Accountancy glossary – key terms every accountant needs to know

There are certain terms and acronyms that you’ll need to know as an accountant, so we’ve listed the most common ones for you to remember and understand.

Accountant – hopefully this will be you soon! An accountant is a person trained to prepare and maintain financial records.

Accounting (ACCG) – the systematic way of recording and reporting financial transactions.

Accounting period – the time period in which financial statements are prepared (e.g. month, quarter, year).

Accounts – the financial statements that are prepared for the end of a period, to reflect the financial position of an entity – be it a business or individual.

Accounts payable (AP) – the amounts due for payment to suppliers of goods or services, also described as trade creditors.

Accounts receivable (AR) – the amounts that are due from customers, also described as a trade debtors.

Assets (fixed and current) (FA, CA) – something a business owns/uses, e.g. equipment or rights to a trademark. Current assets are those that will be converted into cash within a year. Fixed assets are long-term, and will benefit the company for more than a year – for example buildings or major equipment.

Audit – an audit is the independent examination of, and expression of opinion on, financial statements of an entity.

Bad debt – this is when you know a credit customer (debtor) is unable to pay the amount due.

Balance sheet (BS) – a statement of the financial position of a business or individual, showing assets, liabilities, and ownership interest at a particular date.

Capital – the amount of finance provided, generally by the owners or shareholders, to enable a business to buy assets and keep operating.

Cash flow (CF) – the revenue or expense expected to be generated through business activities (sales, manufacturing, etc.) over a period of time.

Corporation tax – this is the tax that is payable by companies, based on the taxable profits of the period.

Credit (CR) – an accounting entry that may either decrease assets or increase liabilities and equity on the company’s balance sheet, depending on the transaction. When using the double-entry accounting method there will be two recorded entries for every transaction – a credit and a debit.

Debit (DR) – an accounting entry where there is either an increase in assets or a decrease in liabilities on a company’s balance sheet.

Depreciation – the apportionment of the cost (or value) of a fixed asset against profits over its useful life.

Diversification – this is the process of allocating or spreading capital investments into varied assets to avoid over-exposure to risk.

Entity – something that exists independently, such as a business which exists independently of the owner.

Equity – equity is assets minus liabilities. An owner’s equity is typically explained in terms of the percentage of stock a person has ownership interest in the company. The owners of the stock are known as shareholders.

Expense – the running costs of a business or individual.

Forecast – the estimation of future performance and position based on assumptions, usually including a quantified amount.

Gross profit (or margin) – this is the sales, minus cost of sales, before deducting administration and selling expenses.

Inventory – stocks of goods held for manufacture or for resale.

Invoice (bill) – a document from supplier to buyer summarising goods or services supplied and the price payable.

Liabilities (current and long-term) – debts owed by a business.Current liabilities (CL) are debts that are paid within the year, such as a debt to suppliers. Long-term liabilities (LTL) are debts over a longer period of time, such as a mortgage for an office building.

Liquidity – the extent to which a business has access to cash or items which can readily be exchanged for cash.

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

PAYE – this stands for pay as you earn. It refers to when tax is deducted from each employee’s pay by their employer.

Profit – calculated as revenue (income) minus expenses.

Profit and loss account – the financial statement presenting revenues, expenses and profit. Also called an income statement.

Shareholders – the owners of a limited liability company.

Sole trader – an individual owning and operating a business alone.

Stakeholders – a general term used to indicate all those who might have a legitimate interest in receiving financial information about a business because they have a ‘stake’ in it. They will usually have put money into the business.

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 for a company. The meaning will usually be obvious from the way in which the word is used.

Turnover – the sales of a business or other form of revenue from operations of the business.

Work-in-progress – cost of partly completed goods or services, intended for completion and recorded as an asset.

And so much more!

There are many, many more accounting terms out there that you will learn during your studies, and work experience. And as financial technology advances, we’re sure there will be new terms appearing soon. We’ll make sure that you’re kept up to date with the latest information and industry insights.

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