See Accounts in the Key Concepts section.

The cut-off date, up to which transactions are included. The main accounting reference date is the financial year-end. For example, a company with a 31 March year-end will have this as its accounting reference date.

This account is used to keep track of unpaid bills. Whenever there is a gap of time between a purchase taking place and subsequently paying for the purchase, the Accounts Payable account carries this balance. Because knowing how much is owed to suppliers can be crucial in running a business, this account is a key control account.

Although it's possible to have more than one Accounts Payable account, for most small businesses this isn't necessary unless more than one currency is involved (for example one Accounts Payable for pounds and another for Euros).

Accounts Payable is a Liability account.

Also known as: Trade Creditors; Creditors Control; Bought Ledger

This account is used to keep track of unpaid customer debts. Whenever there is a gap of time between a sale taking place and subsequently being paid the Accounts Receivable account carries this balance.

Knowing how much each customer owes at any one time is crucial information and this account is therefore a key control account.

Although it's possible to have more than one Accounts Receivable account, for most small businesses, this isn't necessary unless more than one currency is involved (for example one Accounts Receivable for pounds and another for Euros).

An Accounts Receivable account is an Asset account.

Also known as: Trade Debtors; Debtors Control

Adjustments are made to the accounts for reporting purposes to show assets and liabilities that have not yet been invoiced. For example a supplier may have done some work and a bill is expected, but not yet actually received at the year-end.

The adjustment would be entered to debit the appropriate cost account and credit 'Accruals'.

Alternatively, income can also be accrued where it is expected or due and not yet received. In this case the adjustment would be to debit 'Accrued Income' and credit 'Income' or 'sales'.

Business is about doing things - usually to make money. For the book-keeper understanding these activities helps understand how to allocate the transactions to the correct accounts. For example knowing that a business provides gardening services helps explain to a book-keeper why the business buys plants from a wholesaler.

Adjustments are made to the accounts for completeness and to correct distortions so that the accounts show a 'true and fair view'. The most common adjustments are:

Adjustments for Accruals

Adjustments for Bad Debts

Adjustments for Depreciation

Adjustments for Foreign Currency and Exchange

Adjustments for Prepayments

Adjustments may also sometimes need to be made to correct errors.

Choosing the account classification of a transaction in the Chart of Accounts. For example if some cash is used to buy some stationery, the allocation will be 'Stationery' account or something similar.

Allocation may also include deciding a project classification or class field in addition to choosing an account.

Reports showing customer and supplier balances grouped by the age of the debt. Traditionally these groups are Current, 30 days, 60 days, 90 days and Older.

Anything that can be turned into cash. Similar types of assets are grouped together, usually by how 'liquid' they are, starting with the most liquid first:

Current Assets: cash, positive bank balances, Accounts Receivable, Stock, Prepayments, short-term Investments.

Long-term investments: (more than a year): property or shares in another company.

Fixed Assets: vehicles, machinery and equipment that lasts more than a year and costs more than £2,000.

Intangible Assets: like intellectual property, goodwill, brand names. Intangible assets are by their nature difficult to value and not a task expected to be performed by the book-keeper.

Assets in the last three categories are periodically re-valued with an adjustment made to the accounts to reflect any changes.

Vehicles and equipment that lose their value over time through being worn out and becoming obsolete are depreciated over time.

Any group of individuals can voluntarily enter into an agreement to form an association, club, society or other not-for-profit (NFP) organisation. For banking and book-keeping purposes they amount to an entity in their own right.

NFPs Associations, clubs and societies don't have the benefit of protection from creditors and therefore if the risks become material in any way, the members (owners) may choose to incorporate .

NFPs, Associations, clubs and societies can be a charity as well, but this is an additional status.

An audit is a where an independent inspection of the book-keeping records takes place to ensure they are free from material error. This is traditionally done by testing the data, for example by matching transactions in the books with the bank statements and other supporting documents, and also by asking questions about debtors, creditors, and adjustments to the accounts to verify that they are realistic, and that the completed data set is 'true and fair' and properly discloses any important factors affecting the accounts.

Audits can be conducted internally, by staff, or externally by qualified auditors who state an opinion, which is included with the Financial Statements. This opinion will either be that the statements are free from material error, or not. The definition of what should be tested and disclosed is always being developed.

Some organisations are required by law to have an external audit, for example a charity with a turnover over £500,000.

When a debt isn't going to be paid. When sale takes place that isn't paid for at the time, an invoice is issued at some point afterwards showing the debt, and will go in the Accounts Receivable account in the Chart of Accounts. If this invoice isn't paid and goes bad the accounts need to be adjusted to show this.

When a debt isn't paid, yet, and looks like it will go bad, but for the time being is left in the Accounts Receivable account. This treatment means that credit control can still pursue the debt (because the outstanding invoice(s) remain on the system), but the overall accounts are giving a fairer view of the state of play. If and when the debt is written-off, it will be set against the provision account (in the balance sheet) rather than the bad debts account (in the profit & loss account).

When a debt that was previously written off as a bad debt is subsequently paid.

The value on an account, which in double-entry terms is the difference between the sum of the debits and the sum of the credits.

The Balance Sheet is a statement of the assets and liabilities of an entity (or group of entities) and how this netvalue is 'owned'.

Assets are grouped together by liquidity and liabilities grouped by how soon they become due. The subtraction of one from another gives a theoretical valuation of the entity. If the liabilities are greater than the assets then the entity is insolvent. This value is then restated as equity or reserves.

In theory, all of the assets can be sold and turned into cash, and all the liabilities paid off with this cash. The residual cash, once this process is complete, is the value of the entity. In the real world however debtors may not pay if, for example, there is no money to pay the credit controllers to do their job. When there is a question mark over whether an entity can survive financially, two balance sheets may be required, one on a 'going concern' basis, where there is an assumption that the entity can continue relatively normally, and a second one which shows what will be realistically achievable if the entity is wound up or goes bankrupt.

The data in the balance sheet comes from the trial balance.

For the book-keeper, banks are any organisation providing financial processing services and the ability to pay income into and payments out of an account. This includes high street banks, credit card companies, building societies, and internet providers like PayPal, WorldPay and Amazon.

A facility for creating and processing financial transactions.

Banks offer a variety of different types of account which have different terms attached to them. Current accounts have high functionality - cheque books, debit cards and few restrictions on either the volume or value of transactions, which is very practical, but such accounts rarely pay anything more than token interest.

At the other end of the scale reserve or deposit accounts will be restricted in terms of volume or value, or have a lock on how long deposits must remain on the account, but will usually offer much more attractive interest rates.

Bank reconciliation is making sure that the transactions in the bank account agree with the bank statements provided by the bank. The bank statement provides an independent and (usually) reliable record of transactions in and out of a bank account. Taking this independent record and reconciling it to the book-keeping records - matching the transactions so that the outcome is identical - gives assurance that transactions entered are accurate and complete. It's always possible for transactions to be allocated incorrectly, but they can't be either forgotten or entered with incorrect values - if they are then the account won't reconcile.

Most transactions in the life of an entity will affect a bank account sooner or later, and therefore if all bank accounts are reconciled to the bank statements the certainty this brings runs right through the accounts.

A record of bank account transactions provided by the bank, usually monthly.

In banking: an entity receiving income.

In charities: the people, animals or things that benefit from a charity's stated purpose.

An invoice stating payment due for goods or services. Invoices and bills are the same documents; for the sender they are invoices, for the receiver they are bills.

Bills will show the key transaction information: the date; the reason (i.e. 'supply of pencils') the amount, any VAT, and will often also show the terms of the sale.

The directors of a company.

The net value of an asset as shown in the accounts, as distinct from the actual value. For example a piece of machinery may be shown as being worth its £10,000 purchase price minus £8,000 depreciation - a book value of £2,000 - because it had been depreciated at £1,000 for eight years. If it were then sold for say £3,000, this would be its actual value.

See Accounts Payable

As a verb: a trading activity - doing business.

As a noun: a trading entity - for example 'Alex Baker Business Services Ltd'.

Generically: wealth, represented by cash and other assets.

In book-keeping I: borrowed wealth, such as cash lent to a business.

In book-keeping II: fixed assets can also be described as 'capital' purchases.

Currency, either in the physical form of notes and coins, or money in a bank account.

In book-keeping cash generally refers to bank accounts, and notes and coins themselves are usually referred to as either petty cash (notes and coins in a tin for minor purchases) or takings (cash received from trading).

Movement of cash into and out of an entity. In this context, cash includes bank activity.

A report which tries to predict movement of cash in and out of an entity. The parameters will vary depending on context: a forecast might be day-by-day if necessary because cashflow is very tight (for example a business that has no money and a high level of creditors); or may be on a month-by-month basis to help decide how much spare cash can be invested.

Forecasting cashflow is a like forecasting the weather: a huge amount of factors affect cashflow, notably on the income side where control is in someone else's hands. The immediate future can usually be done with some accuracy but further ahead can be very hard to predict, especially when income isn't regular. It may be necessary to predict a range of scenarios to give a complete picture.

For this reason, forecasting cashflow is very time consuming and, if possible, having sufficient working capital in the bank will allow for a less demanding reporting requirement.

Cash, in the form of notes and coins, presents a handling problem if it is on any scale coming into or going out of a business. Compared to other finances, managing notes and coins is labour intensive and susceptible to human error and deliberate fraud. Retail businesses use cash registers both to help keep track of the cash, and for book-keeping purposes, because the cash register can show differentiation between products sold and VAT types.

Cash expenditure of any value is not common and generally confined to small-scale petty cash. However, even a few transactions a month can create the need for a separate account and some form of control, usually by managing the printed receipts. The imprest system is ideal for most office environments.

A machine for recording and handling cash transactions. Modern cash registers can usually be programmed with multiple products and VAT codes, and also differentiate between cash, cheques and card payments.

Almost all high street stores now use bar code scanning connected to the cash register, to record sales, or at least the manual PLU (Price Look Up) system. These systems can be electronically integrated with stock control systems so that when the bar code is scanned, the sale is not just registered, but the stock control is updated and new stock ordered if necessary.

Among the reports that a cash register can produce, the most useful is the 'end of day' (sometimes called a 'Z reading') which shows a summary of sales for the day, which can then be entered manually into the book-keeping records using a journal.

An not-for-profit entity dedicated to 'public benefit' which is registered with the Charity Commission. Charities generally concentrate on a specific task, for example the alleviation of poverty.

Registered charities have to follow a set of rules (known as the Statement of Recommended Practice, SORP) in addition to general business and company law. Charities can benefit from tax reliefs not available to ordinary companies.

The central account structure of the accounts. The Chart of Accounts includes all the accounts of the Balance Sheet and Profit and Loss, including the key control accounts such as Bank Accounts, VAT Control, Accounts Receivable, Accounts Payable in the Balance Sheet, and the Sales and other income and all the expenditure accounts.

The balance on each account in the Chart of Accounts at any given time forms the Trial Balance.

Alternatively known as: Nominal Accounts list

In banking: a paper instruction to a bank to transfer funds from one bank account to another.

Class - classification - fields allow a secondary level of allocation of transactions, and are usually used for project analysis.

A Profit & Loss report shows income and expenditure by account type - for example 'post', 'stationery', 'printing', 'telephone'. Adding a classification - for example 'Project A' or 'Project B' - allows the expenditure to be analysed for management reporting.

Alternatively known as: Department Codes

See Associations, clubs, societies and not-for-profit

With the exception of theatre groups, company usually refers to Limited companies, which are incorporated and listed on the Companies House register.

The UK government agency that maintains the list of registered limited companies, along with details of share ownership and directors.

When two sets of accounts are added together, for example two businesses owned by the same parent company. Their respective asset and liability accounts are added together to form a consolidated balance sheet showing the overall assets and liabilities, and similarly the income and expenditure accounts are added together to show overall profit or loss.

Balance sheet accounts through which the key financial dynamics take place, and reconciliation of which help ensure accuracy and completeness.

A bank account is a key control account, and reconciliation between the bank statements and the book-keeper's records is usually the most central control activity.

Accounts Receivable and Accounts Payable are key control accounts which require close supervision to ensure accuracy. In this case, a view of how credible the balances shown is the key point; with unpaid invoices being followed up to ensure accuracy.

The VAT Control is another key control account.

Other important but less active control accounts are the Net Pay Control and PAYE Control account which control employees' net pay and employment taxes.

Tax on the profits of a limited company. The current rate is 21% for companies with profits under £300,000 and thereafter 26% (25% in 2012).

A cost is the value of money that has been used up on something, and hence is not available for use anymore. Although assets 'cost' money, in the book-keeping context both 'cost' and 'expenditure' usually refer to profit or loss items rather than balance sheet items.

Generically: The cost of items which are bought and sold. COGS accounts are associated directly with sales of stock, and only used when a sale has taken place. When a sale takes place, the cost associated with a sale is transferred from the stock account to the COGS account (as distinct from costs associated with the infrastructure and carrying-out of business and which are not directly connected with sales - usually known as 'overheads').

Example: in a garden centre the cost of plants would be allocated to a COGS account, whereas the cost of postage and stationery associated with running the garden centre is an overhead.

Credit is one half of the double-entry book-keeping system, and can be represented as a negative value.

A credit is either a liability (Balance Sheet) or a sale/income (Profit & Loss).

In banking and in relation to suppliers, credit is the provision of a loan in some form, such as bank loans, overdrafts, credit cards or simply unpaid bills.

The activity of chasing up unpaid debtors to encourage payment. This can be done by a variety of methods among which are; sending a statement of account, a copy of the outstanding invoice(s), or telephone and email contact.

In the last resort legal action may be taken to recover the debt, but there is a balance to be struck between encouraging slow payers who may still be good customers and debtors who have no intention of paying.

Money owing to another entity - a liability. For example if the bank lend a business some money the bank becomes a creditor; a supplier that supplies goods or services that haven't yet been paid for is also a creditor.

See Accounts Payable

In banking: an account provided by a bank with a payment card and structured lending terms. These terms are usually either an agreement to repay the balance of the account every month - most commercial cards work like this - or where at least a minimum proportion of the balance must be repaid and where the remainder is borrowing and will show as a liability on the balance sheet.

Credit cards are famous for being an expensive way to borrow.

For the book-keeper, in principle, processing credit card transactions is no different to a bank account, although the software used may have a specific transaction type.

A transaction which has the opposite effect of an invoice in the accounts and can be used in part or in full to refund a customer.

Alternatively known as: Credit Memo

Generically: Money, value.

In book-keeping and banking: see Foreign Currency.

See Assets

A buyer of goods and services

Debit is one half of double-entry book-keeping and can be represented as a positive value.

A debit is either and asset (balance sheet) or a cost (profit & loss).

A payment card usually operated by the Visa/Mastercard/Amex system. Whereas a credit card stores a loan until a monthly cut-off and is then either paid or goes into a loan arrangement, a debit card charges the cost directly to a bank account.

An amount of money owed by one entity to another.

Money owed by another entity. For example a customer who hasn't yet paid for goods or services is a debtor. A positive bank balance makes the bank a debtor.

See Accounts Receivable

See Class Fields

In banking: putting money in a bank account. Some bank accounts are called 'deposit accounts' which have a more attractive rate of interest and used for excess cash.

The reduction in value of a fixed asset. Most fixed assets, such as vehicles and computers, depreciate over time. At the year-end (or in some cases more often) a calculation of the depreciation is made and entered into the accounts to record this loss of value. The difference between the original purchase price and the depreciation is known as the book value. For clarity, depreciation is usually shown in a separate account from the account with the fixed asset cost.

There are a number of methods of calculating depreciation. Common methods are:

o Straight-line Depreciation. A Fixed Asset is depreciated by a regular amount each year. For example if a £10,000 asset is depreciated at 25% over four years it will be £2,500 per year.

o Reducing balance Depreciation. A Fixed Asset is depreciated by a percentage each year, on the net (residual) value brought forward from the previous year. For example if a £10,000 is depreciated at 25%, the depreciation in year one will be £2,500, and in year two will be £1,875 (10,000 less 2,500 = 7,500 x 25% = 1,875).

Generically: a senior level of management.

In Company law: An officer of a Limited Company, formally appointed and with legal responsibilities. The directors of a company make up the Board of Directors.

A reduction in price, usually given as an incentive to stimulate trade, or in the case of a settlement discount to encourage early payment of an account.

The book-keeping convention of entering the value of a transaction as a debit and a credit.

A business or organisation defined by its legal status as a sole trader, partnership, , Limited Liability Partnership, limited liability company or not-for-profit.

See Key Concepts

The value of an ownership interest in a company (share equity), and value in a brand (brand equity).

See VAT and the EU

Latin for something given or done free of charge or voluntarily and without obligation.

See Foreign Exchange

See Cost

An arrangement with a bank for making payments from, and receiving money into, a bank account. Also may be a loan arrangement.

Sales, usually associated with professional services such as accountancy, legal and consultancy services.

Formal statements of the finances of an entity, normally comprising of a balance sheet and profit & loss statement, and may additionally include a cashflow statement and written reports by the directors and auditors. The financial statements will be up to and including a specific date, usually the year-end.

Alternatively known as: 'The Accounts' in a generic sense.

Assets costing more than £2,000 and which last more than a year, excluding anything intended to be resold, e.g. Stock. Examples of fixed assets are:

o Vehicles

o Machinery

o Office equipment & furniture

o Property

Purchases of fixed assets are 'capitalised' and allocated to the Fixed Asset Additions account on the balance sheet account rather than an expense account on the profit and loss account.

A separate register of the details of fixed assets showing purchase date and costs and the depreciation of the asset over time.

In small business book-keeping where there are few fixed assets, a single account for each item is usually sufficient and a separate register is not necessary.

Non-local currency, which requires a valuation in the book-keeping process.

Some entities operate using more than one currency. In the UK the main 'home' currency will probably be British Pounds (GBP), and transactions in any other currency will need to be entered in one of two ways:

The simplest way is to make the conversion from the foreign currency to the equivalent value in GBP and then enter it as normal. The conversion may already have been done by the bank if the funds received/paid are to/from a GBP account. The conversion rate can be noted in the memo or description field of the transaction. This treatment is suitable for low volume cash and bank transactions affecting a GBP account where there is no outstanding invoice/bill.

If the business is operating a currency account, or there is a material gap between an invoice or bill being entered and then a later payment, then some software allows transactions to be entered in the original currency along with a conversion rate.

This allows the transaction to be 'revalued' for reporting purposes, since the GBP value will change depending on the date of the report. For example a 1,000 euro (EUR) transaction entered at a rate of 1.25 will give a value of GBP 800 on the day it is entered. If still outstanding a month later, when the rate has changed to 1.20, the value will be GBP 833. Revaluation is much easier if currencies have been kept separate.

The process of converting one currency into another, usually where a bank or other financial institution buy or sell a currency at a specified rate. For example a company which generally trades in British Pounds (GBP) may buy 1,000 Euros (EUR) and the rate the bank give is 1.25, which would therefore cost £800. Current and historic rates can be obtained online, for example from xe.com or yahoo finance.

Banks usually charge either a commission for making the exchange, which may be either a flat rate or a percentage of the value of the exchange, or they may offer a poorer rate 'commission free' and make their money on the rate instead (or both).

See Journals

The accounts, from the Chart of Accounts, in double-entry format, listing all transactions in each account, for the period in question. A report showing the balance on each account in the General Ledger is the Trial Balance. The total of all debits and of all credits will be the same if the double-entry system has been properly operated.

Alternatively known as: Nominal Ledger

Whether an entity can realistically continue to function normally. If not then Balance Sheet values such as fixed assets may need to be revalued to give a true and fair view. For example a piece of machinery with a book value of £10,000, and in the process of being written down, may only realistically be worth half the book value. A customer's account showing a £10,000 invoice outstanding may be worth less if the business is unable to fulfil its responsibilities (through losing staff because it has nothing to pay them with). When there is a question over whether an entity is a going concern it may be necessary to draw up a second Balance Sheet showing values that are more realistic if the entity is wound up.

A physical (tangible) product which can be delivered to a purchaser and which involves the transfer of ownership from seller to customer, for example the sale of a pot plant, as distinct from an (intangible) service, such as cutting the grass.

The estimated value of loyalty to a business or brand. Many business owners build a regular customer base over many years, and when selling the business, the value of this goodwill forms a part of the price.

Before deductions; for example gross pay is pay before taxes are deducted.

Profit before costs are deducted. For example a pound of apples may cost a pound and be resold for two pounds, making one pound gross profit. However, in most cases there will still be expenses, such as the cost of the bag the apples are sold in, transport and administration costs. Once these costs are deducted the profit is 'net profit'.

A form of Limited company which does not have share capital, but is instead 'guaranteed' by its 'members', who agree to pay a fixed amount in the event of the company's liquidation. This form of company is for charities and not-for-profit entities.

Main UK tax collection agency for Income Tax, National Insurance, Corporation Tax and VAT, including administration of the PAYE scheme.

The main book-keeping currency, usually the local currency of the country in which the entity is operating.

An international standard for presenting and identifying bank accounts. An IBAN consists of a country code, followed by two 'checksum' digits (kk), and then up to 30 alphanumeric characters for the basic (domestic) bank account number - a BBAN. The format of the BBAN is decided nationally. Bank statements often show the IBAN somewhere. Although a consumer can work out what an IBAN will be, given enough information, IBANs are provided by and 'owned' by the bank and should always be confirmed by them before use. Various websites provide ways of checking an IBAN is valid.

To work electronically, no spaces are allowed in an IBAN, although when written on paper it is usually expressed in groups of four characters.

A UK IBAN would appear in the format GBkk BBBB SSSS SSCC CCCC CC, where kk = checksum, B = alphabetical bank code, S = sort code (often a specific branch), C = account No. For example the IBAN of an account with LloydsTSB with the sort code of 30-99-74 and account number 00004202 would be GB22 LOYD 3099 7400 0042 02.

A system for handling petty cash. An initial cash balance is advanced to a responsible person, and then these funds used to purchase petty cash items, for which the receipts are retained. At any one time, the receipts and the remaining cash should add up to the initial balance. When the cash starts to run low, the receipts are exchanged for cash (possibly by cashing a cheque for cash) and the float is topped up. The system is simple, easy to check, and can be separated operationally from the book-keeping if required.

For example: £50 is advanced to an office manager for office sundries such as tea, coffee, milk, window cleaning etc. During the month, the office manager spends £45.24, and at this point gives the receipts (that should come to the same value) to the book-keeper in exchange for cash.

Generally: either cash coming into an entity, or the expectation of cash, such an unpaid sales invoice.

Alternatively known as: Revenue

The not-for-profit equivalent of the Profit & Loss account.

Tax on personal income.

The formation (creation) of a limited liability company.

Generally used in relation to economics, incentives are the motivation for a particular course of action. For example the incentive for the sale of a pound of apples is that the customer is hungry, and the supplier is a grocer selling the apples at a profit.

An increase either of a fixed amount, or a variable amount.

For example, an incrementing invoice numbering system will increase invoice numbers by one - 1001, 1002, 1003.

Purchases in the VAT regime.

Patents, copyright ownership, brands and other assets that have an intangible value.

A fee paid on borrowed money or capital. For the book-keeper, interest can be either income or expenditure, depending on whether the entity is lending or borrowing the money. Either way, a it should be kept as a separate account and not mixed up with bank charges.

Interest is generally charged as a percentage of the amount borrowed and the percentage reflects the bank's perception of risk, with higher interest charged on higher risk.

There are a number of different ways interest is calculated, charged and repaid. For example, the bank may lend a fixed amount, calculate the interest and then structure repayments to pay the loan and interest over a fixed period. Alternatively, the bank may provide an 'overdraft' facility where the amount borrowed can vary from day to day, and where interest is charged daily on the borrowed amount.

Normally, the rate of interest charged by the bank to the borrower is significantly higher than the rate of interest paid when the lending is in the other direction.

See electronic transactions

A person or company purchasing an asset in the hope of the asset gaining (or at least retaining) value. For example a person may purchase shares in a company which appears to have a good future in the hope the share value increases. The 'return' on an investment can be fixed, for example a deposit with a bank for a fixed-term may provide a fixed return. Alternatively an investment's return may be less tangible, for example investing in a new computer system, where the specific value of the investment is likely to go down as the computer gets older, but where there is, hopefully, an increase in productivity and efficiency instead.

A commercial document, issued by the supplier to the customer, detailing the value of goods and services supplied, and with stated payment terms. An invoice is the same as a bill - the terminology depends on who is issuing and who is receiving the document; suppliers 'raise' an invoice and customers receive the invoice, which to them is a bill.

Although there is no formal requirement to number invoices, for ease of reference it is advisable that invoices are given a unique reference. Although common, it is inadvisable to mix invoice numbering with other references, such as job or project references. Most book-keeping software will number invoices automatically if they are 'raised' within the system. When entered manually, a complete sequence of numbers helps ensure none have gone missing.

Things that can be sold; either physical goods (stock) or services.

As a transaction entry: an adjustment to the accounts or a complex transaction that can't be entered using the standard transaction types (invoices, bills etc). There is no limit on the number of accounts that can be affected by a journal entry. As with any double-entry transaction, the total debits and credits must be equal.

As a report: a journal is the double-entry representation of transactions entered, showing the debits and credits in full.

Alternatively known as: General Journal

A 'book' containing accounts for recording transactions. Although a physical book may have been replaced by book-keeping software, the name is still used as a way of separating different areas of the records, for example, Sales Ledger, Purchase Ledger and General Ledger.

Money owed to creditors, for example: bank overdrafts and loans; credit cards; unpaid supplier bills; investors.

An entity registered with Companies House the liability if which is limited, usually to the value of its assets. In theory this isolates the risk of failure.

There are four main types:

Private limited company; which has shares that are not available to the public. Used for small trading companies.

Limited liability partnerships; which have partners who decide how to share profits. Used by professions like lawyers, dentists, accountants.

Private company limited by guarantee; which has a guarantee from members instead of shares. Used for not-for-profits and charities.

Public limited company (plc); which has shares that are available to the public through a stock exchange.

Limited companies are run by company directors, who are formally appointed by the owners (shareholders) or members of the company. Directors may be, and often are, shareholders as well as directors.

The process of selling assets to raise cash when an entity has ceased trading and is being wound up.

The ease with which assets can be turned into cash. Bank accounts can be emptied in seconds. Realising the cash value of a property or brand can take months or even years.

An amount of value, usually money, given by one party to another, on the condition it is repaid at a later date. The arrangement will often include a fee - interest - meaning the amount repaid is more than the amount lent. Loans will usually, but not always, have a repayment date agreed, and may have a schedule (diary) for repayment in instalments, for example by monthly repayments.

Paying money in to a bank account.

Meaningfulness. The degree to which error or omission would alter the sense of an entity's accounts. For example a global enterprise may accidentally omit to include a petty cash receipt for some milk. This omission would not be material because the way the accounts are perceived wouldn't change and they would still give a true and fair view. Conversely, a missing bill for thousands of pounds which changed a large profit into a large loss is a 'material' difference (and to be avoided).

See currency

Where an entity has more than one currency in use.

A software feature allowing entry of transactions in currencies other than the home currency.

See Foreign Currency

UK tax which funds government spending on health, pensions, social programmes.

Residual value after deductions. For example, 'net pay' is gross pay minus taxes; net profit is gross profit minus expenditure.

Total assets minus total liabilities.

Current assets minus current liabilities

A liability account which controls net pay employment liabilities. The debit transactions in this account are the payments from the bank, and the credit transactions represent the liability to the employees.

Some integrated systems don't need a Net Pay Control because the payroll calculations are included with each payment to the employees

Profit after costs and expenses are deducted.

See Net Assets

See Associations, clubs, societies and not-for-profit

See Chart of Accounts

See General Ledger

A director who attends board meetings but does not form part of the executive (management) team.

Sales in the VAT regime.

A negative bank balance on a current account intended as short term funding variable borrowing on a current account. Interest and arrangement fees are usually charged. Unauthorised borrowing is heavily penalised by additional penalty fees, high interest, and depending on circumstances, payments declined (incurring a charge) .

Ongoing expenses for infrastructure and administrative support, for example: rent, book-keepers, postage, stationery, cleaners, computers and telephone costs are all overhead, and will only vary marginally in relation to the activities of an entity.

A business entity in which the owners share the profits or losses of the enterprise personally and is a legal structure usually associated with the professions; lawyers, accountants, dentists, surveyors, architects etc. Partnerships are of unlimited liability, although since the recent introduction of a form of incorporation that allowed them to become 'limited liability partnerships' many partnerships have adopted this structure.

Depositing cash or cheques in a bank account.

A company owning other companies.

The UK taxation system for employees. Employers deduct Income Tax, National Insurance and other deductions directly from employees' gross pay and pay these deductions to HMRC.

A balance sheet account that controls PAYE liabilities. Credits represent liabilities to HMRC, debits are payments against those liabilities.

See Terms.

Cash for small and incidental expenses, usually in an office environment.

See Public Limited Company.

An identification code for goods sold in a retail environment and usually used in conjunction with a cash register. For example PLU 9087 may refer to apples in a supermarket.

Entering transactions into the accounts.

Costs that have been entered but which don't relate to the period being reported. For example an annual insurance policy paid in full a month before year-end, 11 months of which would be prepaid. Prepayments are an asset on the balance sheet.

See PLU

Sorting, entering and archiving transactions.

Anything that can be sold, including goods and services.

The gain from successful business activity where income is more than expenditure.

Profit & Loss Accounts: the group of accounts which reflect income (credits) and expenditure (debits) as statistics. Unlike balance sheet accounts, profit and loss accounts are zeroed at year-end, with the overall balance becoming a part of the retained profit on the balance sheet.

Profit & Loss Report: a statement listing the Profit & Loss account balances and showing gross and net profit or loss. The account list can be highly summarised, with similar types of income and expenditure grouped together into a few lines.

An entity with shares traded on a stock exchange.

Generically I: Income, sales takings.

Generically II: Supporting document of an expense.

Comparing two perspectives of the same information, for example comparing a bank statement with the book-keeping record of the bank account, and noting the reason for any differences.

Generically: goods and services sold to the general public 'on demand' such as shops and stores and including basic banking services.

Accumulated profits and losses from previous years.

In trading: returned goods previously sold. Usually, the associated transactions, such as a credit note or refund are allocated separately to show the overall value of returns.

In taxation: a submission to HMRC of data required, for example a VAT or Corporation Tax return.

The profit from an investment.

Income from trading

See Accounts Receivable

The provision of a helpful activity, for example gardening services; the non-material equivalent of goods.

A discount given to a customer (or taken from a supplier) for paying an account within a set time frame.

A portion of a company's equity.

The owner of shares.

See Associations, clubs, societies and not-for-profit

A trading individual, as distinct from a partnership, company or not-for-profit organisation. There is no legal separation of a sole trader's personal assets and liabilities from their business assets and liabilities.

A numerical code used in banking to designate a bank branch. In the UK is in the format 00-00-00.

See Financial Statements or Bank Statements

In general business trading: goods for resale.

In the stock market: shares and other equities

Estimated value of stock. Because the cost and types of stock can vary, different methods can be used, e.g.:

o First in first out (FIFO) meaning that the first items going into stock are the first sold.

o Last in first out (LIFO) meaning that the last items going into stock are the first sold.

o Average cost meaning that the average cost of stock is used.

An entity providing either goods or services.

Unallocated transactions. Used as a temporary account when insufficient information is known about a transaction.

Cash and other sales income from retail trading.

A financial charge (cost) imposed on an entity by a state or other official body such as a local authority. Tax is a statutory obligation, and can be direct (such as Income Tax) or indirect (such as VAT).

Corporation Tax is paid by limited companies based on company profits. Business Rates and Insurance Premium Tax are not related to business profits.

A government agency that administers taxes. UK taxes are administered by HMRC.

Generically: the basis on which trade is conducted between two entities.

Credit control: the length of time a supplier allows a customer to pay for goods or services. Payment terms can sometimes be flouted and traders sometimes offer settlement discounts to encourage early payment.

Exchanging value, usually with the intention of making a profit.

See Accounts Payable

See Accounts Receivable

An exchange of value, for example the exchange of a pound for a pound of apples. Transactions are what book-keepers record in accounts.

A listing of the balance of each account in the General Ledger at a given date.

The Trial Balance can be summarised and split into the Balance Sheet and Profit & Loss reports.

An honest and sensible judgement of completeness and accuracy in allocation and reporting financial information.

Sales total, with an emphasis on the volume and speed of sales activity.

Worth, in finance measured by money.

Tax added to transactions by VAT registered traders, who in turn can usually recover VAT charged to them. The effect of the scheme is to tax the end consumer.

For example a hundred traders may be involved in manufacturing a car, passing VAT on up the value-adding chain of manufacturing and assembling the components. The end consumer buying the car pays the VAT, which is then paid over to HMRC (less any VAT on the costs of the supplier of the car).

VAT is charged by registered traders on all sales unless the supply is either zero-rated or exempt.

VAT is not charged on international trade, except between European Union countries when the end consumer is not registered for VAT. For example a registered trader in the UK selling a standard-rated item is obliged to charge VAT to an individual in Germany.

VAT is reported online to HMRC together with payment of the balance of the VAT account if a liability, or a refund if inputs have exceeded outputs.

Book-keeping software usually has a dedicated VAT control which is linked to the functionality of the VAT processing and reporting.

See Value Added Tax

The balance sheet control account for VAT debits and credits. The account may sometimes be split between sales and purchase transactions. Reported VAT should reconcile with the VAT Control.

Reporting cycles: VAT can be reported monthly, quarterly and annually, as agreed with HMRC. Most small businesses have a quarterly cycle.

Deadlines: One month is allowed from the end of an accounting period to report and pay VAT. If no return is received then a reminder is sent and a penalty regime begins. An additional week is allowed for payment if made electronically.

VAT operates across the EU affecting sales to customers in EU countries and whether VAT is charged on supplies. There are also additional reporting requirements for EU sales to registered businesses on an EC sales List.

A form to be completed by VAT registered traders that trade with customers in the EU.

Some supplies of goods or services are exempt from VAT, for example some educational and health supplies and the provision of residential property. The recovery of input VAT associated with exempt supplies is reduced by the proportion of trade that is exempt.

Transactions which are outside the VAT regulations, for example salaries and wages, direct taxes such as Corporation Tax and internal transactions such as bank transfers between accounts within the same entity.

Where a business has both standard-rate and exempt VAT sales transactions, the amount of VAT recovered on purchases will usually be limited to those related to the sales with VAT.

VAT charged to a VAT registered trader that can be offset against VAT charged by the trader.

VAT at 5%, charged on certain domestic items, notably electricity, gas and other types of fuel for household use. Fuel for business use is usually charged at standard rate.

A business that has registered for VAT with HMRC. Only registered traders can charge and recover VAT.

The identification number given to a business by HMRC, to be quoted on all VAT sales invoices.

The form used to declare VAT statistics to HMRC, including inputs, outputs, and other turnover statistics related to VAT.

VAT at 20%. Unless there is a specific reason not to, a registeredtrader charges VAT at this rate by default on all sales.

Whether a transaction carries VAT and if so, how much. Applicable to both sales and purchases. Book-keeping software usually uses a code to represent the VAT status of a transaction; for example a standard-rate transaction may be coded 'S'.

A business entity, such as a sole trader or limited company, that is registered for VAT.

VAT at 0%, where no VAT is charged on sales (for example books and publications), but where the turnover value of the transaction is still declared on a VAT Return.

Traders of goods who usually only trade with other traders (and not the general public).

Money invested in an entity to give it sufficient liquidity to operate.

The depreciation of an asset.

To clear the value of an asset from the balance sheet. In relation to debtors it is giving up on an outstanding debt because it won't be paid. For fixed assets such as vehicles and equipment it is a structured lowering of the value of the asset to reflect wear and tear and obsolescence.

The last day of the accounting year, after which the profit and loss accounts are zeroed and the resulting balance is transferred to the 'Retained' Profit and Loss account on the Balance Sheet.

A summary report of daily takings from a cash register.

See VAT zero-rate