Amounts payable by a business for services received before the Balance Sheet date but not payable until after the Balance Sheet date. For example, if the Balance Sheet date is 30 September and there is a quarterly bill for electricity, if the next bill is due for the quarter ending 31 October, there will be an accrual for the cost of electricity for the two months to 30 September.
Items owned by a business.
The inspection of a company's annual accounts. An accountant carries out an external audit to verify the company accounts. Under the Companies Acts, companies are required to appoint an auditor to check whether the annual accounts give a true and fair view of the company's affairs and whether they comply with the law.
The balance sheet shows the state of a business, or other organisation, at one particular point in time, i.e. the close of business on the date to which the accounts are prepared. The balance sheet is divided into two parts – part 1, the statement of total net assets, shows the net total value of everything the business owns less everything it owes – in theory, how much the business is worth. Part 2, the statement of source of finance, shows how the assets listed in part 1 have been paid for.
The directors of a limited company.
A partnership is formed between one or more businesses so business partners (owners) can work together to achieve and share profits or losses.
The amount of the owner’s stake in a business.
Spending on capital assets (also called plant and equipment, or fixed assets, or long-term assets). Business assets that are acquired to expand business capacity to earn or produce.
In accounting terms, cash at bank includes current and deposit bank and building society accounts.
When businesses are preparing budgets for the profit and loss account, a cash flow forecast is often prepared at the same time. This will show the expected movement of cash in and out of the business and will include capital expenditure, loan repayments, tax payments, etc., as well as receipts and payments relating to the profit and loss account. The cash flow forecast will usually show the bank balance at the end of every month and will indicate if additional funds are going to be required by the business at any time.
One of the three main financial statements (along with balance sheet and profit and loss account), the cash flow statement shows actual cash inflows and outflows of the business over a specified period of time. The cash flow statement reconciles the profit and loss account with the balance sheet.
Cash in hand includes petty cash, as well as any cash from takings, etc., which is held before it's paid into the bank.
In accounting terms, where there is the possibility of a business liability in connection with an event that has already happened but the liability will only arise if some event happens in the future; for example, if legal action is being taken against the company over a matter that occurred during the year but the outcome of the case is uncertain.
A contract engaging the services of an independent contractor. Contrast this with a service contract between an employer and employee.
The direct cost to the business of producing sales. In a simple business buying and selling goods, the cost of sales is the amount that the business paid to its suppliers for the goods that have been sold. In a manufacturing business, there will be a number of items making up the cost of sales. These will include the cost of raw materials and parts used in the manufacture, the wages for the employees directly involved in the manufacture, the costs (such as electricity) to operate machinery used in the manufacture and any other direct costs involved in bringing the product into a condition to be sold. In a business providing a service, the direct cost of providing that service will normally be the salary costs of the employees directly involved in earning the fees.
In accounting terms, current assets are made up of cash and other assets that are expected to be turned into cash in the near future. Examples of current assets are (1) cash at bank; (2) cash in hand; (3) short-term investments; (4) stock of goods for resale, etc., (5) work-in-progress; (6) debtors; (7) prepayments.
Amounts owing by a business and payable in the near future. Current liabilities include a bank overdraft, bank loans and other loans, hire purchase, creditors and accruals.
Fixed assets, such as fixtures and fittings, motor vehicles and plant machinery, which will wear out in time. Depreciation is an accountant’s estimate of how much this property of the business has worn out during the period covered by the accounts.
An officer of the limited company who manages company business and has a duty of care, skill and good faith.
Amounts taken out of a business for personal use. They include cash, personal expenses and personal tax payments paid by the business.
The costs of running the business on a day-to-day basis (e.g. wages, rent, telephone, etc.).
Fixed assets are generally used in a business over a number of years. There are two different types of fixed assets – tangible and intangible. Most tangible fixed assets can be seen and touched. Examples are land and buildings, motor vehicles, plant and machinery, and furniture. Long-term investments, usually shares in other companies, are also tangible fixed assets. Examples of intangible fixed assets are patents, copyrights and trademarks.
A form of business or organisation in which a firm which already has a successful product or service (the franchisor) enters into a continuing contractual relationship with other businesses (franchisees) operating under the franchisor's trade name and usually with the franchisor's guidance, in exchange for a fee.
The value of a business to a purchaser over and above its net asset value.
Gross profit is the amount left after deducting the cost of sales from the sales figure.
Earnings before deducting PAYE and employees’ National Insurance, etc.
A legal document stating the intent of both parties to enter into a binding agreement (e.g. to buy/sell a business or enter into a joint venture).
Sums owing by a business that aren’t shown on the balance sheet (e.g. tax liabilities, leasing commitments or pension commitments).
In accounting terms, when a company is owned by another company.
To form a limited company by following procedures prescribed by law. On incorporation the limited company becomes a separate legal entity distinct from its owners.
Shares which have been actually allotted by the limited company and in respect of which the allottees have been entered in the limited company’s register of members.
A co-operative enterprise which two or more businesses enter into together. The businesses, on creation of a joint venture, may form a separate corporation or business partnership. But businesses can retain their own individuality while entering into a joint venture agreement and this can be operated as a separate entity altogether.
A limited liability partnership is essentially a general partnership in form, with one important difference. Unlike a general partnership, in which individual partners are liable for the partnership's debts and obligations, an LLP provides each of its individual partners protection against personal liability for certain partnership liabilities.
In business accounts, net profit is arrived at by deducting all the expenses of the business from the gross profit. There is a net loss if the total expenses are more than the gross profit.
Usually payments made in advance; for example, an insurance premium may have been paid up to a date after the balance sheet date. The amount paid in advance is, theoretically, repayable by the insurance company and, as such, is like a debtor, but is called a prepayment.
A financial statement that lists the money that a business has received (or is due to receive) during the period covered by the accounts and, from them, deducts the money the business has paid out (or has been due to pay out) during the period (expenditure). The difference is the profit or loss.
The official address of a company as registered at Companies House.
Costs that are attributed to maintaining earnings or capacity in business.
Someone who is working in business on their own, preparing accounts and paying their own tax and National Insurance Contributions. Note: It’s often a moot point as to whether somebody is self-employed or employed and professional advice should be sought.
The Small Firms Loan Guarantee (SFLG) scheme is available to small and medium-sized businesses and start-ups and is a joint venture between the Department of Trade and Industry and a number of approved lenders. If someone has a viable business idea that requires funding, but is unable to access normal lenders due to a lack of suitable assets to offer as security, then the SFLG helps to overcome this problem by providing lenders with a government guarantee against default.
The most common form of business structure and the easiest and quickest form of corporation for a small, privately-owned business. Taxes are lower than those of a public company, but a sole trader is personally liable for all of its actions and debts, and may not be entitled to benefits (e.g. unemployment payments) that would accrue to those running public companies.
The records that a limited company must keep as required by law. Changes must in many cases be notified to Companies House. The records should be kept at the limited company’s registered office and be available to the public for inspection.
Either goods on hand (i.e. finished goods or materials to be used to manufacture goods) or privately held or publicly traded shares or securities representing investment in, or partial ownership of, a business. Public trading of such stock occurs on the stock market.
A group of people who have joined together for a particular reason, such as a club, but who have not formed a partnership, company, friendly society or industrial society. Unincorporated associations can own property, enter into contracts and employ people but they do so through one or more individuals, such as the club officers. As the association takes on no legal personality of its own, it cannot be sued but the individuals may be.
The total of current assets less current liabilities. It’s a net total thrown up within the balance sheet and, in crude terms, if fixed assets form the engine which runs the business, working capital is the fuel of that engine.
In accounting terms, work in progress represents the work done for clients at the balance sheet date but which hasn’t yet been billed to them.