Glossary of Business Terms

As a small business accountant, we are often asked what various financial and business terms mean so we have put together a list of the some commonly used terms in Business and Finance.

Balance Sheet – This is a snapshot of the financial position of a business be that limited companies, PLCs, sole traders or partnerships. A balance sheet shows the assets, liabilities and owners equity

Bookkeeping – The process of recording the financial transactions of your business so that you have an accurate record of the money you have spent and your income. Bookkeeping can be kept in the form of paper records, or more commonly, using a computer based system. Good, up to date, bookkeeping is vital to the smooth running of a small business as this will form the basis of end of year accounts and management reports that are produced.

Cash Flow – A cashflow statement shows the movement of cash into and out of a business. An accurate cashflow forecast is needed to make sure a business has enough cash to pay its bills at any given time but also not to keep too much in reserve which could be invested to grow the business.

Company Accounts – Each year you are required to file a set of company accounts to Companies House. These show and explain the financial transactions of a company made throughout the financial year and must include a balance sheet and profit and loss account.

Corporation Tax – The tax paid by incorporated businesses on its profits

Payroll – The process of administering the payments to your staff. Payroll, RTI returns also need to be made to HMRC.

Profit and Loss Account –¬†This shows whether a business has made a profit or a loss over a financial year and describes how the profit and loss arose. For example, where expenditure has been made by category.

VAT – Value Added Tax is the tax charged on most goods and services that VAT registered businesses provide in the UK. You have to complete a VAT return (usually quarterly) to let HMRC know how much VAT you have paid and how much VAT you have charged your customers. You then pay the difference or receive a refund based on these totals.

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