When reading articles on the internet or magazines, you may come across words that you need to pick up a dictionary for. These words or phrases may also appear on your annual accounts, and it is important that you understand these financial documents. We have collated some of these words here for you. If there is a word you want to understand and believe it should be on this list then please get in touch with us.
Depreciation: The reduction of an asset’s value over its expected lifetime. An allocation for each year is entered in to each set of accounts.
Turnover: The money that a business makes through invoices, before any expenses are deducted.
Corporation Tax: The tax a limited company is required to pay to HMRC. This is currently 19% of the taxable profit.
Self Assessment Tax: The tax an individual person is required to pay to HMRC based on their self-employment earnings or PAYE income. The tax bands change with each year.
Personal Allowance: The amount of taxable income a person can make before tax is calculated within a tax year.
Shareholder: An individual who holds a share in a limited company; often these are directors or investors. Shareholders receive dividends from the company in line with their share holdings if there is sufficient funds in the company.
Stakeholders: An individual who has an interest in the business doing well. The list can be extensive, and vary from business to business. Common examples are the owners of the business, the employees of the business, customers and the community.
Capital Allowances: Tax relief arising from purchases of new assets.
Capital Gains Tax: Tax arising from the profit on a sale of an asset.
Dividend: Monies of a limited company’s reserve paid to shareholders.
Partnership: A business run by two people together.
Dormant Limited Company: A non-trading Limited Company.
Balance Sheet: A section in the annual accounts showing the financial stability of the business.
Profit and Loss: A section in the annual accounts showing the income and expenses for the accounting period.
Liability: Money owed to suppliers and creditors
Asset: A resource a company owns that is cash or can be sold for cash.
Deferred Tax: Income tax anticipated to pay on an investment property.
VAT: Value Added Tax; in the UK this rate is 20%. VAT registered businesses pay over the difference of sales VAT and expense VAT to HMRC.
Cloud Bookkeeping: Software that uses the internet to store information online.
Director's Loan Account: Money withdrawn from a limited company by the director(s), or paid to the company by director(s). The money exchanged is expected to be repayable to the payee in some way.