailed record of receipts and expenses.

Capital: Money belonging to the business owner.

Corporation Tax: Tax imposed on company profits. 

Credit Notes: Receipt of money given to someone who has returned goods, which can be offset against future purchases. 

Depreciation: Reduction in value of an asset (another word for this is ‘amortisation’).

Dividends: A sum of money paid annually to its shareholders out of company profits.

Equity: The value of your assets once debts have been subtracted.

Financial Year: A year for taxing or accounting purposes, usually April to April. 

HMRC: Stands for HM (Her Majesty’s) Revenue & Customs. The UK Government department responsible for the collection of taxes.

Income Tax: A tax imposed on personal income.

Inheritance Tax: A tax imposed on property, money and possessions of someone who’s died.

Liability: Debts owed by the business to others, including accounts payable, loans, wages and taxes.

National Insurance: A compulsory payment made by employees and employers to provide assistance for people who are sick, unemployed or retired.

Overheads: Business expenses not including labour, materials or direct expenses. They include accounting fees, advertising, insurance, rent, bills etc.

PAYE: Pay As You Earn. The name for an income tax system where an employee’s tax and national insurance contributions are deducted before the wages are paid.

Pensions: A regular payment that’s taken from your monthly wages, which will be regularly paid back by the government to people when reaching the official retirement age.

Personal Allowance: The amount of income you don’t have to pay tax on (currently, the UK’s personal allowance is £11,850).

Self Assessment Tax Return: You will do these annually if you’re self-employed or if HMRC requests one from you.

Tax Evasion: A criminal offence which involves individuals or businesses paying too little tax or wrongly claiming tax repayments. 

VAT: Value-added tax is a tax that is added to the price of goods or services (currently, VAT is 20% in the UK).

Tax and accountancy can be extremely difficult to understand. If in doubt, it’s always a good idea to talk to an accountant, to save you from any government fees or prosecution. At Barron & Co., we advise and help individuals and businesses with their tax and payroll. Call us today for an appointment or visit our website for more information.