Glossary (a-z)

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Abatement traditionally applies to tax levies, special assessments and service charges. Abatements represent the complete if not partial cancellation of a levy enforced by a government unit. 

Abnormal returns is the difference between actual returns and those that are expected, for example, ‘normal return’. 

Above the line a general term for transactions, income and expenses etc., that are associated with the everyday running of a business. See below the line. 

Absorption costing all production costs are absorbed into products and the unsold inventory is valued at total cost of production. 

Absorption the process by which overhead costs are absorbed into units of output, or ‘jobs’. 

Account a section in a ledger devoted to a single aspect of a business (for example, a bank account, wages account, and office expenses account). | An account prepared by the executor or administrator of an estate.

Account ageing refers to tracking past customer and supplier accounts due in relation to trade receivables and trade payables using data taken from when charges were first recorded. 

Account payable an amount due for payment to a supplier of product or services, also described as a trade creditor/payable. 

Account receivable money which is owed to a company by a customer for products and services provided on credit. This is often treated as a current asset on a balance sheet. 

Accountability the requirement to perform duties, including financial and operational responsibilities, in a manner that complies with legislation, policies, objectives and expected standards of conduct. 

Accountancy firm a business partnership (or possibly a limited liability company or limited liability partnership) in which the partners are qualified accountants. The organisation undertakes work for clients in respect of audit, accounts preparation, tax and similar activities. 

Accountancy profession the collective body of persons qualified in accounting, and working in accounting-related areas. Usually they are members of a professional body, such as AAT, membership of which is attained initially by passing examinations and is often subject to continuing professional development (CPD). 

Accounting entity assumption where the company is treated as a separate legal entity to the owner. 

Accounting equation the foundation for the double-entry bookkeeping system. For each transaction, total debits equal total credits. 

Accounting officer the senior officer, such as the permanent secretary of a public agency or the chief financial officer of a corporation, who has responsibility and authority for the management and expenditure of the monies and other assets of the organisation. 

Accounting period time period for which financial statements are prepared. 

Accounting policies accounting methods that have been judged by enterprises to be most appropriate to their circumstances and adopted by them for the purpose of preparing their financial statements. 

Accounting practice body of knowledge concerned primarily with methods for recording transactions, keeping financial records, performing internal audits, reporting and analysing financial information to the management and advising on taxation matters. 

Accounting principles refers to the basic principles and concepts of accounting standards and guidelines adopted in the preparation of financial statements and used to determine, for example, the measurement of assets and recognition of revenue. The key principles are going concern, consistency, prudence and other payables. 

Accounting rate of return calculated by taking the average annual profits expected from a project as a percentage of the capital invested. 

Accounting standards board the authority in the UK which issues definitive statements of best accounting practice. 

Accounting standards prescribed methods of accounting by the accounting standards or financial reporting standards regulation body in any given jurisdiction. 

Accounting technician not a fully-qualified accountant, but one eligible to handle certain accounting tasks by virtue of his or her membership of a professional body such as the Association of Accounting Technicians. 

Accounts payable an account in the nominal ledger which contains the overall balance of the purchase ledger. 

Accounts payable ledger a subsidiary ledger which holds the accounts of a business’ suppliers. A single control account is held in the nominal ledger which shows the total balance of all the accounts in the purchase ledger. 

Accounts preparation an annual summation of transactions undertaken by a business, including what has been bought and sold. 

Accounts receivable ledger a subsidiary ledger which holds the accounts of a business’ customers. A single control account is held in the nominal ledger which shows the total balance of all the accounts in the sales ledger. 

Accruals (other payables) accounting the purpose of other payables accounting is to report the economic substance of the transactions a body has entered into during a period of time and their impact on its financial position, which is often different to their cashflow impact. 

Accrued expense (accrued liability) an expense which remains unpaid at the accounting date and is therefore recognised as a liability. 

Accumulated depreciation charge account this is an account held in the nominal ledger which holds the depreciation charge of a fixed (non-current) asset until the end of the asset’s useful life (either because it has been scrapped or sold). It is credited each year with that year’s depreciation charge, hence the balance increases (that is, accumulates) over a period of time. Each fixed asset will have its own accumulated depreciation charge account. 

Accumulated depreciation charge the sum of past depreciation charges for a fixed asset that is currently held. 

Acid test the ratio of liquid assets to current liabilities. Also known as the liquidity ratio. 

Acquisitions often referred to as a takeover or a buyout, is the buying of one company by another. An acquisition may be friendly or hostile and can be private or public, depending on whether the acquirer or merging company is or isn’t listed in public markets. 

Act Book recording the actions of court, essentially a summary of what went on. Outline details of the grant of probate, including name of testator, date of probate, executor name(s), value of estate.

Activity any physical operation that takes place in an enterprise. For ABC see also unit activity, product-sustaining activities, batch-related activities and cost drivers. 

Activity-based costing (ABC) traces overhead costs to products by focusing on the activities that drive costs (cause costs to occur). 

Actual overhead cost overhead cost of the period, arising either through cash spending or through trade credit. 

Actuary business professional who deals with the financial impact of risk and uncertainty; Expert in statistics who calculates insurance risks and premiums. 

ad colligendum bona is if there is no executor or administrator for a person’s estate – perhaps because of a dispute over the validity of the Will – the court may appoint a person to collect the goods of the deceased and keep them in safe custody until an administrator can be appointed.

Administrative expenses costs of managing and running a business. 

Administration – when a person dies without leaving a Will (intestate), someone (usually a relative) could apply to the probate court for a grant of administration, which would allow them to deal with the estate. Also called Letters of Administration

Administration (with Will annexed) If the named executors died or refused to act, or if no executors had been named, then Letters of Administration were granted to someone, usually next of kin. So, not a normal probate grant, but not a normal Administration either because there was a Will.

Administrator – A person appointed when either no Will can be found or there is no executor to carry out the intentions of the Will.

Adverse variance this arises when the actual cost is greater than the standard cost. 

AE (annual exemption) the level of capital gain a UK taxpayer is entitled to make before paying capital gains tax. 

AER (annual equivalent rate) interest rate on loans or savings indicating the rate if interest was compounded and paid once a year. 

Affidavit a written statement signed on oath and witnessed by a commissioner for oaths. Also known as a deposition.

Aged trade payables analysis process of determining which suppliers are being paid on time, which are not, and how far their bills are behind the payment date. This analysis indicates which supplier(s) must be paid first in order to avoid any credit or supply problem. 

Aged trade receivables analysis the Accounts Receivable Age Analysis Printout, is usually divided in categories for current, 30 days, 60 days, 90 days, 120 days, 150 days and 180 days and overdue that are produced in modern accounting systems. The printout is done in the order of the Chart of Accounts for the Accounts Receivable and/or Trade receivables Book. 

Agency a relationship between a principal and an agent. In the case of a limited liability company, the shareholder is the principal and the director is the agent. 

Agency theory a theoretical model, developed by academics, to explain how the relationship between a principal and an agent may have economic consequences. 

Aggregate depreciation charges see accumulated depreciation charge. 

AGM (annual general meeting) an annual meeting called by the directors of a company, which shareholders are invited to attend, to discuss matters such as the audited accounts and dividend payments. 

AIM (alternative investment market) market created for small, young and growing companies, operated by the London Stock Exchange with less stringent admission criteria than for the main market. 

Allocate to assign a whole item of cost, or of revenue, to a cost centre, account or time period. 

Allotment the distribution of shares to applicants in a new issue. 

Allowable expenses incurred by a person/company which can be offset against income to reduce the personal/company tax liability. 

Amalgamation is the merger of several companies, whereby the surviving entity incorporates the merged companies into its base. 

Amortisation process similar to depreciation charge, usually applied to intangible fixed assets. 

Annual investment allowance (AIA) is a capital allowance, which offers tax relief on qualifying expenditure in the year of purchase. 

Annual report also known as statutory accounts, limited companies are legally obliged to send shareholders an annual report and accounts which typically contains five statements: director’s report; auditor’s report; income statement account; Statement of financial position; and statement of cash flows. The report must also be submitted to Companies House and HM Revenue & Customs.

Annual Accounts – This is the process of reporting the financial activities and position of a business, person, or other entity. Annual Accounts take the form of a financial statement or report and are a formal record of relevant financial information presented in a structured manner that is easy to understand. Typically, basic financial statements are a balance sheet (financial position) and an income statement (profit and loss report) from the stated period.

Annualise a statistical technique that enables figures covering less than a 12 month period to be expanded to a year. To be completely successful, seasonal variations need to be taken into consideration. 

Annuity a stream of fixed payments over a period of time.

Appraisal – Valuation of goods at death, sometimes previous to drawing up an inventory, sometimes as part of it.

Apportion to spread cost over two or more cost units, centres, accounts or time periods on some basis which is a fair representation of how the cost item is used by each cost centre. 

Apportionment a method of calculating the proportion of input tax applicable to business use, if goods or services are used for business and non-business purposes. 

Appropriation account an account in the nominal ledger which shows how the profit/loss for the year/period of a partnership have been distributed. 

APR (annual percentage rate) where interest on loans or savings is expressed as other than a yearly rate the APR is the equivalent rate over a year. 

Arbitrage practice of exploiting price differentials usually between two different, but closely related, financial instruments by purchasing at the lower price and selling at the higher price. The disparity between prices often occurs between similar instruments traded in different markets. 

Arrears bills which should have been paid. 

Articles of association document setting out the governance of a limited liability company. 

Asset backed finance loans made to a company that are secured against specific assets such as plant and machinery. 

Asset based lending any kind of lending secured by an asset meaning that if the loan is not repaid, the asset is taken. A mortgage is an example of an asset-backed loan. 

Asset stripping the practice of acquiring a company and then selling parts of it in order to realise enough cash to match the entire acquisition cost. 

Asset turnover annual sales revenue divided by net assets employed in the business. This measures a company’s efficiency at using its assets to generate sales revenue. 

Assets rights or other access to future economic benefits controlled by an entity as a result of past transactions or events. Generally, the property owned by the person who died. For example, a house, household goods, savings, investments, a car, etc.

Assets passing by survivorship Where assets are held in joint names they will pass to the survivor automatically rather than through the Will and are excluded from the value of assets for Probate purposes.

Assignment the transfer of ownership of an item from one organisation/individual to another. 

Associated company one company exercises significant influence over another, falling short of complete control or ownership. 

At par the sale of a security at a price equal to its face value. 

Audit a statutory assurance engagement in which the objective is to express an opinion on a set of financial statements as to whether they are prepared, in all material respects, in accordance with an applicable financial reporting framework and therefore whether they give a true and fair view and the financial performance and position of a business during and at the end of the accounting period in question. 

Audit manager an employee of an accountancy company, usually holding an accountancy qualification, given a significant level of responsibility in carrying out an audit assignment and responsible to the partner in charge of the audit. 

Audit trail a list of transactions in the order they occurred. 

Auditors certify that the financial statements produced by their client companies have been prepared in accordance with accounting standards and represent a true and fair view of the company. 

Auditors report states whether the financial statements prepared by management reflect a true and fair view of affairs and meet the legal and regulatory requirements. 

Auto Enrolment – This is the process of enrolling qualifying staff into a Workplace Pension Scheme. This is a legal requirement for employers. Under the Pensions Act 2008, every employer in the UK must put certain staff into a pension scheme, and contribute towards it – this is called ‘Automatic Enrolment’.

Authority having permission from the person who ‘owns‘ the information to hold or use this data. 

AVCO (weighted) average cost. A method of valuing stock. 

AVCs (additional voluntary contributions) relates to additional payments made into your main pension scheme. These can be paid either into your job pension or added to a separate scheme. 

Average an average is the number that best represents the typical value of a series of numbers. It is sometimes called the ’mean’. 

Back end load a charge imposed when investors sell shares in mutual funds which have the effect of discouraging withdrawals. 

Back office brokerage house administrative operations supporting the trading of stocks and other securities. 

BACS bankers’ automated clearing system – an electronic method of payment. 

Bad debt an amount that is written off by the business as a loss to the business and classified as an expense because the debt owed to the business is unable to be collected, and all reasonable efforts have been exhausted to collect the amount owed. 

Bad debt relief a relief from VAT on bad debts. A claim may be made if supplies to a customer have been made and no payment has been received. 

Balance sheet provides a snapshot of everything a company owes and owns at the end of its financial year. A component of a company’s annual report. Also called a statement of financial position. 

Balanced scorecard links performance measures for key goals in customer perspective, financial perspective, internal business perspective and learning and growth perspective. 

Balloon payment a final payment on, for example, a loan. 

Bank facility arrangement with a bank to borrow money as required up to an agreed limit. 

Bank reconciliation the agreement of a bank account balance as per the nominal ledger to the bank statement – adjusting for items seen as outstanding such as cheques and receipts. 

Banker’s draft cheque made out to a creditor by a debtor’s bank offering more security than a standard cheque. 

Bankruptcy situation where an individual is incapable of settling his/her debts. 

Barter an exchange of products or services between individuals/organisations without the involvement of money. 

Base currency the currency that forming the base of a quotation. For example, sterling is the base currency in the dollar/pound rate. 

Base rate interest rate set by the Bank of England upon which other banks base their lending rates. 

Basic standard a standard cost that remains a permanent basis for comparison. 

Basic state pension payments made to retired individuals who have made National Insurance Contributions during their life. 

Basket trade contract or other instrument for the purchase/sale of a group of shares/currencies traded together. 

Batch level activities in managerial accounting, production costs that are incurred only when a new batch is processed. These costs might include things like set-up time, moving materials and loading machines. For these costs, it does not matter how many units are produced in the batch. 

Batch processing entering batches of financial documents all together rather than individually. 

Bear someone who thinks the market, or a particular share, will decline. A bear market is one in which most prices are falling. Also used adjectivally, as in ’bearish’, ‘bear market’ and so on. 

Below the line a general term is applied to items within a business which would not normally be associated with the everyday running of a business. 

Benchmarking is the process of measuring the organisation’s operations, products and services against those of competitors recognised as market leaders, in order to establish targets which will provide a competitive advantage. 

Beneficial loan made by an employer to an employee on who interest is either not charged or less than the official rate. The difference between the interest charged and the official rate is taxable. 

Beneficiary or Beneficiaries an individual or organisation standing to benefit from a contractual or fiduciary relationship, usually relating to a trust or will. The person/s who is the recipient of money or other assets as assigned in a person’s Will.

Bequest – A gift left in a Will.

Big four these are the four largest international accountancy and professional services firms: PricewaterhouseCoopers, KPMG, Deloitte and Ernst & Young. These firms handle audits for many publicly traded companies as well as many private companies. 

Big Mac index analysis comparing the price of the snack designed to show relative price levels around the world and judge whether a currency might be over or undervalued. 

BIK (benefits in kind) benefits, excluding salaries, given to employees which are taxed as employment income. For example, cars and medical insurance. 

Black economy segment of the economy that operates on barter and unreported private cash transactions, with the aim of avoiding tax. 

Blocked input tax input tax that is always non-deductible, such as that on business entertainment and some cars. 

Board of directors the individuals elected to run a company by its shareholders. 

Bona Notabilia – ‘Noteworthy goods’. Refers to the requirement of the Prerogative courts that only estates valued at £5 or more in more than one diocese should come within their jurisdiction. Except in London, where it was £10.

Bond/s written promise by company to pay the face amount at the maturity date, cash or property given to assure performance and a type of insurance compensating an employer for employee dishonesty. | A signed and witnessed obligation, the conditions of which might include the proving of a Will, administration of an intestate’s estate, rendering an account or inventory, or guardianship of a minor.

Bond rating credit rating agencies grade bonds according to how likely it is that the issuer will default either on interest or capital payments. Bonds with an AAA rating are considered the least likely to default. 

Bonus issue of shares for free to shareholders in proportion to their existing holdings. 

Book transfer of title from seller to buyer without physical movement of the asset.

Bookkeeping – This is the process of recording your income and expenditure accurately, through the use of accounting software. Bookkeeping services can include bolt-on services like Payroll, Auto Enrolment, CIS and VAT. Bookkeeping is a core service and accurately recorded data is vital for providing valuable reports on performance and for compiling Annual Accounts.

Bookkeeping System Software – This is the process of setting up a good bookkeeping system, which is time consuming and needs to be done properly to ensure that data is recorded in a useful and compliant way.

Book value (net book value) the value of a fixed asset net of any depreciation charged, or the carrying amount, of other assets or liabilities. 

Bottom-up budget Initiated by inviting those who will implement the budget to participate in the process of setting the budget. Also called a participative budget. 

Breach of contract the breaking of terms agreed upon, within a contract. Mainly witnessed in employment contracts. 

Break even (analysis) the level of a company’s sales at which they are equal to costs and thus neither a profit nor loss is made. 

Breakeven chart graph that shows sales and costs over a range of activity, including the activity level at which total costs equal total sales and at which the business makes neither a profit nor a loss. 

Breakeven point activity (measured as sales volume) where total sales and total costs are equal, so that there is neither profit nor loss. 

Break-up value the total value of a company’s separate operations if sold separately. 

Bridging loan is a short-term loan that is offered under the expectation of a long term loan. The interest rate applied to this loan is generally higher than that of longer loans. 

Broker (stockbroker) member of a stock exchange who arranges purchase and sale of shares and may also provide an information service giving buy/sell/hold advice and recommendations. 

Budget a detailed plan which sets out, in money terms, the plans for income and expenditure in respect of a future period of time. It is prepared in advance of that time period and is based on the agreed objectives for that period of time, together with the strategy planned to achieve those objectives. 

Budget committee a group of people brought together to manage each stage of the budgetary process. 

Budget deficit gap between government spending and revenue and thus the amount that needs to be borrowed. 

Budget manual a document setting out procedures and instructions including the timetable for budget preparation, formats to be used, circulation lists for drafts, and arbitration procedures where conflicts begin to show themselves. 

Budgetary accounting measures the cost of planned acquisitions to the use of economic resources in the future. 

Budgetary planning and control specialist techniques to quantify the strategy of the enterprise. 

Budgetary system serves the needs of management in making judgements and decisions, exercising planning and control and achieving effective communication and motivation. 

Budgeted fixed overhead cost rate fixed overhead cost rate per unit set in advance. See predetermined overhead cost rate. 

Bull market in which prices are rising and in which investor confidence in the continuation of rising prices is high. 

Burn rate the speed at which a company spends its finances. 

Business combination a transaction in which one organisation acquires control of another. 

Business cycle fluctuations in economic/business activity between peaks and troughs over a given period. 

Business entity a business which exists independently of its owners. 

Business property relief deduction made from the value of business property when assessed for inheritance tax. 

Business recovery and insolvency frequently businesses encounter problems, for example becoming short of capital, reorganisation or reduced cash flow. In some cases a business recovery expert may be able to help a business in difficulty. In other situations an insolvency expert may guide the business through the insolvency or winding-up process, selling off the business assets and paying trade payables. Both areas of work involve high levels of diplomacy and legal and commercial understanding. 

Business services a combination of accounting and auditing. This type of work tends to involve business advice designed to specifically help clients grow their business and to develop accounting and management systems. 

Business strategic planning involves preparing, evaluating and selecting strategy to achieve objectives of a long-term plan of action within a defined business activity. 

Buy back purchase by a company of its own shares. 

CAGR (compound annual growth rate) the year on year growth rate required to show the change in value (of an investment) from its initial value to its final value. If a £1 investment was worth £1.52 over three years, the CAGR would be 15% [(1 x 1.15) x 1.15 x 1.15]. 

CalendarUsually a contemporary created index, arranged chronological within first letter of the surname of the testator or testrix.

Call loan loans which are repayable on demand. 

Called up (share capital) the company has called upon the shareholders who first bought the shares, to make payment in full. 

Cap a means to limit capital use in assets. 

Capital allowances the depreciation charge on a fixed asset is shown in the income statement account, but is added back again for income tax purposes. In order to be able to claim the depreciation charge against any profits HMRC allow a proportion of the value of non-current assets to be claimed before working out the tax bill. These proportions (usually calculated as a percentage of the value of the non- current assets) are called capital allowances. 

Capital an amount of finance provided to enable a business to procure assets and sustain its operations. 

Capital budgeting a process of management accounting which assists management decision making by providing information on the investment in a project and the benefits to be obtained from that project, and by monitoring the performance of the project subsequent to its implementation. 

Capital expenditure incurred when an organisation spends money either to buy non – current assets or to add to the value of an existing fixed asset with a useful life that extends beyond the financial year. 

Capital gain represents the gain generated through the disposal of an asset. 

Capital gains tax when a fixed asset is sold at a profit, the profit may be liable to a tax called Capital Gains Tax. Calculating the tax can be a complicated affair. 

Capital goods scheme a scheme that requires the adjustment of input tax, to reflect the extent of changes in taxable use over time for certain items of capital expenditure. Affects businesses that make exempt supplies. 

Capital instruments the standard defines a capital instrument as any instrument issued by a reporting entity that is a means of raising finance. Therefore, capital instruments include things like shares, debentures, loans, share options and share warrants. The standard deals with the treatment of capital instruments in the financial statements of the issuing entity, rather than in the financial statements of an entity that has purchased the capital instruments and is holding them as investments. 

Capital investment appraisal the application of a set of methods of quantitative analysis which give guidance to managers in making decisions as to how best to invest long-term funds. 

Capital market is the generalised term used to describe the market of debt and equity securities. 

Capital rationing there is not sufficient finance (capital) available to support all the projects proposed in an organisation. 

Capital reduction involves the reduction of a company’s declared or stated capital base. 

Capital reserve created as a result of a non-trading profit and part of the equity section of a limited company statement of financial position. 

Capital structure the financing components of a company, including ordinary and preference shares, debentures and loan stock. 

Capitalised interest refers to the interest cost incurred whilst an asset is being prepared for its intended use. 

Capitalised lease is a type of lease which is recorded as an asset acquisition which is then accompanied by a corresponding liability by the lessee. 

Carrying amount is the amount that an asset or a liability is recorded on a Statement of financial position. 

Cash basis a type of bookkeeping that records when revenues and expenditures are received and paid. 

Cash book a journal where a business’ cash and cheque receipts and payments are recorded. A cash book can also be used to record the transactions of a bank account. The side of the cash book which refers to the cash or bank account can be used as a part of the nominal ledger (rather than posting the entries to cash or bank accounts held directly in the nominal ledger – see three column cash book). 

Cash budget statements of cash expected to flow into the business and cash expected to flow out of the business over a particular period. 

Cash cow segment of the business that generates a large quantity of money. 

Cash discount an allowance off the net invoice price offered by the seller to the buyer to encourage the buyer to settle an invoice more quickly than normal trade terms; also known as settlement discount. 

Cash equivalents short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. 

Cash flow a revenue or expense stream that changes a cash account over a given period. Cash inflows usually arise from one of three activities – financing, operations or investing – although this also occurs as a result of donations or gifts in the case of personal finance. Cash outflows result from expenses or investments. This holds true for both business and personal finance. 

Cash flow statement (statement of cash flows) a statement in a company’s annual report which shows how much cash has been earned, and how it has been spent during the financial year. Also called a statement of cash flows. 

Cash on hand (such as money held in a cash box or a safe) and deposits in a bank that may be accessed on demand. 

Cash paid listing a list of all cash paid by an organisation, detailing the date, name of payee and the amount paid. 

Cash payments book a record of all an organisation’s expenditure. 

Cash purchase an organisation pays the supplier for items of expenditure at the time of purchase. 

Cash receipts book a record of all income received by an organisation. 

Cash received listing a list of all cash received by an organisation, detailing the date, the name of the business or person making the payment and the amount received. 

Cash sale the customer pays for goods or services at the time of the sale. 

Caveat – A warning notice that a Will is to be disputed. Used to prevent the grant of probate or of administration without notice being given to the caveator – the person entering the caveat.

CCAB consultative committee of accountancy bodies: body representing the Institute of Chartered Accountants in England and Wales; the Institute of Chartered Accountants of Scotland; the Institute of Chartered Accountants in Ireland; the Association of Chartered Certified Accountants; the Chartered Institute of Management Accountants; and the Chartered Institute of Public and Finance and Accountancy. 

CEO the chief executive officer is at the top of a corporation and provides leadership, direction, and strategy for the organisation. 

Certificate of Bona Notabilia – See Bona Notabilia

Certificate of deposit (CD) a type of formal instrument that is issued by banks when a deposited fund is not withdrawn for a length of time. Early withdrawals can result in a cash penalty. 

Certified financial planner a trained individual who can successfully implement financial plans for clients using knowledge based around income/estate tax, investments and risk management analysis. 

CFO the chief financial officer controls the financial aspects of a company. 

Changes in equity, statement of, a financial statement used by limited companies to report all items causing changes to ownership interest during the financial period. 

Charge back refers to a credit card order which has been processed and is subsequently cancelled by the cardholder contacting the credit card company directly (rather than through the seller). This results in the amount being ‘charged back’ to the seller (often incurs a small penalty or administration fee to the seller). 

Charge in relation to interest or taxes and describes the reduction in ownership interest reported in the income statement due to the cost of interest and tax payable. 

Chargeable Gift A gift on which Inheritance Tax may be payable.

Charitable trust or foundation is a legal organisation which can be set up by anyone who has decided that they want to set aside some of their assets or income for charitable causes. They are registered charities and can be registered as companies or unincorporated associations. The trust is governed by a trust deed which includes the charitable purposes that the trust will work within. The trust will be able to take advantage of many tax benefits. 

Chart of accounts refers to the list of accounts appearing in the nominal ledger. The list is usually arranged in the order accounts appear in the financial statements. 

Chartered accountant recognised for their ethics and skills across a full range of accountancy disciplines; background in business, marketing, economics, finance, management and information systems. They work at the highest levels of business across all sectors. 

Chartered tax adviser a specialist in tax who has passed the chartered institute of taxation (CIOT) qualification. 

Cheque a method of payment in which a person (or organisation) instructs a bank to transfer a specified sum of money from their bank account to the bank account of the recipient of the cheque. This instruction is made by writing a cheque. 

Cheques paid listing a list of all cheques paid by an organisation, detailing the date, name of payee and the amount paid. 

Cheques received listing a list of all cheques received by an organisation, detailing the date, the name of the business or person making the payment and the amount received. 

Citation Mandate – A legal document requiring someone to do something or appear before the probate court. Announces the date of a visitation of the archdeacon or his official. A court of visitation was a means of governing the parishes under his jurisdiction.

CIF (cost, insurance, freight) a contract (international) for the sale of goods where the seller agrees to supply the goods, pay the insurance, and pay the freight charges until the goods reach the destination (usually a port – rather than the actual buyers address). After that point, the responsibility for the goods passes to the buyer. 

Circulating assets the opposite to non – current assets Circulating assets describe those assets that turn from cash to goods and back again (hence the term circulating). Typically, you buy some raw materials, start to manufacture a product (the asset is called work in progress at this point), produce a product (it is now stock/inventory), sell it (it is now back to cash again). 

CIS – This is the process of managing tax deductions by a contractor from a subcontractor’s payments, under The Construction Industry Scheme (CIS), and paying it to HM Revenue & Customs (HMRC). These deductions count as advance payments towards a subcontractor’s tax and National Insurance. There are ongoing obligations on the contractor to ensure that a subcontractor would not be seen as an employee. Contractors must also enter into a formal agreement with their subcontractors, expect to receive invoices from them, and verify their status with HMRC to establish their rate of deduction. They are also expected to report payments and deductions monthly to HMRC and issue a statement of payments and deductions to the subcontractor.

Civil Partner – ‘Civil partner’ refers to the registered civil partner at the time of death.

Clearing account is a temporary holding account that contains costs/amounts that at a specified date are to be transferred to another account that is, income summary account that contains revenue and expense amounts that are to be transferred to retained earnings at the end of a fiscal period. 

Clearing house institution whereby interbank indebtedness is computed, and net amounts owing can be calculated. 

Closing the books a term used to describe the journal entries necessary to close the sales and expense accounts of a business at year end by posting their balances to the Income statement account, and ultimately to close the Income statement account too by posting its balance to a capital or other account. 

Coding of accounts involves the assignment of an identification number to every account in the financial statements. 

Codicil(s) – A legal document that amends (rather than replaces) a Will. Codicils can adversely affect a Will, altering, cancelling or adding provisions to it. It is therefore more common to re-write the whole Will. It must conform to the same legal requirements as the original Will (such as the signature of the testator) and have two witnesses who do not benefit from the Will in any way.

Collection period represents the number of days taken to collect accounts receivable. The length of this period is determined by the rate of turnover a company has. 

Commercial bank a financial institution that provides a commercial banking service, including accepting bank deposits and offering business loans, to individuals and companies. 

Commission – An order by a court for carrying out some task, eg: “To examine witnesses”; “To collect goods” (eg com. ad colligend.); “To make an inventory of goods”.

Commission to swear – A commission to a person to swear executors or administrators.

Common Form – The procedure for making a grant of probate and other business.

Companies act the companies act (with its many variations) gives the legislation in the United Kingdom relating to company law. 

Companies House the title given to the government department which collects and stores information supplied by limited companies. A limited company must supply Companies House with a statement of its final accounts every year (for example, Income statement accounts, and balance sheet). 

Company controlling one or more other subsidiary companies often by holding the majority of the shares. 

Company Formations – This is the process of legally incorporating a business in the UK and is sometimes referred to as company registration. In order to legally form a company certain procedures need to be followed, and once registered you will receive a ‘Certificate of Incorporation.’  This will confirm the company legally exists which shows the company number and date of formation.

Comparability qualitative characteristic expected in financial statements, comparable within business and between businesses. 

Compensating balances a deposit that banks can use to offset an unpaid loan. 

Competition commission (CC) is an independent public body which conducts in-depth inquiries into mergers, markets and the regulation of the major regulated industries, ensuring healthy competition between companies in the UK for the benefit of companies, customers and the economy. The Competition Commission replaced the Monopolies and Mergers Commission on 1 April 1999. 

Competitor in a business or government environment, anyone outside an organisation, project or business process that competes for the same resources (inputs) or provides the same or similar products or services (outputs). Competitors may be external or internal. 

Compound interest process of adding back interest earned on an investment to the original investment, thereby increasing the principle on which further interest is calculated. 

Confirmation Statements (Annual Return) – This is the process of providing a snapshot of company data at a specific date for inclusion on the public register. From 30 June 2016, the Annual Return (AR) is replaced by the Confirmation Statement (CS). Although the CS is intended to serve the same purpose as the AR, there is now a requirement to ‘check and confirm’ that the information held is accurate. In addition, there is the inclusion of a ‘people with significant control (PSC) register’, which will contain information on PSCs who are not necessarily the directors or shareholders of the company, and who would not previously have been caught by this legislation.

Consistency concept represents the uniformity of accounting concepts and procedures used by an entity in the preparation of financial statements. 

Consolidated financial statements presentation of financial information about the group as a single reporting entity. 

Consolidation a procedure that aggregates the total assets, liabilities and results of the parent and its subsidiaries (the group) in the consolidated financial statements. 

Contingency an alternative plan in case something changes. In a schedule, it is common to keep some contingency time in case one stage runs late. 

Contingency theory an explanation that management accounting methods have developed in a variety of ways depending on the judgements or decisions required. 

Contingent liabilities obligations that are not recognised in the balance sheet because they depend upon some future occurrence happening. 

Continuing professional development (CPD) or continuing professional education (CPE) is the means by which people maintain their knowledge and skills related to their professional lives. Many professions define CPD as a structured approach to learning to help ensure competence to practice, taking in knowledge, skills and practical experience. 

Contra entry made to offset or nullify a previous entry. 

Contribution per unit of limiting factor used in ranking, choosing the highest value of this ratio to make the most profitable use of restricted resources. 

Contribution per unit the sales price minus the variable cost per unit. It measures the contribution made by each item of output to fixed costs and profit. 

Contribution sales minus variable cost. 

Control account which gives summary to the balance of all accounts on another ledger. 

Control the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. One of three functions of management that are supported by management accounting. See also decision making and planning. 

Controllable cost a cost which is capable of being regulated by a manager within a defined boundary of responsibility. 

Convertible bond a bond that can be converted into shares of the issuing company. 

Convertible debt security which can be exchanged for a specified amount of another, related security, at the option of the issuer and/or the holder. Also called convertible. 

COO the chief operating officer who is responsible for managing the company’s day-to-day operations and reporting them to the chief executive officer 

Cook the books falsify a set of accounts. See also creative accounting . 

Copyhold – A form of land tenure for tenants of manorial lands.

Corporate culture values and beliefs held by people within an organisation 

Corporate finance in the UK, the terms ‘corporate finance’ and ‘corporate financier’ are associated with transactions in which capital is raised in order to create, develop, grow or acquire businesses. 

Corporate governance the means by which companies are directed and controlled. Boards of directors are responsible for the governance of their companies. 

Corporate recovery companies that are under performing or in financial difficulty may be turned around by the intervention of a corporate recovery team. Early stage recovery can see the company returned to a profitable state however where this is not feasible the corporate recovery team will sell off assets, handle staff redundancies and wind the company up. 

Corporate recovery department part of an accountancy firm which specialises in assisting organisations to recover from financial problems. 

Corporate social responsibility companies integrate social and environmental concerns in their business operations and in their interactions with stakeholders. 

Corporate strategic planning involves preparing, evaluating and selecting strategies to achieve objectives of a long-term plan of action for the corporate entity as a whole. 

Corporation tax payable by a company on its profits. This is the process of filing a Company Tax Return and Corporation Tax (CT) Return. You must pay CT on profits from doing business as a limited company, a foreign company with a UK branch or office, a club, co-operative or other unincorporated association, such as a community group or sports club.

Cost accounting focuses on the cost accumulation used for inventory valuations that are needed for external reporting and internal profit measurement. 

Cost benefit analysis the analysis of financial or organisational benefits, in comparison with disadvantages, of a particular project, proposal or system. An organisation carries out a cost benefit analysis to help appraise the value of carrying out a particular project or acquiring a particular system. 

Cost centre splitting up your expenses by department. For example, rather than having one account to handle all power costs for a company, a power account would be opened for each department. You can then analyse which department is using the most power, and hopefully find of way of reducing those costs. 

Cost code a system of letters and numbers designed to give a series of unique labels which help in classification and analysis of cost information. 

Cost coding codes used for recording costs in an accounting system. 

Cost driver rate total costs in a cost pool divided by the number of times that the activity occurs. 

Cost drivers the factors that most closely influence the cost of an activity. 

Cost effectiveness the optimum balance between efficiency, economy and effectiveness. Also referred to as value for money or return on investment. 

Cost of a non-current asset is the cost of making it ready for use, cost of finished goods is cost of bringing them to the present condition and location. 

Cost of capital the cost to the business of raising new finance. 

Cost of finished goods the value (at cost) of newly manufactured goods shown in a business’ manufacturing account. The valuation is based on the opening raw materials balance, less direct costs involved in manufacturing, less the closing raw materials balance, and less any other overheads. This balance is subsequently transferred to the trading account. 

Cost of goods sold materials, labour and other costs directly related to the goods or services provided. Also known as cost of sales. 

Cost of quality all costs incurred in achieving a quality product or service. 

Cost pool the costs collected that relate to each activity. 

Cost(s) an amount of expenditure on a defined activity. The word ‘cost’ needs other words added to it, to give it a specific meaning. 

Cost-based pricing where a company bases its pricing policy solely on the costs of manufacturing rather than current market conditions. 

Cost-benefit analysis calculating not only the financial costs of a project, but also the cost of the effects it will have from a social point of view. This is not easy to do since it requires valuations of intangible items like the cost of job losses or the effects on the environment. Genetically modified crops are a good example of where cost-benefits would be calculated – and also impossible to answer with any degree of certainty. 

Cost-plus pricing setting a price based on full cost of production plus desired profit. Also called full cost pricing. 

Cost-volume-profit analysis emphasises the relationship between sales revenue, costs and profit in the short-term. 

Coupon annual rate of interest paid by the issuer of a bond until maturity. 

Covenant a formal agreement that some act will or will not be carried out, for example, a promise to pay interest. 

CPI (consumer price index) tracks the prices of a variety of goods purchased by an average consumer. 

Creative accounting a questionable means of making a company’s figures appear more (or less) appealing to shareholders etc. An example is ‘branding’ where the ‘value’ of a brand name is added to intangible assets which increases shareholders funds (and therefore decreases the gearing ). Capitalising expenses is another method (that is, moving them to the assets section rather than declaring them in the income statement account). 

Credit (bookkeeping) entries in the credit column of a ledger account represent increases in liabilities, increases in ownership interest, revenue, or decreases in assets. 

Credit (terms of trade) the supplier agrees to allow the customer to make payment sometime after delivery of the goods or services. Typical trade credit periods range from 30-90 days but each agreement is different. 

Credit control methods used to ensure customers settle their accounts within the agreed time period. 

Credit crunch situation occurring when the supply of money cannot keep pace with demand. 

Credit default swap specific kind of counterparty agreement allowing the transfer of third party credit risk from one party to the other. 

Credit derivative financial instrument used to mitigate or to assume specific forms of credit risk, often to separate the credit risk of a borrower from overall market risk. 

Credit note a document sent to a customer of a business cancelling the customer’s debt to the organisation, usually because the customer has returned defective goods or has received inadequate service. 

Credit purchase a business entity takes delivery of goods or services and is allowed to make payment at a later date. 

Credit rating used by financial institutions making loans which they use to judge an individual or company’s credit worthiness. 

Credit ratings agency an agency that rates the creditworthiness of companies based on detailed financial information. 

Credit risk the risk that an issuer might default on a payment or go into liquidation. 

Credit sale an organisation sells goods or services and allows the customer to make payment at a later date. 

Credit transactions payment for goods or services is delayed until sometime after the purchase. 

Creditor budget used to estimate the timing and amount of payments to trade payables. 

Creditor days (trade payables ÷ purchases or cost of sales) × 365. Also known as trade payable days. 

Creditor individuals/organisations owed money. 

Critical event the point in the business cycle at which revenue may be recognised. 

Cumulative preference shares when a company fails to pay a dividend, holders of cumulative preference shares are entitled to receive this missed payment when a dividend is next declared. 

Curation – Guardianship over minors under 21 but over 14 for boys or 12 for girls. The guardian was chosen by the minor.

Currency hedging a technique used to guard against foreign exchange fluctuations. 

Currency risk the potential for losses arising from adverse movements in a currency. 

Currency swap arrangement in which two parties exchange a series of cash flows in one currency for another, at agreed intervals over an agreed period. 

Current assets that are regularly turned over and can be readily converted into cash, including Trade receivables and inventories. 

Current liabilities owed by a company that are due for settlement within 12 months, including trade payables and bank overdrafts. 

Current ratio is a measurement of liquidity where current assets are divided by current liabilities. This is commonly used to measure short-term solvency. Also known as the working capital ratio. 

Current value a method of valuing assets and liabilities which takes account of changing prices, as an alternative to historical cost. 

Current yield the annual interest rate paid by a bond, expressed as a percentage of its current market price. 

Currently attainable standard a standard cost based on expectations under normally efficient operating conditions. 

Customers’ collection period average number of days credit taken by customers. 

Cut-off procedures processes applied to the accounting records at the end of an accounting period to ensure that all transactions for the period are recorded and any transactions not relevant to the period are excluded. 

Cut-off rate a set maximum/minimum rate that is susceptible to – in this circumstance – rates which cannot be exceeded on either end. 

Daybook a descriptive and chronological (diary-like) record of day-to-day financial transactions also called a book of original entry. The daybook’s details must be entered formally into journals to enable posting to ledgers. 

Debenture a written acknowledgement of a debt – a name used for loan financing taken up by a company. 

Debit notes issued when a payment is short on the full amount owed. 

Debt financing the raising of capital via the selling of bonds and other debt instruments. 

Debt/Equity ratio a company’s borrowings divided by the market value of its equity. It is a measure of the amount of gearing of a company, and an indicator of financial strength. 

Debtor a person or organisation that owes money to them. 

Debtor budget used to estimate the timing and amount of receipts from debtors; also known as trade receivables budget. 

Debtor days (trade receivables ÷ sales revenue) × 365. Also known as trade receivable days.

Declaration – A declaration in lieu of an inventory. Produced instead of an inventory, giving the approximate value of the estate.

Decimals a fraction of a number that is written using the decimal system. This is indicated by the use of the decimal point ( . ). 

Decision making one of three functions of management which are supported by management accounting. See also planning and control. 

Deed of Gift – Among medieval deeds the most common form of document for the permanent transfer of ownership of property from one individual to another was the Deed of Gift. The word ‘gift’ is in this usage a term that was used in contrast to ‘grant’. Grants applied to things like tithes or goods.

Deed of Variation This is a legal document that allows the Beneficiaries to change the terms of a Will, even after the person’s death.

Default when a debtor fails to meet principal or interest payments on the due date of their debt. 

Defeasance process of rendering a contract or deed null and void following a specified act. 

Deferred asset an asset whose benefit is delayed beyond the period expected for a current asset, but does not meet the definition of a fixed asset. 

Deferred income this refers to the income that the company has received cash for but has yet to be ‘earned’. For example, 12 months of AAT membership being paid in the middle of the fiscal year. At the end of the year only six months of that income should be recorded in the income statement account. 

Deferred tax a future tax asset or liability resulting from temporary differences between the tax value and book value of assets and liabilities, or timing differences between the recognition of gains and losses for tax and for financial statements. 

Deferred taxation the obligation to pay tax is deferred (postponed) under tax law beyond the normal date of payment. 

Defined benefits pension scheme a pension plan in which an employee’s pension benefit is related to the number of years service and final salary. 

Defined contribution pension scheme a pension plan in which benefits are dependent on contributions and the growth of the pension fund. 

Deflation a situation in which there is a fall in the general price level of goods and services. 

Demand deposit is a bank deposit account where withdrawals can be made without the need for giving advance notice. 

Demand note a note sent to trade receivables that is considered to be payable on demand. 

Demerger corporate restructuring in which one part of a company is spun off as a new company. 

Demutualisation process by which building societies and mutual insurers convert themselves from organisations owned by their members to profit-making companies which distribute profits to their shareholders. 

Denominator the number on the bottom of the fraction. 

Departmental accounting where a company has different departments that have a variety of different autonomies. 

Deposit payment given with the promise/guarantee that a service will be completed or placing cash into an account or money offered as a form of security in return for an item. 

Deposition (of witness) – A testimony under oath as to the veracity of a Will and the circumstances in which it was made.

Depreciable amount is the cost of the asset less the scrap or resale value that is expected to be received when the asset is done with. 

Depreciation a method of allocating the cost of a tangible asset over its useful life. Businesses depreciate long-term assets for both tax and accounting purposes. 

Derecognition the act of removing an item from the financial statements because it no longer satisfies the conditions for recognition. 

Derivative a security whose value is based on the value of an underlying asset such as commodities, bonds, stocks and equities. 

Devaluation formal reduction in the value of a currency with respect to another.

Devise – A gift by Will of freehold property.

Difference on consolidation difference between fair value of the payment for a subsidiary and the fair value of net assets acquired. 

Digital signature a cryptographic transformation of a message in which the receiver’s public electronic key must correspond with the sender’s electronic private key in order for the message to be decrypted. A digital signature serves as a means of authentication, by ensuring that the initial message was unaltered during transmission. Also referred to as an electronic signature. 

Digital Asset Planning is the process of anticipating and arranging, during a person’s life, for the disposal of that person’s digital assets. Digital assets are not presently protected by uniform legislation, or indeed defined in law, but it is important to plan and provide for what should happen with these assets post death. [READ MORE]

Diluted earnings per share a performance metric used to gauge the quality of a company’s earnings per share (EPS) if all convertible securities were exercised. Convertible securities refers to all outstanding convertible preferred shares, convertible debentures, stock options (primarily employee based) and warrants. Unless the company has no additional potential shares outstanding (a relatively rare circumstance) the diluted EPS will always be lower than the simple EPS. 

Diminishing balance depreciation method of calculating depreciation charges in which the written down or book value (purchase price – accumulated depreciation charges) of a capital asset is reduced by a fixed percentage rate. This method results in larger depreciation charge amounts in the earlier years of an asset’s useful life and progressively lower amounts in later years, and is employed where the usage of an asset remains generally uniform despite the asset’s age. 

Direct cost that is directly traceable to an identifiable unit, such as a product or service or department of the business, for which costs are to be determined. 

Direct method (of operating cash flow) shows cash inflows and cash outflows. 

Direct tax a tax that is paid directly by an individual or organisation to the imposing entity. A taxpayer pays a direct tax to a government for different purposes, including property tax, personal property tax, income tax or taxes on assets. Direct taxes are different from indirect taxes, where the tax is levied on one entity, such as a seller, and paid by another, such a sales tax paid by the buyer in a retail setting. 

Directing attention one of three functions of management accounting to support management actions of planning, decision making and control. See also keeping the score and solving problems. 

Directors’ report statement within the annual report/statutory accounts prepared by the company directors, in accordance with the Companies Act, detailing information including: directors in service during the period under review; the principal activities of the business; dividend recommendation; a review of the business. The size of the company dictates the level of disclosure required in the report. 

Disbursement monies paid out, for example by a solicitor, to cover costs incurred on a clients behalf, such as court fees. A payment made to a third party.

Disclosed, disclosure an item that is reported in the notes to the accounts is said to be disclosed but not recognised. 

Disclosing letting others see or access private information. 

Discount rate most suitable rate of interest to be applied in calculating present value. Could be based on one particular type of finance but more usually is the cost of mixed sources. 

Discount received a supplier of goods or services allows a business to deduct an amount called a discount, for prompt payment of an invoiced amount. The discount is often expressed as a percentage of the invoiced amount. 

Discounting the process of calculating present value of projected cash flows. 

Discretionary trust private trust empowering trustees to use their discretion in distributing funds to beneficiaries. 

Disintermediation the removal of an intermediary from a transaction. 

Disposable income assessments of a household’s income after tax deductions and additional benefits have been made. 

Dissolution the end of the legal existence of a business. 

Diversification distribution of capital among various assets or industries, usually to reduce risk. 

Dividend cover ratio between a company’s earnings (profit for the year after tax) and the net dividend paid to shareholders. It is calculated as earnings per share divided by the dividend per share. 

Dividend distribution of company profits, after tax to shareholders in proportion to their shareholding. The payment and amount of dividend is at the discretion of the directors. 

Dividend growth the amount by which a company’s yearly dividends grow. 

Dividend yield measures how much income a shareholder is getting out of the company for the capital invested in it. It is calculated as the annual dividend income per share received from a company divided by its current share price. 

Division a part of the organisation where the manager has responsibility for generating revenues, controlling costs and producing a satisfactory return on capital invested in the division. 

DLA directors loan account company asset or liability relating to monies owed from or owed to the directors. 

Document an electronic or written piece of information, such as an email, letter or report. 

Donation of goods – A deed of gift enrolled in a probate register.

Domicile country in which a person lives for tax purposes. 

Dormant company is one that doesn’t trade and has no accounting transactions. Small companies may choose to buy a dormant company to protect the name, or for other reasons. Trading companies may also elect to become dormant if they cease trading and may wish to trade again in the future. 

Double taxation relief double taxation relief can be obtained when agreements exist between countries whereby tax already paid on income in a foreign country is offset against the same tax liability in the home country or vice versa. 

Double-entry book-keeping a system which accounts for every aspect of a transaction – where it came from and where it went to. This from and to aspect of a transaction (called crediting and debiting) is what the term double-entry means. Modern double-entry was first mentioned by G Cotrugli, then expanded upon by L Paccioli in the 15th century. 

Doubtful debt a debt considered to have a low probability of being collected. 

Drawings cash taken for personal use, in sole trader or partnership business, treated as a reduction of ownership interest. 

Due diligence process of checking as much as possible about a company’s financial performance and its liabilities, usually undertaken before one company acquires another. 

Earning power an assessment of the future profitability of a company based on its discounted present value. 

Earnings for a company, the profits for the year / period available for distribution to shareholders. For an individual, his or her remuneration. 

EBITDA (earnings before interest, tax, depreciation charge and amortisation) it is calculated by taking the pre-tax profit of a company and adding back total interest charges paid on debt, depreciation charge and amortisation. 

Economic book value an analysis where company assets are adjusted to match their market value. 

Economic entity in terms of accounting this refers to a method that enables accountants to gain a ‘point of view’ on the different economic events that have influenced their recorded financial records. 

Economically feasible where the benefits and activity are greater than the cost of implementing it. 

Effective tax rate calculated as tax liability divided by taxable income. 

Efficient market theory that states the current price of a share reflects all known information about the company and its future earnings potential, and therefore that is it impossible to beat the market 


Efficient portfolio that provides the greatest expected return for a given level of risk, or the lowest risk for a given expected return. 

EGM (extraordinary general meeting) special meeting of a company and its shareholders that can be called by company directors or anyone with at least 10% of the voting rights. 

EIS (enterprise investment scheme) tax incentive scheme designed to encourage investors to invest in qualifying unquoted companies by offering certain tax reliefs. 

Emerging markets the stock markets of countries which have a low per head income compared with the developed world. 

Emoluments total remuneration of an employee or director which includes salary and bonuses. 

Enterprise a commercial activity or a business project. 

Enterprise zone region in which businesses receive special tax advantages as an incentive to set up business there. 

Entity in accounting a separate economic unit that is subject to financial measurements that is, corporation, partnerships and trusts. 

Entrepreneurs’ relief introduced on 6 April 2008 allowing set amount of relief to be claimed on the gains made on the disposal of all or part of a business, or a disposal of a business’ assets after a business has ceased. 

Entry price the value of entering into acquisition of an asset or liability, usually replacement cost. 

Equity a description applied to the ordinary share capital of an entity. 

Equity accounting reports in the Statement of financial position the parent or group’s share of the investment in the equity of an associated company. 

Equity interest the calculation of paid up capital, reserves, and accumulated profits or losses, disregarding redeemable partiality share capital and outside equity interests, as shown in the consolidated economic statements. 

Equity shares in a company which participate in sharing dividends and in sharing any surplus on winding up, after all liabilities are met. 

Error of commission a double-entry term which means that one or both sides of a double-entry has been posted to the wrong account (but is within the same class of account). For example, petrol expense posted to vehicle maintenance expense. 

Error of omission a double-entry term which means that a transaction has been omitted from the books entirely. 

Error of original entry a double-entry term which means that a transaction has been entered with the wrong amount. 

Error of principle double-entry term which means that one or both sides of a double-entry has been posted to the wrong account (which is also a different class of account). For example, petrol expense posted to fixtures and fittings. 

Estate – All of one’s property and possessions including stocks and shares etc.

Estate Administration – This refers to the process through which a person’s assets (property, bank accounts, stocks and shares for example) are distributed according to the deceased’s wishes.

Estate Planning is the process of anticipating and arranging, during a person’s life, for the disposal of that person’s estate. Estate planning includes a process of reducing or eliminating uncertainties over the administration of a probate, and maximizing the value of the estate by reducing taxes and other expenses.

Ethical the correct and acceptable way of doing something. 

Executor/Executrix – Person or persons appointed in the Will by the Testator/Testatrix to ensure that the provisions of the Will are carried out.

Executor’s Oath – A written statement sworn by Executors or Administrators of an Estate which accompanies an application for a Grant of Representation.

Exceptional item costs which materially affect a company’s results which are associated with normal activities. 

Excess assets are assets held in a business that are not utilised for running it on a daily basis. An example would be where a company holds significant cash balances. 

Excise duty tax levied on certain products, including alcohol and tobacco, which are produced in the UK. 

Ex-dividend purchase of shares without entitlement to recently declared dividends. 

Exempt items (VAT) goods and services that are not taxable for VAT. Sale or supply of exempt items prevents an individual or company registering for VAT. Sale or supply of some exempt items and some VATable items means the business is partially exempt and will only be able to reclaim VAT related to the VATable items sold. 

Exercise price at which an option or warrant holder can buy or sell the underlying instrument. 

Exit strategy the termination of an individual’s ownership of a business or part of a business’ operation, usually with the aim of recouping the original investment or realising a gain. 

Exit value a method of valuing assets and liabilities based on selling prices, as an alternative to historical cost. 

Expenditure the amount of money paid by an organisation to purchase goods and services. 

Expense an expense is caused by a transaction or event arising during the ordinary activities of the business which causes a decrease in the ownership interest. 

Ex-rights purchase of shares without entitlement to current rights issues. 

External customer a person from outside the organisation who requests information from the accounts department. 

External reporting financial information to those users with a valid claim to receive it, but who are not allowed access to the day-to-day records of the business. 

External users (of financial statements) users of financial statements who have a valid interest but are not permitted access to the day-to-day records of the company. 

Extraordinary item costs which materially affect a company’s results which are associated with non-recurring events and not arising from normal activities. 

Facility-sustaining activity (in ABC) activity that is not driven by making products. 

Factoring the sale of debts to a third party in return for an upfront payment. Receipts will usually be less than the original debt, the difference being held by the “factoring” company (usually a bank) as a margin of safety for security. 

Fair value is the amount for which an asset could be exchanged between knowledgeable, willing parties in an arm’s length transaction. 

Faithful presentation the requirement for consistency between claims made in financial statements and economic reports and the actual financial state of the company. Accounting reports should reflect the accurate, reliable and verifiable financial position including debt, cash flow and company performance. 

Favourable variance this arises when the actual cost is less than the standard cost. 

Fee Protection Scheme (TIFPS) – This is the process of protecting you from increased charges should you be one of the many businesses or individuals, selected by HM Revenue & Customs (HMRC), to look into your tax affairs. TIFPS allows us to work with you on the investigation and provides peace of mind knowing that additional charges will be paid by the insurance without any excess for you to find.

Feed forward control means making predictions of outputs expected at some future time and then quantifying those predictions, in management accounting terms. 

Feedback control involves comparing outputs achieved against outputs desired and taking corrective action if necessary. 

Fiduciary an individual/institution responsible for holding and managing the assets and interests of another, for example a guardian, trustee or administrator. 

FIFO first in first out, a method of valuing stock. 

FII (franked investment income) dividends paid by UK companies to other companies with a tax credit reflecting the fact that the company which has paid the dividend has done so out of post tax profits. 

Final dividend the end of year dividend. 

Finance charge interest accrued on and fees charged for credit, repressing the total of borrowing. 

Finance costs interest and other costs that an entity incurs in connection with the borrowing of funds 

Financial accounting refers to the accounting associated with the preparation of the main financial statements: income statement, statement of financial position, statement of cash flows, statement of retained earnings, and statement of shareholders’ equity. 

Financial adaptability the ability of the company to respond to unexpected needs or opportunities. 

Financial adviser an individual appointed by an independent intermediary or by its appointed representative or where applicable, tied agent, to provide any or all of the following services: giving advice on investments to clients; arranging (bringing about) deals in investments or executing transactions involving, in each case, designated investments with or for clients; managing investments; receiving or holding client money or other client assets; safeguarding and administering investments. 

Financial documents such as invoices, purchase orders and statement of account. 

Financial gearing ratio of loan finance to equity. 

Financial information which may be reported in money terms. 

Financial institution an institution that accepts funds from the public and reinvests in financial assets, for example, bank deposits and stocks. 

Financial instrument a document (such as a cheque, draft, bond, share, bill of exchange, futures or options contract) that has a monetary value or represents a legally enforceable (binding) agreement between two or more parties regarding a right to payment of money. 

Financial management in a business or government environment, the planning, controlling, implementation and monitoring of fiscal policies and activities, including the accounting and audit of revenue, expenditure, assets and liabilities. 

Financial ombudsman service (FOS) an independent, levy funded body that considers complaints between consumers and financial firms. 

Financial reporting standard title of an accounting standard issued by the UK accounting standards board as a definitive statement of best practice (issued from 1990 onwards – predecessor documents are statements of standard accounting practice, many of which remain valid). 

Financial risk the probability of loss inherent in financing methods which may impair the ability to provide adequate return. 

Financial statements a report that contains key financial information about a business. Standard statements will include a balance sheet, profit and loss account, and cash flow statement. 

Financial viability the ability to survive on an ongoing basis. 

Financial year a 12 month accounting period. 

Financing activities that result in changes in the size and composition of the contributed equity and borrowings of the entity. 

Fiscal policy the use of spending and taxation by the government in order to achieve its economic objectives. 

Fiscal year 12 month period commencing 6 April and ending 5 April the following year. 

Fixed assets (non – current assets) an asset that is held by an enterprise for use in the production or supply of goods or services, for rental to others, or for administrative purposes on a continuing basis in the reporting entity’s activities and can include land, property and equipment. 

Fixed assets (non – current assets) usage revenue divided by net book value of (non – current assets). 

Fixed capital finance provided to support the acquisition of (non – current assets). 

Fixed cost one that is not affected by changes in the level of output over a defined period of time. 

Fixed overhead include expenses such as rent, utilities and loan repayments that will not tend to change when in line with sales volumes. 

Fixtures and fittings this is a class of fixed asset which includes office furniture, filing cabinets, display cases, warehouse shelving and the like. 

Flash earnings a news release issued by a company that shows its latest quarterly results. 

Flexible budget a budget that is designed to change when the volume of activity changes, to achieve comparability. 

Floating charge lien or mortgage on an asset that changes in quantity and/or value from time to time (such as an inventory), to secure the repayment of a loan. In this arrangement, no charge is registered against the asset and the owner of the asset can deal in it as usual. If a default occurs, or the borrower goes into liquidation, the floating asset ‘freezes’ into its then current state ‘crystallising’ the floating charge into a fixed charge and making the lender a priority creditor. 

Flotation the listing of a company’s shares on a stock market, also known as an initial public offering (IPO). 

Flow of funds this is a report which shows how a balance sheet has changed from one period to the next. 

FOB an abbreviation of free on board. It generally forms part of an export contract where the seller pays all the costs and insurance of sending the goods to the port of shipment. After that, the buyer then takes full responsibility. If the goods are to travel by train, it’s called FOR (free on rail). 

Forecast estimate of future performance and position based on stated assumptions and usually including a quantified amount. 

Foreign direct investment in assets such as land and capital involving cross border flows. 

Foreign exchange the exchange of one currency for another, or the conversion of one currency into another currency. Foreign exchange also refers to the global market where currencies are traded virtually around-the-clock. The term foreign exchange is usually abbreviated as ’forex’ and occasionally as ‘FX’. 

Forensic accounting forensic accountants deal with civil, criminal and insurance matters. They use their accounting, information technology and investigation skills to help lawyers, insurance companies and other clients resolve legal and technical disputes as well as divorce cases. 

Format a list of items which may appear in a financial statement, setting out the order in which they are to appear. 

Forward buying contract between a buyer and a seller agreeing the delivery/provision of a specified amount of a specified asset at a specified future date at a price agreed at the time of the trade. 

Forward exchange contract an agreement to buy foreign currency at a fixed future date and at an agreed price. 

FRA (forward rate agreement) an interest rate derivative that allows the interest rate on a short-term loan to be set for a pre-determined period. 

Fraction a way of showing a part of a whole number without presenting it as a decimal. 

Franchise a licence granted by one company (franchisor) to another company/individual (franchisee), entitling the franchisee to produce/market a product/service in a specific area. 

Freehold the permanent ownership of land or buildings. 

Freight collect the buyer pays the shipping costs. 

Fringe benefits to employees additional to salary. 

FSA (Financial Services Authority) the regulating body carrying all regulatory responsibilities for the UK financial services industry. 

FTSE the FTSE 100 stands for Financial Times Share (or stock) The 100 is for the top 100 companies involved. 

Full cost of production direct cost plus indirect cost of production. Also calculated as prime cost plus production overhead cost. 

Fully paid shares on which the amount of share capital has been paid in full to the company. 

Function an activity carried out in an organisation, often in a department of the same name. For example, the sales function is usually carried out by sales teams in the sales department. 

Functional strategic planning also called operational planning the detailed plans by which those working within an organisation are expected to meet the short-term objectives of their working group, based on the functions that are carried out by the group. 

Fund manager a person who manages a collection (portfolio) of investments, usually for an insurance company, a pension fund business or a professional fund management business which invests money on behalf of clients. 

Futures contract a legal agreement to make or take delivery of a specified instrument, For example, a commodity or a bond, at a fixed future date at a price determined at the time of dealing. 

Gantt chart a type of bar chart that graphically portrays the type and duration of activities and tasks that must be performed in order to complete a project. 

GDP (gross domestic product) the value of all goods and services created within an economy in a given year. It is equal to total consumer and government spending, investment, plus the value of exports, minus the value of imports. 

Gearing from an accounting point of view, the amount of a company’s total borrowings divided by its share capital. High gearing means a proportionately large amount of debt, which may be considered more risky for equity holders. However, gearing also entails tax advantages. In investment analysis, a highly geared company is one where small changes in sales produce big swings in profits. Gearing consists of financial and operational gearing. Also known as capital gearing. Leverage is the corresponding US term. 

General ledger also commonly referred to as an accounting ledger, a general ledger is a primary accounting record used by a business to keep track of all the financial transactions the company makes. All financial transactions, debits and credits, are recorded, or ‘posted’, in the general ledger, regardless of whether or not they also post to a subsidiary ledger (sub-ledger), such as accounts receivable or cash. These values can provide the information used to generate all of a company’s financial statements. When the idea of ledgers was first created, physical ledgers were manually kept, usually in books; with the advancement of technology, most general ledgers are now computerized using accounting software. 

General purpose financial statements documents containing accounting information which would be expected to be of interest to a wide range of user groups. For a limited liability company there would be: a statement of financial position, an income statement account, a statement of recognised gains and losses and a statement of cash flows. 

Generally accepted accounting principles (GAAP) the general guidelines and principles, standards and detailed rules, plus industry practices that exist for financial reporting. 

General Tax Planning This is the process of minimising your tax liabilities through legal methods. General principles of tax planning are to maximise non-taxable receipts (income), minimise non-deductible expenses (expenses), apply capital receipts in the acquisition of qualifying capital expenditure (allowances), and avoid outright default of tax provisions to eliminate payment of interest and penalties. We help you to access good tax planning through planning strategies and tax saving opportunities.

(Genuine) Will – For probate to be granted, the Will must be tested (proved) as genuine before the church courts.

Gilt otherwise known as gilt edged security, this is a fixed rate bond/security issued by the UK government. 

Global accounting an optional way of accounting for VAT on low value, bulk volume, margin scheme goods. Intended for businesses that would have difficulty maintaining the detailed records needed to operate the margin scheme. Conditions apply. 

GNP (gross national product) equal to GDP plus the income accruing to domestic residents as a result of investments abroad, minus the income earned in domestic markets accruing to foreigners abroad. 

Going concern concept presumption made when preparing financial statements that a business will continue to exist for the foreseeable future, usually considered to be a period of one year or greater. 

Goodwill the value of a business to a purchaser over and above its net asset value, reflecting the value of intangible assets such as reputation and brand name. 

Grant income can take many forms including private and government grants. In most circumstances the accounting, tax and VAT treatment of a grant does not matter. 

Grant of Probate – This is the legal process of administering the Estate of a deceased person by resolving all claims and distributing the deceased person’s property under the valid Will.

Grant of Representation – This is a document issued by the Court which enables the person or people named in it to deal with all assets of a deceased person (ie their Estate). It allows money to be collected from any bank or building society accounts, property to be sold or transferred and for debts to be paid. There are three types of Grant of Representation.

Gross before making deductions. 

Gross leverage the ratio of total assets to total equity. 

Gross margin ratio gross profit as a percentage of sales. 

Gross profit margin sales minus cost of sales before deducting administration and selling expenses (another name for gross profit). Usually applied when discussing a particular line of activity. 

Gross profit mark-up gross profit as a percentage of cost of sales. 

Gross profit sales minus cost of sales before deducting administration and selling expenses.

Gross Value of Estate – The total value of the deceased’s property before deducting liabilities.

Group economic entity formed by parent and one or more subsidiaries.

Guardian – Someone appointed to look after the interests of a child under the age of 18 in England, Wales and Northern Ireland or under 16 in Scotland.

Heads of terms / Heads of agreement a non-binding document outlining the main commercial issues relevant to a tentative acquisition of shares agreement. It will normally also grant the purchaser a period of exclusivity. 

Hedge fund a fund that seeks to generate investment return by using non-traditional investment strategies, utilising mechanisms such as short selling, gearing, programme trading, arbitrage, and tools such as options, futures, swaps, and forwards (derivatives in general). 

Hedging an operation to secure an investor against a potential loss or to minimise a potential risk by offsetting the exposure to a specific risk by entering a position in an investment with the exact opposite pay-off pattern. The term is often applied to the currency markets (currency hedging). It involves reducing the risk of unfavourable movements in commodity or security prices, or exchange or interest rates, by engaging in offsetting transactions. 

Higher rate tax the highest rate of income tax in the UK which in the 2008/09 tax year is 40%. 

Highlights statement a page at the start of the annual report setting out key measures of performance during the reporting period. 

Hire purchase a transaction in which the purchaser of an asset pays an initial deposit and takes possession, and then pays subsequent instalments over a specified time after which ownership passes to the purchaser. 

Historical cost method of valuing assets and liabilities based on their original cost without adjustment for changing prices. 

HM Revenue and Customs (HMRC) the UK government’s tax-gathering organisation (previously called the Inland Revenue). The company you inform of your business status and setting up records so that tax obligations can be complied with. Which registrations need to be made will depend on the type of business you form or trade through, if you are employing people, or if you need to be VAT registered. There are strict timelines for these registrations to be completed without penalties being imposed.

Holdover relief deferral of a capital gains tax liability on a gift by transferring the liability to the recipient. When the recipient sells the gift the full CGT bill will normally fall due and the recipient will have to pay it. 

Hostile takeover a takeover bid for one company by another which is opposed by the directors of the target company. 

Human resource accounting a method of accounting that recognises human resources and presents them on a company’s balance sheet. These can include experience, education and the future earning power of a company.

Husband/Wife – ‘Husband/Wife’ refers to the married partner at the time of death.

Hyperinflation a condition in which prices increase extremely rapidly as a currency loses its value. 

IAS international accounting standard, issued by the IASB’s predecessor body.

IASB International Accounting Standards Board, an independent body that sets accounting standards accepted as a basis for accounting in many countries, including all member states of the European Union.

IASB system the accounting standards and guidance issued by the IASB.

ICAEW the Institute of Chartered Accountants in England and Wales.

Ideal standard a standard cost set under the most efficient operating conditions.

IFA the Independent Financial Adviser channel represents the largest distribution channel available to a life company. To meet the need of clients, an independent financial adviser is able to select products from the whole of the market. This choice might be influenced by many factors including price, flexibility, service, brand, financial strength, range of funds etc. IFAs are remunerated either by charging their clients fees or, more normally, by being paid initial and renewal commission by the life company.

IFRS international financial reporting standard, issued by the IASB.

Immovable assets, such as land or property, which cannot be changed or moved.

Impairment review testing assets for evidence of any impairment.

Impairment test that the business can expect to recover the carrying value of the intangible asset, through either using it or selling.

Impairment usually associated with a long-lived asset that has a market which has decreased significantly. For example, a meat packing plant may have recently spent large amounts for capital expenditures and then experienced a dramatic drop in the plant’s value due to business and community conditions. If the undiscounted future cash flows from the asset (including the sale amount) are less than the asset’s carrying amount, an impairment loss must be reported. If the impairment loss must be reported, the amount of the impairment loss is measured by subtracting the asset’s fair value from its carrying value.

Implicit cost relates to the foregone benefits of any single transaction, for example, the implicit cost of taking a holiday is the wages that would have been earned if the individual had worked instead.

Import VAT the VAT chargeable on imported goods. For the purposes of VAT, the value of imported goods includes any other taxes or duties charged at import.

Imprest system maintaining a constant cash float and often relates to petty cash. The system ensures greater control over cash expenses as documentation must be made to calculate the balance required for reimbursement. The system is therefore far easier to reconcile.

Improvement a change in, or addition to, a non-current (fixed) asset that extends its useful life or increases the expected future benefit. Contrast with repair which restores the existing useful life or existing expected future benefit.

Income statement financial statement presenting income, expenses, and profit for a period.

Income tax a tax levied on net personal or share of business income.

Income the amount of money received by an organisation from its sales.

Incorporation, date of the date on which a company comes into existence.

Incremental analysis means analysing the changes in costs and revenues caused by a change in activity.

Incremental budget prepared by adding a percentage to the budget of the previous year, usually to represent the effects of inflation.

Incremental costs the additional costs that arise from an activity of the organisation. To justify incurring incremental costs it is necessary to show they are exceeded by incremental revenue.

Incremental revenue the additional revenue that arises from an activity of the organisation. To justify accepting incremental revenue it is necessary to show it exceeds incremental costs.

Indemnity (Bond)  – A form of bond agreeing to make good any losses suffered.

Indirect cost that is spread over a number of identifiable units of the business, such as products or services or departments, for which costs are to be determined.

Indirect labour costs that cannot be allocated directly to an identifiable unit for which costs are to be determined.

Indirect materials costs that cannot be allocated directly to an identifiable unit for which costs are to be determined.

Indirect method (of operating cash flow) calculates operating cash flow by adjusting profit from operations for non-cash items and for changes in working capital.

Indirect tax a tax that increases the price of a good so that consumers are actually paying the tax by paying more for the products.

Inflation accounting a method of accounting designed to correct problems arising from historical cost accounting in the presence of inflation.

Inflation in economics, inflation is a rise in the general level of prices of goods and services in an economy over a period of time. When the general price level rises, each unit of currency buys fewer goods and services. Consequently, inflation also reflects an erosion in the purchasing power of money – a loss of real value in the internal medium of exchange and unit of account in the economy.

Inflation tax the hidden cost incurred due to effects of inflation on the value cash balances.

Inheritance tax a tax imposed on the privilege of receiving property by inheritance or legal succession and assessed on the value of the property received. Tax payable when the estate is over the current inheritance threshold.

Inhibition – The period during the visitation of a bishop to an archdeaconry when the archdeacon’s court would be closed, and probate business conducted in the consistory court.

Initial professional development is a pattern of learning undertaken to develop the range of skills and competencies needed to achieve professional chartered accountant status. It is designed to help you integrate your exam studies and technical work experience throughout your training agreement.

Input tax the VAT paid or payable by taxable persons on goods or services supplied to them (or acquired by them from another European Union (EU) Member State), which are used, or to be used, for the purpose of their business. VAT registered persons can reclaim input tax.

Insider information gained by someone inside, or close to, a listed company which could confer a financial advantage if used to buy or sell shares. It is illegal for a person who is in possession of inside information to buy or sell shares on the basis of that information.

Insolvency order an administration order, compulsory winding up order, bankruptcy order, or sequestration order.

Insolvency usually used to refer to a business, insolvency refers to the inability of a company to pay off its debts. Business insolvency is defined in two different ways: cash flow insolvency where an organisation is unable to pay debts as they fall due. Balance sheet insolvency is where liabilities exceed assets.

Insolvent occurs when an individual or company has insufficient funds to settle debts when they become payable.

Institutional investor an organisation whose business includes regular investment in shares of companies, examples being an insurance company, a pension fund, a charity, an investment trust, a unit trust, a merchant bank.

Intangible assets without physical substance controlled by an entity which provide expected future economic benefits, for example, goodwill, patents, trademarks and copyrights.

Intangible without shape or form, cannot be touched.

Integrated financial forecast a detailed forecast that includes a balance sheet, cash flow and profit and loss account. The forecasts are fully integrated therefore should one figure change the balance sheet, cash flow and profit and loss account all automatically are updated.

Integrated system accounting records that serve the needs of both financial accounting and management accounting.

Integrity demonstrating honesty and adopting an approach to work guided by strong moral principles.

Interbank rate that banks charge each other for loans for periods between one day and several years.

Interest (on loans) the percentage return on capital required by the lender (usually expressed as a percentage per annum).

Interest bearing term describing securities paying a specified rate of interest in one or a series of payments over its life.

Interest cover calculated by dividing profits from operations by net interest payments and compares the interest paid on borrowings, net of interest bearing deposits, with its profits from operations, e.g. a low figure means profits are more exposed to rises in the cost of borrowing.

Interest payable (Finance costs) amount a company pays in the form of interest, for example, on cash borrowings.

Interest rate futures contracts traded on fixed income securities based on the levels of official interest rates.

Interest rate swap arrangement in which two parties agree to exchange interest rate flows at agreed intervals over an agreed period, but without any principal being paid.

Interest receivable amount of income a company receives in the form of interest payments, for example, on cash.

Interim dividend the dividend declared part-way through the financial year, before annual earnings are established.

Interim reports financial statements issued in the period between annual reports.

Intermediary an agent, broker or financial institution that can give advice and act as a middle person between one individual/organisation and another.

Internal customer a person from inside the organisation who requests financial information from the organisation’s accounts department.

Internal rate of return the interest rate which, when used as the discount rate for a series of cash flows, gives a net present value of zero.

Internal reporting financial information to those users inside a business, at various levels of management, at a level of detail appropriate to the recipient.

International public sector accounting standards (IPSAS) are a set of accounting standards issued by the IPSAS Board for use by public sector entities around the world in the preparation of financial statements. These standards are based on International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB).

Interpolation the process of determining a figure or rate that lies between other known data.

Intestate – A person who has died and not left a legally valid will. See Administration.

Inventory a company’s finished goods, work in progress and raw materials. | A list of the testator’s property.

Inventory, cost of holding the costs related to storing inventory until it is sold.

Inventory, cost of ordering the administrative costs related to buying and receiving materials.

Investing activities the acquisition and disposal of long-term assets and other investments not included in cash equivalents.

Investment centre a unit of the organisation in respect of which a manager is responsible for capital investment decisions as well as revenue and costs.

Investment income, paid from an investment, such as dividends and interest.

Investors persons or organisations which have provided money to a business in exchange for a share of ownership.

Invoice a document sent by the supplier to the customer listing the goods supplied and requesting payment for these goods.

Invoice discounting this allows a business to draw money against its sales invoices before the customer has actually paid. To do this, the business borrows a percentage of the value of its sales ledger from a finance company, effectively using the unpaid sales invoices as collateral for the borrowing.

IP (intellectual property) treatment of certain intangible products similarly to physical assets, with the majority of countries granting certain rights, under IP laws, over these intangibles.

IPO (initial public offering) the first offering of a company’s shares to the public.

ISA (individual saving account) a financial product designed for the purpose of investment and savings offering favourable tax status.

ISC (issued share capital) amount of authorised share capital in a company that shareholders have subscribed to own.

Issue price at which a company’s shares are offered to the market for the first time.

Job cost record shows the costs of materials, labour and overhead incurred on a particular job. 

Job cost the cost of a product or service provided to a customer, consisting of direct and indirect costs of production. See also product cost. 

Job costing management accounting technique enabling cost allocations through examining time, materials and all other expenses involved in creating a project. 

Job-costing system a system of cost accumulation where there is an identifiable activity for which costs may be collected. The activity is usually specified in terms of a job of work or a group of tasks contributing to a stage in the production or service process. 

Joint and several liability (in a partnership) the partnership liabilities are shared jointly but each person is responsible for the whole of the partnership. 

Joint and several liability an undertaking by a group of two or more parties to be responsible, either individually or jointly, for any liability which may exist after any member or members have failed to meet their obligations. 

Joint ownership equal ownership of property by two or more people. 

Joint venture cooperation between two or more individuals/businesses in the undertaking of a specific enterprise, sharing risks, control, expertise, revenues and costs. 

Junk bonds which offer high rates of interest but with correspondingly higher risk attached. 

Jurisdiction is the practical authority granted to a formally constituted legal body or to a political leader to deal with and make pronouncements on legal matters and, by implication, to administer justice within a defined area of responsibility. The term is also used to denote the geographical area or subject-matter to which such authority applies. | The area over which a court claimed the right to grant probate or letters of administration. Peculiars within this area would be exempt from the jurisdiction of the court concerned.

Just-in-time purchasing is a system of contracts with suppliers to deliver goods as closely as possible to the time when they are required for operations. Just-in-time theory can be applied to manufacturing, management systems, etc. 

Keeping the score one of three functions of management accounting to support management actions of planning, decision making and control. See also directing attention and solving problems. 

Key performance indicators quantified measures of factors that help to measure the performance of the business effectively. 

Key person insurance policy providing cover for a business should a key figurehead suffer a serious illness or die, which would cause significant difficulties for the business. 

Lasting Power of Attorney – (LPA) is a legal document that allows someone to make decisions for you, or act on your behalf, if you are no longer able to make your own decisions. There are two types of Lasting Power of Attorney: Health and Welfare & Property and Financial Affairs

Leakages parts of national income which are not used for consumptions purposes, including net taxes, savings and imports. 

Lease back situation in which a property is sold by its owner to another person/company on condition that the purchaser leases the property back to the original owner for an agreed rent over a set term. 

Lease legal contract in which the owner of an asset, for example, a property, agrees to another individual/business utilising that asset in return for a consideration, such as rental payments. 

Leasing acquiring the use of an asset through a rental agreement. 

Ledger a book in which the accounts of a business are kept. The main types of ledger are the nominal ledger, containing the nominal accounts which list revenue and costs, the sales ledger which lists the sales accounts of customers, and the purchase ledger which lists the purchase accounts of suppliers. 

Legacy/Gift – A gift of a specific item or cash sum left in a Will (except property).

Legal form representing a transaction to reflect its legal status, which might not be the same as its economic form. 

Legal in keeping with the law. 

Lessee a person to whom a lease is granted. 

Lessor a person who grants a lease. 

Letters of administration – A document given by the Registrar to appoint people to handle a person’s estate, where there is no Will, no executors appointed in the Will, no executors still living, or no executors willing to carry out executor’s duties. See Administration.

Letter of credit a document that a financial institution or similar party issues to a seller of goods or services which provides that the issuer will pay the seller for goods or services the seller delivers to a third-party buyer. The issuer then seeks reimbursement from the buyer or from the buyer’s bank. The document serves essentially as a guarantee to the seller that it will be paid by the issuer of the letter of credit regardless of whether the buyer ultimately fails to pay. In this way, the risk that the buyer will fail to pay is transferred from the seller to the letter of credit’s issuer. Letters of credit are used primarily in international trade for large transactions between a supplier in one country and a customer in another. 

Leverage the use of financial instruments to increase the return on an investment, or the amount of debt used to finance a business’ assets. 

Leveraged buyout the takeover of a company by investors who use the company’s own assets as collateral to raise the money that finances the bid. 

Liabilities obligations of an entity to transfer economic benefits as a result of past transactions or events. 

Liable responsible under law. 

LIBOR (London Inter Bank Offered Rate) interest rate at which banks lend money to each other. 

Lien the right of a creditor to take possession or control of the property of a debtor upon them failing to satisfy a debt. 

Life Interest – The right to enjoy for life (or until a specified time period has elapsed or an event has occurred). This can be either money or property which will eventually revert to the original estate in some way on death. Instructions are usually included in the original deceased’s Will as to what should happen to the gift when the life interest ends.

Lifetime Gifts Making a gift to your family and friends while you are alive is a good way to reduce the value of your estate for Inheritance Tax (IHT) purposes, as well as benefiting your loved ones immediately. However, estate and tax planning is a complex area and utilising professional advice can help you avoid several big pitfalls when gift making. [READ MORE]

LIFFE the London International Financial Futures and options Exchange market for trading in derivatives. 

LIFO last in first out. A method of valuing stock. 

LILO last in last out. A method of valuing stock. 

Limited liability company (LLP) company where the liability of the owners is limited to the amount of capital they have agreed to contribute. 

Limited liability the principle that a shareholder’s liability for company debts is limited to the nominal value of their shares and therefore that their personal assets are not at risk should the company become insolvent. 

Limiting factor an item which is temporarily restricted in availability. 

Line item budget each line in the budget relates to a function in the organisation. 

Liquid market a market in which large quantities of securities are being bought and sold daily with relative ease. 

Liquidation the sale of the assets of a bankrupt company to pay trade payables. 

Liquidator an official appointed to supervise the liquidation of a company. 

Liquidity ratio see ‘acid test ratio’. 

Liquidity the level of ease with which an asset can be converted into cash. 

Listed company a company whose shares are listed by the stock exchange as being available for buying and selling under the rules and safeguards of the exchange. 

Listing requirements rules imposed by the stock exchange on companies whose shares are listed for buying and selling. 

Listing rules issued by the UK listing authority of the financial services authority to regulate companies listed on the UK stock exchange. Includes rules on accounting information in annual reports. 

Literate being skilled at dealing with written content. 

Litigation the process of a person or company taking legal action against another. 

Loan capital the part of a company’s capital structure which is raised by loans, for example, debentures, which usually pay fixed interest over a fixed period. 

Loan covenants agreement made by the company with a lender of long-term finance, protecting the loan by imposing conditions on the company, usually to restrict further borrowing. 

Loan notes a method of borrowing from commercial institutions such as banks. 

Loan stock a security bearing a fixed rate of interest and where the capital is repaid after a given period of time. 

Long-term liabilities debts of a person or company not due for repayment within the next accounting period. 

Long-range planning begins with a vision statement setting out a vision for the future direction of the organisation. From this vision the long-range objectives are set covering a period of perhaps three to five years. 

Long-term finance, money lent to a business for a fixed period, giving that business a commitment to pay interest for the period specified and to repay the loan at the end of the period Also called non-current liabilities information in the financial statements should show the commercial substance of the situation. 

Loss adjuster an independent assessor called in by an insurance company to check the validity of claims. 

Loss when an organisation spends more money than it earns. 

Making Tax Digital  – This is the process of bringing the tax return system into the 21st century: by 2020, HM Revenue & Customs (HMRC) plans to move to a fully digital tax system in the hopes of eliminating time delays on the information currently provided by tax returns. The ideology behind this is that there will be a new tax system in place that operates much more closely with the concept of information in ‘Real Time’ (RTI), much like  Payroll for employees and the CIS scheme for subcontractors.

Management accounting reporting accounting information within a business, for management use only. 

Management buy-in the purchase of a company by outside investors who bring in new management. 

Management buy-out the purchase of some or all of a company’s shares by its managers in order to run the company independently. 

Management collective term for those persons responsible for the day-to-day running of a business. 

Management control system a system of organisational information-seeking and gathering, accountability and feedback designed to ensure that the enterprise adapts to changes in its substantive environment and that the work behaviour of its employees is measured by reference to a set of operational sub-goals so that the discrepancy between the two can be reconciled and corrected for. 

Mandate – An order to appear before a probate court.

Margin of safety the difference between the breakeven sales and the normal level of sales (measured in units or in £s of sales). 

Margin profit seen as the ‘margin’ between revenue and expense. 

Marginal cost the incremental cost attributable to one extra unit of production. 

Marginal costing see variable costing. 

Market capitalisation calculated by multiplying share price as quoted on an exchange by the number of shares in issue. This gives the market value of a company. 

Market trend the general direction of overall price movements in a market. 

Market value (of a share) the price for which a share could be transferred between a willing buyer and a willing seller. 

Market value the price which you can obtain for an asset if you sold it freely on the open market. 

Marketable security a tradable equity that is classified as a current asset. 

Marking to market valuation of a marketable asset at its current market price. 

Married couples allowance an extra tax allowance you are entitled to if you are married. 

Master budget takes the form of a forecast operating statement, forecast trading and income statement and statement of financial position. 

Matching the principle that requires a company to match expenses with related revenues in order to report a company’s profitability during a specified time interval. Ideally, the matching is based on a cause and effect relationship: sales causes the cost of goods sold expense and the sales commissions expense. 

Material having a logical connection with a subject matter or the consequential events or facts, or the knowledge of which would significantly affect a decision or course of action. 

Material the matter from which something can be made. Material can include but is not limited to raw and processed material, components, parts, assemblies, sub-assemblies, fuels, lubricants, coolants, cleaning agents, and small tools and accessories that may be consumed directly or indirectly. 

Materiality the concept of materiality allows you to violate another accounting principle if the amount is so small that the reader of the financial statements will not be misled. 

Maturity date at which an asset or liability becomes repayable. 

Maturity profile of debt the timing of loan repayments by a company in the future. 

Memorandum – Various documents could be described as a memorandum, including nuncupative Wills and documents concerning the distribution of the deceased’s property.

Memorandum accounts are not part of the double entry system. They include the subsidiary sales and purchase ledger as these accounts are for reference only. 

Memorandum of association company document recording the agreement of the first subscribers to form a company, to become members, and to take at least one share each. 

Merger the process of two companies becoming one. 

Mezzanine finance this finance is either a subordinated loan or preferred equity instrument that represents a claim on a company’s assets which is senior only to that of the common shares. Mezzanine capital is often a more expensive financing source for a company than secured debt or senior debt due to its higher risk profile. 

Minority interest / ownership (non – controlling interest) less than 50% ownership of a corporation’s voting stock, or not enough ownership to control company operations. From a purely accounting point of view, a parent company which owns less than 100% but more than 50% of a subsidiary presents the value of the remaining ownership (the minority ownership) on the balance sheet in a separate account. In such cases, non – controlling interest is shown as either a liability or an equity item on the consolidated balance sheet, and the income (or loss) owed to the minority owners is subtracted from (or added to) the parent’s income to arrive at a net income number (consolidated). 

Monetary policy the control of the money supply and interest rates by a government or central bank. 

Money laundering the manipulation of money, usually originating from an illegal source, so as to seem to have originated from a lawful one. 

Money purchase scheme pension scheme in which benefits are dependent on contributions and growth of the fund. 

Mutual fund scheme enabling investment by small private investors in shares, bonds and other securities. 

Mutually exclusive investment projects that are competing for scarce resources, where choosing one eliminates another. 

Moveable Property – Anything other than buildings or land.

Narrative a comment appended to an entry in a journal. It can be used to describe the nature of the transaction, and often in particular, where the other side of the entry went to (or came from). 

National audit office (NAO) is an independent parliamentary body in the United Kingdom which is responsible for auditing central government departments, government agencies and non-departmental public bodies. The NAO also carries out value for money (VFM) audit into the administration of public policy. 

National Insurance Contributions paid by employees, self-employed individuals and employers based on income earned for the provision of the benefits such as the state pension. The contributions are administered by HM Revenue & Customs. 

National tax treated as having been paid and not repayable. Applicable to, for example, life insurance policy gains and foreign income dividends. 

Near money assets which are readily convertible into cash without running the risk of causing significant losses in value. 

Negative goodwill arises when the fair value of the net assets of a business exceed the price paid on acquisition. 

Negotiable instrument can be a cheque or security that represents money that is payable and which can be transferred from one entity to another. 

Net after making deductions. 

Net assets minus liabilities (equals ownership interest). 

Net book value cost of non-current (fixed) asset minus accumulated depreciation charge. 

Net current asset ratio current assets ÷ current liabilities 

Net current assets calculated by subtracting current liabilities from current assets. 

Net present value the total series of expected cash flows discounted over the time period in which they are incurred/earned less the initial dividend. NPV calculations are primarily used to appraise long-term projects by accounting for the time value of money. 

Net profit margin calculated as net profit as a percentage of sales, indicating a company’s ability to control its costs and overheads and generate an underlying return. 

Net profit sales minus cost of sales minus all administrative and selling costs. 

Net realisable value generally equal to the selling price of goods or assets less the selling costs incurred. 

Net Value of Estate – The value after deducting liabilities.

Net yield the return on an investment after deducting tax, commission and other expenses. 

Neutrality the absence of bias when handling financial information. 

Nominal account a ledger account used to itemise/analyse revenue, expenditure, assets and liabilities. 

Nominal ledger see ‘ledger’. 

Nominal value (of a share) the amount stated on the face of a share certificate as the named value of the share when issued. 

Nominee company a body corporate whose business consists solely of acting as a nominee holder of investments or other property. 

Non-contributory pension plan an employer funded employee pension scheme to which employees do not make contributions. 

Non-discretionary means the action/payment is mandatory and is not up to the individual or company to change. 

Non-controllable cost one which is not capable of being regulated by a manager within a defined boundary of responsibility, although it may be a cost incurred so that the responsibility may be exercised. 

Non-controlling Interest the ownership interest in a company held by persons other than the parent company and its subsidiary undertakings. 

Non-current assets any asset that does not meet the definition of a current asset. 

Non-current liabilities any liability that does not meet the definition of a current liability. 

Non-financial performance measures Measurement of performance using targets that are not available in the financial reporting system. 

Normal level of activity estimated by management, taking into account the budgeted level of activity in recent periods, the activity achieved in recent periods, and the expected output from normal working conditions. 

Normal rate of return for individuals, is the average rate of return on all investments, that is, the average of all returns yields the normal rate of return. For capital investments for businesses, it is the profit relative to capital investment. 

Normalise this term can be applied to many aspects of accounting. It means to average or smooth out a set of figures so they are more consistent with the general trend of the business. This is usually done using a Moving average. 

Notary public a notary public (or notary or public notary) in the common law world is a public officer constituted by law to serve the public in non-contentious matters usually concerned with estates, deeds, powers-of-attorney, and foreign and international business. A notary’s main functions are to administer oaths and affirmations, take affidavits and statutory declarations, witness and authenticate the execution of certain classes of documents, take acknowledgments of deeds and other conveyances, protest notes and bills of exchange, provide notice of foreign drafts, prepare marine or ship’s protests in cases of damage, provide exemplifications and notarial copies, and perform certain other official acts depending on the jurisdiction. 

Notes to the accounts information in financial statements that gives more detail about items in the financial statements. 

Not for profit a non-profit organisation includes a club, society or association organised and operated solely for social welfare, civic improvement, pleasure or recreation, or for any other purpose except for profit. No part of the income is available for the personal benefit of, any proprietor, member or shareholder. 

Notice of coding the notification of your PAYE code that you receive from the Inland Revenue. 

Numerate being skilled at dealing with numbers. 

Numerator the number on the top of the fraction. Numerical codes that only use numbers.

Nuncupative Will – A Will made orally because the testator was incapable of signing (usually on his/her deathbed), but written down after the testator’s death and sworn to by witnesses

Object purchased good or service itself as distinct from the purpose for which it was bought. 

Objective in a business or government environment, a specific goal identified to support an organisation’s mission or functions; the objective is intended to be accomplished within a specified time. 

Obsolete an asset that is considered to no longer be valuable to a business. 

Occupational pension scheme set up by companies that entitles employees to a pension upon their retirement. 

OEIC (open ended investment company) a set of managed funds you can buy into. Shares issued are unlimited to meet demand with their value being derived from the value of the underlying assets of the fund. The price of shares should be the same whether they are bought or sold. 

Off-balance-sheet finance an arrangement to keep matching assets and liabilities away from the entity’s balance sheet. 

Offer for sale a company makes a general offer of its shares to the public. 

OMO (open market option) scheme dating back to 1975 Finance act that offers an individual upon their retirement the right to buy an annuity from a provider other than the one who has given them a pension fund. 

Opening the books every time a business closes the books for a year, it opens a new set. The new set of books will be empty; therefore the balances from the last balance sheet must be copied into them (via journal entries) so that the business is ready to start the New Year. 

Operating activities the principal revenue-producing activities of the entity and other activities that are not investing or financing activities. 

Operating and financial review section of the annual report of many companies which explains the main features of the financial statements. 

Operating cash flow cash generated from the operations of a business during the year. The calculation takes account of interest, tax, depreciation charge and amortisation, as well as any changes in working capital. 

Operating costs in addition to direct costs generally linked with the selling and administrative activities of a business. Also known as overheads. 

Operating expenses relates to costs linked in with the selling and administrative activities of a business. 

Operating gearing the ratio of fixed operating costs to variable operating costs. 

Operating margin calculated as profit from operations divided by turnover, it reflects the return on a business sales after taking account of the core trading costs. 

Operating profit (profit from operations) the profit of a business after deducting operating costs from gross profit. 

Operating risk exists where there are factors, such as a high level of fixed operating costs, which would cause profits to fluctuate through changes in operating conditions. 

Operational budgets representing the quantification of operational planning, including materials and labour budgets. 

Operational planning the detailed plans by which those working within an organisation are expected to meet the short-term objectives of their working group. See also functional strategic planning. 

Opportunity cost a measure of the benefit sacrificed when one course of action is chosen in preference to another. The measure of sacrifice is related to the best rejected course of action. 

Option the right, but not obligation, to buy (call option) or sell (put option) shares or other financial instruments at a predetermined price on or before a predetermined date. 

Ordinary shares authorised shares issued by a limited company representing the ownership of that company. Shareholders have the right to vote on matters such as corporate policy and the composition of members of the board of directors and usually have an entitlement to any dividends declared. Once issued shares can be traded either privately or publicly, if the company is listed on a recognised stock exchange. Ordinary shares are not secured on the company’s assets. 

Original book of entry a book which contains the details of the day to day transactions of a business (see journal). 

Original Will – The probate process began by presenting the Will to the appropriate probate court by the executors. The court then recorded a probate act authorizing the executors to carry out the provisions of the Will. The original Will was then endorsed and filed in the court’s records, a handwritten copy being given to the executors.

Other operating costs comprise outsourcing costs, property or equipment rental charges, the cost of raw materials and supplies that cannot be held in inventory (that is, water, energy, small items of equipment, maintenance-related items, administrative supplies, etc.), maintenance and repair work, insurance premiums, studies and research costs, external personnel charges, fees payable to intermediaries and professional expenses, advertising costs, transportation charges, travel expenses, the cost of meetings and receptions, postal charges, bank charges (that is, not Interest on bank loans, which is booked under interest expense) and other items of expenditure. 

Other operating income from activities other than normal business operations, such as rent income or profit from the sale of non-inventory assets. 

Other payables adjustment made at the end of an accounting period to recognise expenses that have been incurred during the period but for which no invoice has yet been received. 

Other receivables a type of asset arising from the fact that the business has already been invoiced for the right to all or part of a service in a future period for example, rent for next year, paid this year. 

Output Tax the VAT charged on the supply of goods or services made by a person or company registered for VAT which must be paid to HM Revenue & Customs. 

Output the product or service provided by the enterprise or one of its operating units. 

Overdraft an arrangement that allows an organisation to take more money out of its bank account than it has on deposit. 

Overhead cost rate overhead cost divided by a measure of activity such as production to give a cost per unit of activity. 

Overhead cost recovery absorbing overhead cost into a unit of product so that the overhead cost will eventually be recovered in the sale of the product. 

Overhead cost that cannot be identified directly with products or services. See also indirect costs. 

Overheads these are the costs involved in running a business. They consist entirely of expense 

accounts (for example, rent, insurance, petrol, staff wages etc.). 

Overlap profits which have been taxed twice because part of an accounting period falls within the basis period for tax computations for more than one year. 

Overlap relief tax relief given for overlap profits brought forward on a change of accounting date, if the basis period is longer than 12 months, or on the cessation of trade. 

Over-recovered fixed overhead cost the overhead recovered (applied) using a predetermined overhead cost rate is greater than the actual overhead cost of the period. 

Ownership interest the residual amount found by deducting all of the entity’s liabilities from all of the entity’s assets. 

P & L see income statement account and profit and loss account 

Paid-up share capital the value of issued shares which have been paid for. See called-up share capital. 

Paper profit represents an assets increase in value whilst it remains on the market and therefore would be realised if it were sold. 

Par value a stated legal amount often appearing on shares and bonds. 

Parent company which controls one or more subsidiaries in a group. 

Participative budget see bottom-up budget. 

Partner (in relation to a firm which is a partnership ) any person appointed to direct its affairs, including: a person occupying the position of a partner (by whatever name called); and a person in accordance with whose directions or instructions (not being advice given in a professional capacity) the partners are accustomed to act. 

Partnership capital account shows the capital contribution of a partner, plus profits and minus losses and distributions. 

Partnership two or more persons in business together with the aim of making a profit. 

Pay on delivery the buyer pays the cost of the goods (to the carrier) on receipt of them. 

Payback period the length of time required for a stream of cash inflows from a project to equal the original cash outlay. 

PAYE pay as you earn is the name given to the income tax system where an employee’s tax and National Insurance Contributions are deducted before the wages are paid. 

Payee the person the cheque is written to. 

Paying-in slip a form used to pay cash and cheques into a bank account. 

Payment terms the conditions under which a seller will complete a sale. Typically, these terms specify the period allowed to a buyer to pay off the amount due, and may demand cash in advance, cash on delivery, a deferred payment period of 30 days or more, or other similar provisions. 

Payroll – This is the process of paying your employees in accordance with HMRC, also known as ‘Pay As You Earn,’ or PAYE. The processes of payroll can be complex and there is now a requirement on the employer to report payments to their employees in real-time ‘RTI’, on or before the actual date of payment and to comply with Auto-Enrolment duties.

Payroll register this is a record of all deductions from each employees wage for that payroll period, stating any over time or compensation amounts also. 

PE ratio an equation which gives you a very rough estimate as to how much confidence there is in a company’s shares (the higher it is the more confidence). The equation is: current share price multiplied by earnings and divided by the number of shares . ‘Earnings’ means the last published net profit of the company.

Pecuniary Legacy/Gift – A gift of money under a Will.

Peer someone with a similar level of authority to you within the organisation. 

Per capita income a measurement of average income earned for a particular group, usually the population of a country. It is calculated as total income divided by total population of the group. 

Percentage mark-up on cost adds a percentage to the total cost to calculate a selling price. 

Performance evaluation requires the management accountant to decide on what to measure, plan how to report and consider the behavioural aspects. 

Performing asset an asset that generates a positive annual return. 

Period costs that are treated as expenses in the period in which they are incurred. 

Periodic inventory a periodic inventory is one whose balance is updated on a periodic basis, that is, every week/month/year. See inventory. 

Perpetual inventory a perpetual inventory is one whose balance is updated after each and every transaction. See inventory. 

Perpetuity a stream of cash flows that theoretically will last forever.

Personal accounts these are the accounts of a business’ customers and suppliers. They are usually held in the sales and purchase ledgers. 

Personal pension scheme a scheme dedicated to those who are self-employed or are employed but are not members of an occupational scheme. Here they can make their own provisions towards their pension. 

Personal Representative – A personal representative is the executor or administrator managing the deceased’s estate.

Petty cash a small amount of money held to purchase items of small value where a cheque or other form of payment is not suitable. 

Petty cash slip a document used to record petty cash payments (sometimes called a petty cash voucher).

Phased retirement a personal pension plan given in segments allowing the recipient to phase the purchase of annuities or income drawdowns. 

Phoenix firms if a firm is about to become insolvent but is then repackaged, restructured and sold back to the management, it is said to be called a ‘Phoenix Firm’ (that is, it has risen out of the ashes of itself). 

Planning involves setting objectives, then establishing, evaluating and selecting strategy, tactics and actions required to achieve those objectives. One of three functions of management which are supported by management accounting. See also control and decision making. 

Planning programming budget system (PPBS) an output-based approach to budgets that focuses on programmes of action in the enterprise. 

Point of sale (POS) the place where a sale of goods takes place, for example, a shop counter. 

Policy a written document explaining how an organisation does something and the procedures it follows as a result. 

Portfolio (of investment) a collection of investments. 

Portfolio of shares a collection of shares held by an investor. 

Post-closing trial balance this is a trial balance prepared after the balance sheet has been drawn up, and only includes balance sheet accounts. 

Post-completion audit a review of the actual results of a project in order to compare these with the expectations contained in the project proposals. 

Posting the copying of entries from the journals to the ledgers. 

Potentially exempt transfer (PET) – A gift made during one’s lifetime that is exempt from Inheritance Tax if the donor lives for seven years after making the gift.

Probate – The term used in England and Wales for applying for the right to deal with a deceased person’s Estate which is often also referred to as administering the Estate.

Probate Account – A Probate account was prepared by the executor or administrator of an estate and supplements the information found in inventories (where they survive). It should account for all the goods and debts received and all the debts and legacies paid, and expenses incurred during the winding up of the deceased’s estate, recording a final balance.

Probate Act – The record of probate.

Probate Bond – A bond was required by a probate court from the executor or administrator to ensure that the duties were carried out properly.

Promissary Note – Promise of future payment either by or to a testator; could be considered part of his estate.

Proved – Before executors can act, the Will must be ‘proved’, that is officially established as genuine, and the executors formally given authority to proceed.

Predeceased – Someone who dies before the person who has made the Will.

Predetermined overhead cost rate estimated before the start of a reporting period. 

Pre-emptive rights given to existing shareholders entitling them to first refusal on the purchase of shares in a new issue. This allows them to maintain their fractional ownership or stake in the company. 

Preference shares in a company with preferential rights over ordinary shares, usually giving the holder an entitlement to a fixed dividend. Preference shares do not usually carry voting rights but do entitle the holders to any balance of proceeds following the liquidation of a company before ordinary shareholders. 

Premium an amount paid in addition, or extra. 

Premium bonds offered under the national savings and investments scheme which do not pay interest but are instead entered into monthly prize draws. Any winnings are exempt from income and capital gains tax. 

Pre-payments one or more accounts set up to account for money paid in advance (for example, insurance, where part of the premium applies to the current financial year, and the remainder to the following year). 

Present fairly a condition of the IASB system, equivalent to true and fair view in the UK ASB system. 

Present value a sum of £1 receivable at the end of n years when the rate of interest is r% per annum equals where r represents the annual rate of interest, expressed in decimal form, and n represents the time period when the cash flow will be received. 

Price change accounting the value of assets, stock, raw materials etc. by their current market value instead of the more traditional historic cost. 

Price earnings ratio – P/E ratio calculated as the current share price of a company divided by its earnings per share. The ratio is used by investors to assess the expected future growth of earnings. 

Price-sensitive information which, if known to the market, would affect the price of a share. 

Primary financial statements the statement of financial position, income statement account, statement of total recognised gains and losses and cash flow statement. 

Primary records provide the first evidence that a transaction or event has taken place. 

Prime book of entry: see original book of entry. 

Prime cost of production equal to the total of direct materials, direct labour and other direct costs. 

Principal (sum) the agreed amount of a loan, on which interest will be charged during the period of the loan. 

Prior year adjustments should be accounted for by restating the comparative figures and adjusting the opening balance on the income statement account reserve for the current year. The amount by which the opening reserves are restated must also be shown on the statement of total recognised gains and losses. 

Private client services individually managed accounts for high net worth individuals, offering comprehensive long-term planning and personalised financial management to provide maximum results. 

Private finance initiative (PFI) is a way of creating ‘public–private partnerships’ (PPPs) by funding public infrastructure projects with private capital. Developed initially by the Australian and United Kingdom governments, PFI and its variants have now been adopted in many countries as part of the wider neo-liberal programme of privatisation and financialisation driven by an increased need for accountability and efficiency for public spending, national governments, and international bodies such as the World Trade Organization, International Monetary Fund, and World Bank. 

Private limited company (Ltd) a company which has limited liability but is not permitted to offer its shares to the public, but they can be transferred between individuals. 

Private sector the part of the economy consisting of privately owned businesses that are set up to make a profit. These include sole traders, partnerships and limited companies. 

Pro forma invoice an abridged or estimated invoice sent by a seller to a buyer in advance of a shipment or delivery of goods. It notes the kind and quantity of goods, their value, and other important information such as weight and transportation charges. Pro forma invoices are commonly used as preliminary invoices with a quotation, or for customs purposes in importation. They differ from a normal invoice in not being a demand or request for payment. 

Product cost associated with goods or services purchased, or produced, for sale to customers. See also job cost. 

Product differentiation the business may be able to charge a higher price (a premium) for the reputation or quality of its product. 

Product life cycle the sequence of development of a product from initial development through maturity of sales to eventual decline in sales. 

Production budget sets out quantities of resource inputs required, for use in operational budgets. 

Production cost centre cost centre that produces output of goods or services. 

Production creating output in a business process, by using materials, labour and other resources available within the business. 

Production overhead (cost) comprises indirect materials, indirect labour and other indirect costs of production. 

Product-sustaining activities (in activity-based costing) activities that are performed to enable output of products but are not closely dependent on how many units are produced. 

Professional a person who is qualified to carry out a task with a high level of expertise and skill. 

Professional journals typically magazine-style publications written specifically for professionals in accounting positions. Journals contain information on significant changes in the accounting world, along with practical advice on how to complete particular tasks efficiently. 

Professionalism demonstrating a high level of competence in your work and meeting the required standards of the profession. 

Professionally completed or undertaken to acceptable standards, agreed conventions and with no mistakes. 

Profit and loss account financial statement presenting revenues, expenses, and profit. Also called income statement account. 

Profit before tax a company’s profit before deduction of corporation tax. 

Profit calculated as revenue minus expenses. 

Profit centre a unit of the organisation in respect of which a manager is responsible for revenue as well as costs. 

Profit for the year a company’s profit after deduction of corporation tax. 

Profit margin profit as a percentage of sales. 

Profit/volume ratio contribution as a percentage of sales value. 

Profitability index the present value of cash flows (discounted at the cost of capital) divided by the present value of the investment intended to produce those cash flows. 

Profitability the ability to generate profit, based on a comparative measure e.g. profit as a percentage of sales; profit per month; profit related to capital investment. 

Profit–volume chart a graph showing on the horizontal axis the volume, measured by activity level in £s of sales, and on the vertical axis the profit at that activity level. 

Pro-forma accounts (pro-forma financial statements) a set of accounts prepared before the accounts have been officially audited. Often done for internal purposes or to brief shareholders or the press. 

Property, plant and equipment a tangible asset refers to anything that has a value and physically exists. 

Prospective investor an investor who is considering whether to invest in a company. 

Prospectus financial statements and supporting detailed descriptions published when a company is offering shares for sale to the public. 

Provision a liability of uncertain timing or amount. 

Provision for doubtful debts an estimate of the risk of not collecting full payment from credit customers, reported as a deduction from trade receivables in the balance sheet. 

Provisions one or more accounts set up to account for expected future payments (for example, 

where a business is expecting a bill, but hasn’t yet received it). 

Prudence concept exercise of caution when making judgements or estimates required under conditions of uncertainty, in order to prevent the overstatement of assets and/or understatement of liabilities. 

Public limited company (plc) a limited company permitted to offer its shares to the general public which may be traded on a recognised exchange such as the London Stock Exchange. 

Public practice individual accountant or partnership of accountants that provide accountancy services to a number of clients as independent professional advisers and not as employees. 

Public sector the part of the economy consisting of publicly owned organisations that provide services to citizens. These organisations are paid for through taxation. 

Punitive tax a tax imposed to discourage a behaviour. For example, retirement plans usually have excise taxes placed upon them if one makes a withdrawal prior to a certain age. 

Purchase ledger a subsidiary ledger which holds the accounts of a business’s suppliers. A single control account is held in the nominal ledger which shows the total balance of all the accounts in the purchase ledger. 

Purchase method a way of producing consolidated financial statements. 

Purchase order a document sent to a supplier detailing the goods that the customer wants to purchase. 

Purchases budget shows the number and value of the goods that need to be bought in order to meet the demands of the production department. 

Purchases daybook a record of all invoices received from suppliers. 

Purchases returns daybook a record of all credit notes received from suppliers. 

Purchases total of goods and services bought in a period. 

Qualified audit opinion an audit opinion to the effect that: the accounts do not show a true and fair view; or the accounts show a true and fair view except for particular matters. 

Qualitative research based on an understanding of human tendencies or behaviour and the drivers behind these. 

Quality assurance the act of monitoring, controlling and tracking the quality of a system, project or product in order to ensure it meets acceptable standards. 

Quality of earnings opinion of investors on reliability of earnings (profit) as a basis for their forecasts. 

Quantitative easing a monetary policy used by central banks to stimulate the national economy when conventional monetary policy has become ineffective. A central bank buys financial assets to inject a pre-determined quantity of money into the economy. This is distinguished from the more usual policy of buying or selling government bonds to keep market interest rates at a specified target value. A central bank implements quantitative easing by purchasing financial assets from banks and other private sector businesses with new electronically created money. 

Quantitative research uses data for evaluation and applies models to analyse data over time periods. 

Quasi subsidiary a company or other arrangement not fulfilling the definition of a subsidiary but is directly or indirectly controlled by a reporting entity and gives rise to benefits for that entity, in substance the same as those arising if it were a subsidiary. 

Quick ratio the ratio of liquid assets to current liabilities. Also known as the liquidity ratio. 

Quitrent – A rent paid annually at a fixed rate by a freeman in lieu of the services required by feudal custom. A practice from the middle ages.

Quoted company a company whose shares can be bought or sold on the Stock Exchange. 

Rate of return the measure of the profitability of an investment, generally calculated as net profits divided by capital employed for a business. 

Rating agency there are several recognised rating agencies (Standard & Poor’s, Fitch, Moody’s) which attempt to measure the risk of a particular investment. 

Ratio a way of comparing two or more similar quantities, by writing two or more numbers separated by colons. The numbers should be whole numbers, and should not include units. 

Raw materials this refers to the materials bought by a manufacturing business in order to manufacture its products. 

Real accounts these are accounts which deal with money such as bank and cash accounts. They also include those dealing with property and investments. In the case of bank and cash accounts they can be held in the nominal ledger, or balanced in a journal (for example, the cash book) where they can then be looked upon as a part of the nominal ledger when compiling a balance sheet. Property and investments can be held in subsidiary ledgers (with associated control accounts if necessary) or directly in the nominal ledger itself. 

Real interest rate nominal interest rate net of the current rate of inflation. 

Realisation principle the principle whereby the value of an asset can only be determined when it is sold or otherwise disposed of, that is, its ‘real’ (or realised) value. 

Realised profit, realisation a profit arising from revenue which has been earned by the entity and for which there is a reasonable prospect of cash being collected in the near future. 

Rebate if you pay for a service, then cancel it, you may receive a ‘rebate’. That is, you may be refunded some of the money you paid for the service. (for example if you cancel a one year insurance policy after three months, you may get a rebate for the remaining nine months). 

Receipt a term typically used to describe confirmation of a payment – if you buy some petrol you will normally ask for a receipt to prove that the money was spent legitimately. 

Receivables outstanding debts owed to a company. 

Recession a period of general economic decline, normally with stagnating or declining economic activity, often defined as a period of two or more consecutive quarters of falling economic output. 

Recognised the point when a transaction becomes part of the business. 

Recognition the accounting guideline requiring that revenues be shown on the income statement in the period in which they are earned, not in the period when the cash is collected. This is part of the accrual basis of accounting (as opposed to the cash basis of accounting). 

Reconciling the procedure of checking entries made in a business’s books with those on a statement sent by a third person (for example, checking a bank statement against your own records). 

Recovered, recovery costs are recovered by charging a selling price that covers costs and makes a profit. 

Redeemable preference shares preference shares that the issuing company reserves the right to redeem. 

Refund if you return some goods you have just bought (for whatever reason), the company you bought them from may give you your money back. This is called a ‘refund’. 

Registered copy will – A Registered copy will is a transcription of the Will made at the time of probate and filed and bound into a large volume. The survival rate of registered copy wills is far greater than the original Wills.

Registered person an individual, firm or company that is registered for VAT under the terms of the VAT Act 1994. 

Registrar of companies the official body, Companies House, with responsibility for the registration of limited companies, storing appropriate information and making it available to the general public. 

Regression analysis a statistical method for finding the relationship between two or more variables. Also called least squares or linear regression. 

Regressive tax imposed at a rate which decreases as the amount subject to taxation increases. Most commonly arising with the levy of fixed, lump sum taxes. 

Relevance qualitative characteristic of influencing the economic decisions of users. 

Relevant costs those future costs which will be affected by a decision to be taken. Non-relevant costs will not be affected by the decision. 

Relevant revenues those future revenues which will be affected by a decision to be taken. Non-relevant revenues will not be affected by the decision. 

Reliability a qualitative characteristic in accounting. It is achieved when information is verifiable, objective (not subjective) and you can depend on it. 

Remittance advice a document sent to inform the supplier that an invoice has been paid. 

Renunciation – A document from one or more of the executors, or prospective administrators, renouncing their executorship or right to administer.

Re-order level the point at which the buying department places its order for replacement materials. 

Replacement cost current cost of replacing an existing asset or property with the same quality of construction and operational utility, without taking depreciation charges into account. Replacement cost is usually higher that the item’s book value. Also called replacement value. 

Reporting period the period in respect of which the accounting information is prepared. In management accounting the period may be as frequent as the management chooses – weekly, monthly, quarterly and annual reporting are all used. 

Reserve accounts are usually set up to make a balance sheet clearer by reserving or apportioning some of a business’s capital. A typical example is a company where they are used to hold the residue of any profit after all the dividends have been paid. This balance is then carried forward to the following year to be considered, together with the profits for that year, for any further dividends. 

Reserves the claim which owners have on the assets of a company because the company has created new wealth for them over the period since it began. 

Residence status the definition of a person’s status when living or working abroad with regard to his/her taxation liabilities. 

Residual value the estimated amount that an entity would currently obtain from disposal of the asset, after deducting the estimated cost of disposal, if the asset were already of the age and in the condition expected at the end of its useful life. 

Residuary Beneficiary – A person entitled to the residue.

Residuary Estate – This is the remainder of the estate after payment of all funeral expenses, any Inheritance Tax, liabilities, administration expenses and legacies and bequests under the Will.

Responsibility centre an area of responsibility which is controlled by an individual. It might be a cost centre, a profit centre or an investment centre. 

Responsible a duty of care over something or someone. 

Retail a term usually applied to a shop which re-sells other people’s goods. This type of business will require a trading account as well as an income statement account. 

Retained earnings a company’s post tax profits not distributed as dividends. 

Retained profit of the period remaining after dividend has been deducted. 

Retainer a sum of money paid in order to ensure a person or company is available when required. 

Retention of title a supplier provides goods to a customer but retains ownership (title) the right to claim the goods if they are not paid for. 

Retention ratio the proportion of the profits retained in a business after all the expenses (usually including tax and interest) are taken into account. The algorithm is retained profits divided by profits available for ordinary shareholders (or available for the proprietor/partners in the case of unincorporated companies). 

Return (in relation to investment) the reward earned for investing money in a business. Return may appear in the form of regular cash payments (dividends) to the investor, or in a growth in the value of the amount invested. 

Return on capital employed profit from operations before deducting interest and taxation, divided by share capital plus reserves plus long-term loans. 

Return on shareholders’ equity profit for shareholders divided by share capital plus reserves. 

Return on total assets profit from operations before deducting interest and taxation, divided by total assets. 

Return the yield or reward from an investment. 

Returns to scale term referring to the change in outputs subsequent to a change in inputs. If outputs increase proportionately more than inputs there are increasing returns to scale, if outputs increase in line with inputs there are constant returns to scale, and if outputs increase proportionately less than inputs there are decreasing returns to scale. 

Revaluation reserve where a non-current asset held by a business is revalued upwards. The amount of the revaluation is placed in a capital reserve called revaluation reserve. 

Revenue is created by a sales transaction or event arising which causes an increase in the ownership interest. 

Revenue recognition an accounting principle under generally accepted accounting principles (GAAP) that determines the specific conditions under which income becomes realised as revenue. Generally, revenue is recognised only when a specific critical event has occurred and the amount of revenue is measurable. 

Revenue reserve created as a result of a trading profit and part of the equity section of a limited company statement of financial position. 

Reversionary interest the right to receive property which is held in a trust at a future date. | Benefit from a trust property.

Rights issue an offer to buy shares made by a company to existing shareholders in proportion to their existing holding. 

Risk (in relation to investment) factors that may cause the profit or cash flows of the business to fluctuate. 

Risk premium the additional return expected for investing in a riskier class of asset over a less risky one. 

Rollover relief capital gains tax relief applying to a person or company which disposes of a business or an asset and then reinvests the sale proceeds in a qualifying replacement within a qualifying period. 

Routine something you will do every day. 

RPI (retail price index) the measurement of inflation calculated by comparing the change in price of a basket of consumer goods, reflecting typical spending patterns, over a period of time. 

Run rate a forecast for the year based on the current year to date figures. If a company’s 1st quarter profits were, say, £25m, they may announce that the run rate for the year is £100m. 

Sales budget of sales volumes and prices for a future period. 

Sales budget used to estimate sales in terms of units and revenue. 

Sales daybook a record of all invoices sent out to customers. 

Sales delivering goods or services to a customer, either for cash or on credit terms. 

Sales income the money coming into an organisation from sales of goods and services. For a single product, income can be calculated by multiplying the number of items sold by the price of the item. 

Sales invoice document sent to customers recording a sale on credit. 

Sales ledger see ‘ledger’. 

Sales returns daybook a record of all credit notes sent out to customers. 

Schedule of Estate – List of property and goods – a form of inventory.

Scrap unwanted material sold for disposal, usually at a very low price in relation to its original cost. 

Secured loan where the lender has taken a special claim on particular assets or revenues of the company. 

Securities a generalised name for stocks, shares and other financial instruments. 

Segmental reporting revenue, profit, cash flow assets , liabilities for each geographical and business segment within a business, identifying segments by the way the organisation is managed. 

Self-assessment term used to indicate an individual or company is responsible for the computation of their tax liability payable to HM Revenue & Customs. HM Revenue & Customs (HMRC) uses to collect Income Tax from an individual, those with property rental or investment income, Sole Traders, Subcontractors, Company Directors, Partnerships, Limited Liability Partnerships (LLP) and Capital Gains. Self-Assessment presently takes the form of an annual tax return with an annual payment and two bi-annual pre-payments towards the following year. There are strict deadlines for doing this without penalties being imposed. HMRC are currently working towards Making Tax Digital, and quarterly reporting and payments.

Self-balancing ledgers a system which makes use of control accounts so that each ledger will balance on its own. A control account in a subsidiary ledger will be mirrored with a control account in the nominal ledger. 

Selling, general and administrative expense the expenses involved in running a business. 

Semi-variable cost one which is partly fixed and partly varies with changes in the level of activity, over a defined period of time. 

Sentence means that there was a case brought about the will, and the court came to a determination.

Sensitivity analysis asks ‘what if’ questions such as ‘what will be the change in profit if the selling price decreases by 1%?’ or ‘what will be the change in profit if the cost increases by 1%?’ 

Sequestration – A writ authorising seizure of property.

SERPS (State Earnings Related Pension Scheme) scheme allowing employees to increase their basic state pension via additional payments based on earnings. 

Service a term usually applied to a business which sells a service rather than manufactures or sells goods (for example, an architect or a window cleaner). 

Service cost centre cost centre that provides services to other cost centres within the organisation. 

Share a stake in a company entitling the holder to receive a pro-rata share of the company’s profits through dividends, based on their holding. 

Share capital name given to the total amount of cash which the shareholders have contributed to the company. 

Share certificate a document providing evidence of share ownership. 

Share option to buy shares in a company at a fixed price between a specified exercise period. This is used as an incentive, offered to company directors and employees, to promote loyalty and commitment. 

Share premium where shares are sold by the company at a price greater than the nominal value. The amount of the premium is placed in a capital reserve called share premium account. 

Shareholders’ funds name given to total of share equity in a company balance sheet. Also known as total equity. 

Shareholders the owners of limited companies. They invest money in a company in the hope that it will make a profit, so they will get a return on the money they invested. 

Shares the amount of share capital held by any shareholder is measured in terms of a number of shares in the total capital of the company. 

Short-term finance money lent to a business for a short period of time, usually repayable on demand and also repayable at the choice of the business if surplus to requirements. 

Signatory/Signatories a person or persons who are authorised to sign cheques and contracts on behalf of an organisation. 

Single period capital rationing capital rationing in one period only during the life of a project (usually in the first period). 

Sinking fund an account set up to reduce another account to zero over time (using the principles of amortization or straight line depreciation charges). Once the sinking fund reaches the same value as the other account, both can be removed from the balance sheet. 

SME small and medium enterprises (that is, small and medium size businesses). The distinction between what is ‘small’ and what is ‘medium’ varies depending on where you are and who you talk to. 

Soft skills learnt outside the academic remit that future employers are looking for you to demonstrate, such as; communication, presentation, numeric, commercial awareness. 

Sole trader an individual owning and operating a business alone. 

Solving problems one of three functions of management accounting to support management actions of planning, decision making and control. See also directing attention and keeping the score. 

Source document an original invoice, bill or receipt to which journal entries refer. 

Specific purpose financial statements documents containing accounting information which is prepared for a particular purpose and is not normally available to a wider audience. 

Specific Legacy – A gift of a specific object under a Will.

(Spurious) Will – False, fake or illegitimate Will.

Stakeholder pension scheme to encourage people to make provisions for their own future if they have not been able to afford a personal pension. 

Stakeholders a general term devised to indicate all those who might have a legitimate interest in receiving financial information about a business because they have a ‘stake’ in it. 

Stamp duty a tax imposed on the buying of shares and property. 

Standard cost target cost which should be attained under specified operating conditions. Often expressed in cost per unit. 

Standard deviation a statistic used to measure dispersion equal to the square root of the arithmetic mean of the squares of the deviations from the arithmetic mean. 

Standard hour the amount of work achievable, at standard efficiency levels, in one hour. 

Statement (from supplier) a document sent by a supplier to a customer at the end of each month summarising all invoices awaiting payment by the customer, credit notes issued, and payments received. 

Statement of account a document that summarises the transactions between a supplier and customer. It shows the invoices and credit notes sent, payments received and any outstanding balance on the account. 

Statement of cash flows a financial statement that shows how changes in balance sheet accounts and income affect cash and cash equivalents, and breaks the analysis down to operating, investing, and financing activities. 

Statement of changes in equity a financial statement used by limited companies to report all items causing changes to ownership interest during the financial period. 

Statement of financial position a summary of the assets, liabilities and capital of a business at a particular date. Also called a balance sheet. 

Statement of principles a document issued by the Accounting Standards Board in the United Kingdom setting out key principles to be applied in the process of setting accounting standards. 

Statement of recognised income and expense a financial statement reporting realised and unrealised income and expense as part of a statement of changes in equity under the IASB system. 

Statement of total recognised gains and losses a financial statement reporting changes in equity under the UK ASB system. 

Statutory accounts see ‘annual report’. 

Statutory sick pay payments made by employers to employees when they are unable to work due to illness or injury for more than three consecutive days. 

Step cost a fixed cost which increases in steps as production levels increase. 

Stepped bond loan finance that starts with a relatively low rate of interest which then increases in steps. 

Stewardship taking care of resources owned by another person and using those resources to the benefit of that person. 

Stock a word with two different meanings. It may be used to describe an inventory of goods held for resale or for use in business. It may also be used to describe shares in the ownership of a company. The meaning will usually be obvious from the way in which the word is used. 

Stock control account an account held in the nominal ledger which holds the value of all the stock held in the inventory subsidiary ledger. 

Stock exchange (Also called stock market.) an organisation which has the authority to set rules for persons buying and selling shares. The term ‘stock’ is used loosely with a meaning similar to that of ‘shares’. 

Stock holding period average number of days for which inventory (stock) is held before use or sale. 

Stock taking physically checking a business’ stock for total quantities and value. 

Stock turnover (days) (average stock ÷ cost of sales) × 365. Also known as inventory turnover. 

Strategic management accounting the provision and analysis of financial information on the firm’s product markets and competitors’ costs and cost structures and the monitoring of the enterprise’s strategies and those of its competitors in these markets over a number of periods. 

Strategic planning in a business or government environment, the process of identifying an organisation’s mission, aims and objectives, determining its needs, capabilities and resources, and then developing strategies to achieve those goals. Also referred to as development planning. 

Strategic planning involves preparing, evaluating and selecting strategies to achieve objectives of a long-term plan of action. 

Strategy a plan setting out the actions and resources needed to achieve a stated objective of the long-term plan. 

Subduction of caveat – The person against whom the caveat was issued can apply to the caveat to be “subducted” or withdrawn, to allow probate or administration to be granted.

Subordinated debt if a company is liquidated (that is, becomes insolvent); the secured trade payables are paid first. If any money is left, the unsecured trade payables are then paid. The amount of money owed to the unsecured trade payables is termed the ‘subordinated debt’ of the company. 

Subsidiary accounts a group of related accounts supporting in detail the balance of a controlling account, usually kept in a subsidiary ledger. 

Subsidiary company in a group which is controlled by another (the parent company). Sometimes called subsidiary undertaking. 

Subsidiary ledgers opened in addition to a business’s nominal ledger. They are used to keep sections of a business separate from each other (for example, a sales ledger for the customers, and a purchase ledger for the suppliers). (See control accounts.) 

Substance (economic) information in the financial statements should show the economic or commercial substance of the situation. 

Subtotal totals of similar items grouped together within a financial statement. 

Sunk cost that has been incurred or committed prior to a decision point. It is not relevant to subsequent decisions. 

Suppliers’ payment period average number of days credit taken from suppliers. 

Suspense account a temporary account used to force a trial balance to balance if there is only a small discrepancy (or if an account’s balance is simply wrong, and you don’t know why). A typical example would be a small error in petty cash. In this case a transfer would be made to a suspense account to balance the cash account. Once the person knows what happened to the money, a transfer entry will be made in the journal to credit or debit the suspense account back to zero and debit or credit the correct account. 

Sustainability the process of acting in a way that won’t compromise the future. This means ensuring that what we do today doesn’t prevent people from doing something in the future. 

SWOT analysis in a business or government environment, the systematic assessment of an organisation’s strengths (S), weaknesses (W), external opportunities (O) and threats (T). 

System an arrangement of people, materials, organisations, procedures or other elements associated with a particular function or outcome. A system is made up of inputs, processes and outputs. 

Tangible assets (property, plant and equipment) with physical substance controlled by an entity which provide expected future economic benefits either by use on a continuing basis in the company’s activities, for example, plant and machinery, or for use within the trade of the company, for example, stock. 

Tangible fixed assets a fixed (non-current) asset which has a physical existence. 

Tax allowances tax allowances are concessions given by the tax authorities available to be used to reduce a person’s or company’s taxable income. 

Tax avoidance the minimising of individual or company tax liabilities using legal methods. 

Tax codes supplied by HM Revenue & Customs for employees and used by employers to determine how much tax to deduct from salaries or wages for remittance to the tax authorities. 

Tax evasion the minimising of individual or company tax liabilities by failing to declare or understating taxable income or taxable capital gains to the tax authorities. This is a criminal offence with potentially severe penalties. 

Tax invoices an invoice with a compulsory set of information given, by one VAT registered person to another, when supplying standard rated goods or services. VAT registered customers need a tax invoice to reclaim, as input tax, the VAT charged to them. 

Tax liability legal obligation to pay taxes associated with owning property or earning income. 

Tax shelter method of reducing taxable income and thereby reducing tax liabilities. 

Tax year 12 month period commencing 6 April and ending 5 April the following year. Also known as the fiscal year. 

Taxable earnings the portion of an individual’s annual income subject to taxation. Generally calculated as gross income less reliefs and allowances. 

Taxable gain the portion of a sale that is liable to taxation. 

Taxation there are two main areas of taxation work which are related and require an ongoing relationship with clients: tax compliance – involves completing and submitting tax returns for both individuals and companies and tax advisory and planning – involves analysing and recommending changes in how individuals and companies structure their finances so as to minimise their tax payments within the framework of legislation. There are many specialist areas in taxation, so you are likely to see terms such as indirect taxation (covering VAT), corporate tax and corporation tax for tax work focusing on companies, and personal tax for tax work focusing on the taxation of the wealth and income of individuals. 

Taxonomy the classification of information according to a pre-determined system providing a conceptual framework for retrieval. Typically, taxonomies consist of groups of similar entities organised in a hierarchical structure, related by presumed relationships amongst the different entities. 

Tender in a business or government environment, an offer by a potential supplier to supply a specified product or service at a specified cost.

Testamentary Dispute – A document concerning a legal dispute about an estate.

Testator/Testatix – The person (male/female) who has written and executed a last will and testament that is in effect at the time of his/her death.

Tied agent a financial advisor who has an agreement with a company to recommend their products to others. Tied agents cannot be assumed to give impartial advice. They are regulated by the FSA. 

Time deposits that require notification before a withdrawal can be made in order to avoid incurring a penalty. 

Time value of money the name given to the idea that £1 invested today will grow with interest rates over time (for example, £1 become £1.10 in one year’s time at a rate of 10%). 

Timeliness qualitative characteristic that potentially conflicts with relevance. 

Top-down budget set by management without inviting those who will implement the budget to participate in the process of setting the budget. Also called an imposed budget. 

Total assets usage sales divided by total assets. 

Total cost calculated as variable cost plus fixed cost; or direct cost plus indirect cost; or product cost plus period cost. 

Total cost of ownership (TCO) the real amount an asset will cost. Example: An accounting application retails at £1000. Support – which is mandatory, costs a further £200 per annum. Assuming the software will be in use for 5 years, TCO will be £2000 (1000+5×200=2000). 

Total product cost comprises prime cost plus production overhead cost. 

Total return calculation that examines the combination of capital growth with income, such as dividends or interest. 

Trade and asset sale instead of selling the shares in the company, often companies choose to sell the trade and assets. The proceeds from the sale are received by the company and not the shareholders. 

Trade creditor an amount owed to a supplier as a result of trading with them on credit terms. 

Trade debtor an amount owed from a customer as a result of having supplied them with goods or services on credit terms. 

Trade discount a percentage reduction of the amount of an invoice offered to buyers in the trade/regular customers rather than to the general public; also known as bulk discount 

Trade payables persons who supply goods or services to a business in the normal course of trade and allow a period of credit before payment must be made. 

Trade receivables persons who buy goods or services from a business in the normal course of trade and are allowed a period of credit before payment is due. 

Trading account an account which shows the gross profit or loss of a manufacturing or retail business, that is, sales less the cost of sales. 

Traditional approach to overhead costs allocate and apportion to cost centres and then absorb into products which pass through those cost centres. 

Transaction two or more entries made in a journal which when looked at together reflect an original document such as a sales invoice or purchase receipt. 

Transfer price the price charged between two divisions of an organisation in transferring goods and services between each other. 

Trial balance a listing of all debit and credit nominal account balances of a business as taken from the nominal ledger, sales ledger and purchase ledger over a specified period. 

True and fair view requirement of UK company law for UK companies not using IASB system. 

Trust arrangement empowering an individual or organisation (the trustee) to safeguard and administer the assets within the trust, For example, land and property, on behalf of another (the beneficiary). An arrangement by which assets are handed over to trustees to be applied for the benefit of other people known as beneficiaries.

Trustee – The person who holds property on behalf of another person and is responsible for administering the trust assets.

Tuition – Tuition agreement. Relates to guardianship over minors under 14 (boys) or 12 (girls). The guardian was chosen by the court.

Trustworthy worthy of confidence.

Trusts & Estates – This is the process of reporting and paying tax on behalf of the trust by the trustees; this is done through Self-Assessment. There are strict deadlines for doing this without penalties being imposed. Trust taxation can be complex and the rates of tax is dictated by the type of trust and the entitlement of any beneficiaries involved.

Turnover a person’s or company’s total net sales revenue recorded for a specific period. 

UK ASB system the accounting standards and company law applicable to corporate reporting by UK companies that do not report under the IASB system. 

UK GAAP – UK generally accepted accounting principles rules, conventions and standards that set out accounting practices for UK companies, established by the accounting standards board. 

Unavoidable cost a cost that is not eliminated by taking a particular action. 

Undeposited funds account an account used to show the current total of money received (that is, not yet banked or spent). The ‘funds’ can include money, cheques, credit card payments, bankers drafts etc. This type of account is also commonly referred to as a ‘cash in hand’ account. 

Under-recovered fixed overhead cost the overhead recovered (applied) using a predetermined overhead cost rate is less than the actual overhead cost of the period. 

Understandability qualitative characteristic of financial statements, understandable by users. 

Underwriting a guarantee by a financial institution to buy any shares not subscribed for in a new share issue or rights issue. 

Undistributed profits earnings from a company not distributed to its shareholders, but instead retained within the company. Also called retained earnings. 

Unit activity (in activity based costing) an activity that is performed each time a product is produced. 

Unit cost the cost of one unit of output. 

Unlimited liability a business in which the liabilities of the owners are not restricted to the capital they have invested in the business. 

Unlisted (company) limited liability company whose shares are not listed on any stock exchange. 

Unlisted securities shares that are not listed on a recognised stock exchange. 

Unqualified opinion used in reference to audit opinion that is not qualified for material scope restrictions and departures from accepted accounting principle (GAAP). 

Unrealised gains and losses representing changes in values of assets and liabilities that are not realised through sale or use. 

Unsecured trade payables those who have no claim against particular assets when a company is wound up, but must take their turn for any share of what remains. 

Unsecured loan in respect of which the lender has taken no special claim against any assets. 

Useful economic life the period of time an asset is expected to provide economic benefits to a business. 

Value chain a way of describing and analysing the sequence of activities that bring on product/service from initial stage of production to final stage of delivery. 

Value to the business an idea used in deciding on a measure of current value. 

Valuation – Valuation of the estate at time of death.

Variable cost one which varies directly with changes in the level of output, over a defined period of time. 

Variable costing only variable costs of production are absorbed into products and the unsold inventory is valued at variable cost of production. Fixed costs of production are treated as a cost of the period in which they are incurred. 

Variable interest rate based on an underlying variable interest rate index, such as the Bank of England base rate, or LIBOR (London inter bank offered rate). 

Variation, deed of – A legal document that allows the beneficiaries to change the terms of a Will, even after the person’s death

Variance analysis quantitative breakdown of cost variance into main causes, for example, price and usage. 

Variance average deviation of figures from their mean. In accounting this term is used in reference to the difference between a projected number and its actual number. 

VAT invoice an invoice with a compulsory set of information given, by one VAT registered person to another, when supplying standard rated goods or services. VAT registered customers need a VAT invoice to reclaim, as input tax, the VAT charged to them. 

VAT (value added tax) an indirect tax levied on most business to business and business to consumer transactions in the UK and a number of other countries. There are three types of VAT: standard, reduced and zero. Business registered for VAT must charge VAT on their supplies and can reclaim most or all of any VAT on purchases. This is the process of accurately recording and reporting Value Added Tax (VAT), a tax levied by the government on the sales of goods and services. Unless exempt, all businesses with an annual turnover over £82,000 must register for VAT and complete a quarterly VAT returns. Once VAT registered, you must: charge VAT on the goods or services you sell, you must pay VAT on the goods and services you buy, and you must file a VAT return every quarter to HM Revenue and Customs (HMRC).

Venture capital trust VCTs are companies listed on the London stock exchange and are vehicles set up as part of a scheme designed to encourage individuals to invest indirectly in a range of small higher-risk trading companies whose shares and securities are not listed on a recognised stock exchange. Individuals investing in VCTs may be entitled to various income tax and capital gains tax reliefs. VCTs are exempt from corporation tax on any gains arising on the disposal of their investments. 

Venture capital which has been invested in small companies in their infancy, generally considered to be higher risk investments than a publicly listed company. Venture capitalists will usually receive an equity share in the company in return. 

Wages payments made to the employees of a business for their work on behalf of the business. These are classed as expense items and must not be confused with ‘drawings’ taken by sole-proprietors and partnerships (see drawings). 

Walk economic theory stating stock market prices behave unpredictably due to the efficiency of the market. 

Waste any materials that have no value. 

Wasting asset an asset which has a limited economic lifespan. 

Wear and tear allowance an allowance that is tax deductible for the cost of furniture and fittings provided in dwelling houses which are let out furnished. 

White knight a company which comes to the aid of another facing a hostile takeover. 

Will – A legal written statement by which a person sets out how he/she wishes their assets to be managed and distributed after their death. A Will makes inheritance a far quicker process and means your loved ones won’t have to wait longer than necessary to receive money. Without a Will your estate will be distributed according to the Laws of Intestacy.

Windfall profits a large profit resulting from an unusual or unexpected event. 

Withholding tax deducted at source from earnings, such as dividends and interest. The purpose being to facilitate or accelerate collection. 

Work in progress the value of partly finished (that is, partly manufactured) goods. 

Working capital cycle total of stock holding period plus customers collection period minus suppliers payment period. 

Working capital used by an individual or company to fund the general day to day running of the business. Calculated as current assets (for example, stock, trade receivables, and cash) less current liabilities (for example, trade payables, bank overdraft). 

Working life defined as the start of the tax year in which an individual reaches 16 years to the end of the tax year before reaching the prevailing state pension entitlement age. 

Work-in-progress a product or service that is partly completed. 

Write-off depreciating an asset to zero in one go. 

Writing down allowance see ‘capital allowances’. 

Written down value the cost of an asset, such as a car, after deducting amounts written off. For tax purposes it is the cost less capital allowances given to date. 

XR symbol used in financial press to indicate that a stock is trading without (ex) rights. 

Year to date (ytd) the period starting at the beginning of the current year and ending at the current day. It is often used to see how the business is actually faring up to the current day versus its budget for that period in terms of sales, profits etc. 

Yield market interest rate, current return, and effective interest rate. 

Zero rated (VAT) goods and services that are taxable for VAT, but the VAT rate is 0 per cent. If you sell zero-rated items, you can generally reclaim VAT on your purchases. 

Zero-based budgeting rather than the previous year’s budget being the starting point for the next budget, a zero-based budget assumes no activities: everything in the budget must be justified. 

Zero-coupon bond a bond issued at a discount to its maturity value which pays no interest over its life. 

Practice Number: 21331

Jacqueline Tetley is licensed and regulated by AAT under licence number 5096.

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