SEARCH, INDEX, UPDATES, CONTENTS, UNDERSTANDING, GLOSSARY OF TERMS
Please tell us about any terms or jargon you would like us to add or if you have a clearer description. Terms explained in this glossary are shown in italics.
Accruals - Costs incurred for which bills have not yet been received, e.g. electricity charges which accrue daily but are only billed every quarter - an estimated amount since the last bill is accrued.
Accounting Date - the date to which a set of accounts is drawn up. In the case of Limited Companies this is permitted to vary for Statutory Accounts by 7 days either side of the Accounting Reference Date
Accounting Period - the period from the previous accounting date to this accounting date.
Accountants Report - see Reports below.
Accounting Reference Date - a year end date recorded with the Registrar of Companies which cannot normally be changed more than once in 5 years.
ACT - Automated Credit Transfer
Articles of Association - regulations for the internal management of a company signed and registered by the subscribers.
Associate (of Participator) - TO BE DEFINED
Audit - a limited examination of the Accounts together with the underlying records from which they have been prepared. Auditors do not check every figure and document, but they try to assess whether the Accounts have any material misstatements, and give an opinion whether the Accounts show a true and fair view.
Audit Report - see Reports below.
AVC - Additional Voluntary Contribution to a Pension Scheme - must comply with strict limits.
Bank Reconciliation - see Reconciliation below.
Bankruptcy - a condition which occurs when any individual has insufficient resources to meet his debts - see also insolvent.
Close Company - a company which is under the control of five or fewer people. There are subject to some special rules for tax purposes.
Chairmans Report - see Reports below.
Connected Person - Someone who might not be charged the open market value. For Capital Gains Tax this includes a brother, sister, parent, grandparent, child, and your own and their husbands and wives. For Inheritance Tax it also includes aunts, uncles, nephews, and nieces.
Control Account - a Total Account which is a summary of individual Debtor or Creditor Accounts
Creditor - Person or business to whom you owe money.
CRM - Customer Relationship Management, normally software, but any system for recording details of customers.
Current Assets - assets such as stock, debtors, and cash, i.e. assets which are either cash or expected to be realised as cash within 12 months.
Current Liabilities - liabilities which may have to be paid off within 12 months, including normal credit accounts.
CVA - Company Voluntary Arrangement
Debtor - Person or business who owe money to you.
De minimis - a small amount which is ignored, e.g. if the de minimis amount is £1, charges less than £1 will not be collected .
Depreciation - an expense charged against profit for the use of a Fixed Asset. Over the useful life of the Fixed Asset, the depreciation charge will equal the loss in value from Original Cost to Residual Value - see also Methods of Depreciation.
Direct Expenses - expenses which vary with the level of sales.
Directors Report - see Reports below.
Fiscal - relating to public revenue.
Fiscal year - Tax year ended 5 April.
Fixed Assets - assets, such as equipment, cars etc., purchased for use in the business, not to be sold by the business at a profit, although they may be sold at the end of their expected useful life.
FSA - Financial Services Authority which oversees, among other things the Financial Services Markets Act 2000
FSAVC - Free Standing Additional Voluntary Contribution to a Pension Scheme - must comply with strict limits.
Hire Purchase Borrowing - borrowing which is charged on the equipment or vehicle being purchased and which may be repossessed on the event of non payment.
IBO - Institutional Buy Out - sale of business to a finance institution.
Intangible Fixed Assets - Fixed Assets which cannot be touched - Goodwill, Patent Rights
Insolvent - when any individual or company has insufficient liquid resources to meet its debts.
IPA - Insolvency Practitioners Association
IPO - Initial Public Offering (more information - www.ipo.com)
IVA - Individual Voluntary Arrangement
Lease Purchase Borrowing - see Hire Purchase Borrowing
Letter of comfort - A letter from a parent company including a phrase such as 'it is our policy to ensure that the business of the subsidiary ia at all times in a position to meet its liabilities'. Such a letter has no effect in law and is only binding in honour. It is not a legally binding guarantee.
Liquidation - the winding up of a Limited Company. This may be a Voluntary Liquidation in which case the Creditors are normally paid in full or a Creditors Liquidation when the company is insolvent.
Memorandum of Association - the constitution of a company which regulates its external relations.
Methods of Depreciation - X% of WDV allocates more cost to the early years of an assets life when it may be most efficient and needing least maintenance therefore contributing most to profits. Straight Line method allocates the same amount each year.
MBI - Management Buy In - sale of business to Managers not previously involved in the business.
MBO - Management Buy Out - sale of business to Managers previously involved in the business
Net Realisable Value - relevant to Stock and Work In Progress valuations. If the realisable value is less than cost this value is used. Uncommon because damaged stock may be discounted, but seldom to less than cost.
Original Cost - The original contracted / invoiced price of a Fixed Asset - see also Revaluation
Other Creditors - those which are not Trade Creditors.
Participator - TO BE DEFINED
PEST analysis - examination of the Political, Economic, Social and Technological environment in which a business operates
POCA - Post Office Card Account
Preferential Creditors - Liabilities which have first claim on any assets in a Liquidation or Bankruptcy
Prepayments - the amount of an expense which relates to a future accounting period, e.g. rent paid for the quarter to 25 June includes 86 days after a 31 March period end - the relevant proportion will be prepaid to be an expense in the next period of account,
Rates of Depreciation - Typically vehicles are written down at 25% per annum on WDV, plant and equipment at 15% per annum on WDV, buildings at 2% per annum Straight Line.
Reconciliation - see Bank Reconciliation annexed.
Reports - see Summary of Reports annexed.
Residual Value - The amount a Fixed Asset is sold for at the end of its useful life.
Revaluation - An adjustment to Original Cost or previous Revaluation to reflect the present Market Value of an Asset. Not normally considered necessary or advisable.
SME - Small and Medium sized Enterprises
Stock - goods bought for resale which have not been sold at the end of an accounting period - see also Gross Profit. Where goods have been altered in a (manufacturing) process, all the costs of alteration should be included in the valuation.
Subject to contract - a letter, draft agreement or offer which is not binding in law, used while agreeing terms.
Subscribers - person agreeing to buy the first shares in a newly formed company.
Sundry Creditors - see Other Creditors when there are no Trade Creditors
SWOT analysis - examination of the Strengths, Weaknesses, Opportunities and Threats applicable to any person or business
Tangible Fixed Assets - Fixed Assets which can be touched - Plant, Equipment, Vehicles
Taxes and Social Security Costs - VAT, PAYE & NIC - these are liabilities which are all preferential creditors.
Trade Creditors - those creditors in respect of Direct Expenses
Total Account - see Control Account
Useful Life - The period during which a Fixed Asset is expected to be used in the business to earn profits. The asset may still be usable at the end of this period, but is expected to be sold.
Valuation - An opinion of the Market Value of an asset. Opinions will vary between valuers, but also by the same valuer under different circumstances. A value given for a forced sale will normally be much lower than a value given as an asking price. There are complex rules for valuations given for tax purposes.
Work In Progress - a term used for builders and professional firms for costs carried forward - similar to Stock - has some complex rules for calculation.
WDV - Written Down Value - Original Cost or Valuation less Depreciation to date
Winding Up - see Liquidation
Reminder - disclaimer applies. Please feedback your comments. This page was last modified 27 September 2002.