SG Accounting & Finance

Glossary of Terms

Accounting Terms
Current Assets

These assets change in value frequently. E.g. Bank, Cash, Debtor.

Debtors

A debtor is someone who owes a person or business money.

Current
Liabilities

These are debts which are short-term. They are usually paid within one year. E.g.
Creditors, Bank Overdraft.

Creditors

A creditor is someone to whom a business or person owes money.

Long-Term
Liabilities

These are debts which are not usually paid off (settled) within one year. E.g. Bank Loan
(taken out over 5 years).

Cash Budget

This is a financial statement which is prepared for a week, month or year to show the cash
position for the period of time. The budget will show the OPENING BALANCE of cash, all
cash received, all cash spent and the CLOSING BALANCE (the amount of cash left at the
end of the period). The closing balance at the end of week 1 will be the opening balance at
the beginning of week 2.

Not-For-Profit
Organisations

These organisations are set up in order to provide a service for their members. They are
not set up with the intention of making a profit. Many of these organisations run sporting
activities such as tennis, squash, golf or bowling.

Annual General
Meeting (AGM)

This is the meeting held once a year to which all members are invited. Committee members
are appointed at this meeting and finance and any other important items are discussed.

Honorarium

This is a small fee paid to a committee member for the work he/she has undertaken for
the club on a voluntary basis.

Sole Trader

A Sole Trader is the name given to a business which is set up and managed by one person.
This person sets up the business and invests money in it the money invested is known as
CAPITAL. Sole Traders make their own decisions and take any profits or suffer any losses.

Bank
Overdraft

This allows a bank customer to withdraw more money from his/her current account than
has been deposited. The customer and bank arrange a maximum amount to be allowed, i.e.
overdrawn, and the customers can continue to write cheques until this sum is reached. A
bank overdraft is a short-term debt and would be recorded as a Current Liability. Interest
will be charged on the amount overdrawn.

Lease

This is when property is purchased for a fixed period of time, e.g. 99 years. The person
leasing the property usually borrows the money from a bank or other financial institution.
Obviously, the amount borrowed PLUS the interest charge must be paid back at regular
intervals.

Ledger

Accounts tell us a story of what is happening. Accounts are kept in the LEDGER. The
Ledger is based on the DOUBLE-ENTRY SYSTEM. For each transaction there is a double
effect with entries being made in 2 accounts one being Debited and the other Credited.

Cash

This means that payment is made immediately by bank or cash.

Credit

This means that payment is made at a later date.

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Invoice

An Invoice is a bill sent by the Supplier to the Customer who is buying goods (stock) on
credit. The invoice will show the date, description of the goods, quantity purchased unit
price, total price, any trade discount, VAT and terms for cash discount. Invoices are used
by the customer to prepare the purchases account. PURCHASES are goods/stock bought
for resale.

Copy Invoice

A Copy Invoice is a copy of the original invoice which was sent out by the Supplier to the
customer. Copy invoices are used by the Supplier to complete the Sales Account. SALES
are goods/stock sold in the course of trading.

Credit Note

A credit note sometimes it is necessary to return goods bought on credit because they are
faulty, damaged or not as ordered. A Credit Note is sent by the Supplier to the Customer
who returns the goods and the value is deducted from the Customers monthly statement.
It is used by the Customer to complete the Purchases Returns Account (also known as the
Returns Outwards Account).

Copy Credit
Note

This is a copy kept by the Supplier of a Credit Note sent to a Customer returning goods
bought on credit.

Cheque
Counterfoil

This is used to record information of a bank (cheque) payment made by the business.
Cheque Counterfoils are used to record Bank payments in the Bank Account.

Cheque

These are entered in the business Bank Account to record money received. However, some
businesses wait until they receive a BANK STATEMENT and use this document to record
Bank transactions.

Bank
Statement

This is a document sent by a bank to its customers detailing all money paid in and all money
paid out during a set period of time (usually a month).

Receipt

This document is given by the Supplier to the Customer when payment is made in cash.
Receipts are used by the Customer to complete the Cash Account.

Trade
Discount

This is a discount offered by a Supplier to a Customer because:

a) both deal in the same line of business (e.g. joiners)
b) of BULK buying (this means buying in large quantities)
c) the supplier is clearing out a discontinued line
Trade Discount is deducted on the Invoice from the Cost of Goods in order to calculate the
NET GOODS VALUE.

Cash
Discount

This is a discount offered to customers to encourage them to pay their account promptly.
This is usually shown on the Invoice under the section headed TERMS, e.g. 5% monthly.
This means that if the Invoice is paid within one month, the customer can deduct 5% from
the invoice total.

Discount
Allowed

This discount is allowed to customers for paying their accounts promptly. It is treated as a
business expense and appears as a deduction from profit in the Profit and Loss Account.
a) DISCOUNT ALLOWED
b) DISCOUNT RECEIVED

Discount
Received

This discount is received from Suppliers because the business has paid their account
promptly. It is treated as a business gain and appears as an addition to profit in the Profit

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and Loss Account.

VAT (value
added tax)

This is a Government Tax on the purchase of Goods and Services. A percentage rate is
specified by Customers and Excise and this amount is added to the Net Goods Value to give
the Total Invoice Price.

Trial Balance

After entering the transactions for an accounting period in the Ledger a TRIAL BALANCE
is drawn up. This is a list of closing balances remaining in the books at the end of the
trading period. The total of all Debit balances should equal the total of all Credit balances.
This is a check on the arithmetical accuracy of the Ledger. Final accounts are prepared
from this list of balances.

Final
Accounts

The FINAL ACCOUNTS are prepared at the end of the trading period. They include the
Trading Account and the Profit and Loss Accounts.

Trading
Account

The purpose of this account is to calculate the Gross Profit/Loss made from buying and
selling goods. The GROSS PROFIT is the difference between the TURNOVER and the
COST OF GOODS SOLD.

Turnover

This is the Sales figure after any Sales Returns have been deducted. Turnover is
sometimes referred to as Net Sales.

Carriage In
(Inwards)

This is a cost to the business. Carriage. In is the name given to the expense of transporting
goods into the business (Purchases). This expense increases the Cost of Goods Sold in the
Trading Account.

Carriage Out
(Outwards)

This is a cost to the business. Carriage Out is the name given to the expense of
transporting goods going out of the business (Sales). This is entered in the Profit and Loss
Account. It is not a trading expense.

Sales Returns

These are goods returned from a Customer to a business because they are faulty, damaged
or not as ordered. These returns are deducted from Sales to calculate Turnover in the
Trading Account.

Purchases
Returns

These are goods returned by a Customer to a supplier because they are faulty, damaged or
not as ordered. These returns are deducted from Purchases to reduce the value of Cost of
Goods Sold in the Trading Account.

Bad Debts

A person who owes money to a business in a Debtor. If a debtor fails to pay his debts, e.g.
because of the closure of his business, death or bankruptcy, the debtors account should be
closed and the money due transferred to a Bad Debts Account. The Bad Debts account will
be transferred to the Profit and Loss Account as an expense.

Commission

This is money given to sales staff to encourage higher sales.

a) Commission Paid This is an expense to the business and is shown as an expense in
the Profit and Loss account.
b) Commission Received This is a gain to the business and is shown as an addition to
Gross Profit in the Profit and Loss account.

Drawings

This is money or stock which the owner takes out of the business for his/her own use. The
drawings account is transferred to the Capital account at the end of the accounting period.

Break-Even

This is used to show the level of activity needed to allow a business to cover its costs, i.e.

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Analysis
Fixed Costs

how many products have to be made or how much revenue from sales has to be earned
before a profit is made.
These costs remain the same regardless of the level of output and must be paid even is no
sales are made. Examples of fixed costs are: Rent of Premises, Wages of Assistant and
Insurance.

Variable Costs

These costs vary according to the level of output, i.e. as Sales rise, Variable Costs rise.
When selling, e.g. Ice Cream Cones, Variable Costs would be the Cones and the Ice-Cream.

Total Costs

This is the total of fixed and variable costs.

Break-Even
Point

This is the point at which no profit or loss is made the business simply covers its total
costs.

Contribution

This is the name given to the Selling Price (per unit) less variable cost (per unit). This
money contributes to covering Fixed Costs. When total Contribution Fixed costs, no
profit or loss is made and a Break-Even situation is reached.

Royalties

This is the name given to the cost charged by a business for the use of their
name/product by another business.

Income and
Expenditure
Account

This account is prepared after a receipts and payments account of a club is drawn up. The
receipts and payments account only records the money paid in and the money paid out
during the accounting period, whereas the INCOME AND EXPENDITURE ACCOUNT
shows the figures belonging to that particular period for Income and Expenditure this
includes items such as DEPRECIATION, ACCRUALS and PREPAYMENTS.

Depreciation

This is an amount deducted from the value of an asset because of wear and tear, ageing
asset becoming obsolete (out of date). The amount of depreciation deducted is decided by
the Treasurer and/or the Club Committee and is given as a percentage of the total value
of the asset e.g. 10% of cost. It is an expense in the Income and Expenditure Account and
is deducted from the value of the Fixed Asset in the Balance Sheet.

Accruals

These are payments which are due to be made for the period but have not been made
when the accounts were prepared. They appear in the Income and Expenditure Account as
an addition to the original expense and also appear in the Balance Sheet as a Current
Liability.

Prepayments

These are amounts of money paid in advance (i.e. before becoming due). They appear as a
deduction to the original expense in the Income and Expenditure Account and as a Current
Asset in the Balance Sheet.

Revenue
Expenditure

These are day-to-day running costs/expenses of a Club/Business and are deducted before
a Profit is calculated.

Capital
Expenditure

This is not recorded in the Income and Expenditure Account. This type of Expenditure
increases the value of the assets of a Club/Business e.g. the purchase of a fixed asset or
improvements to Fixed Assets.

Surplus

Income more than expenditure.

Deficit

Income less than expenditure.

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Income
Statement

Information regarding a particular fund-raising event e.g. a dance, is often recorded

separately in an INCOME STATEMENT and the final net figure (i.e. Income or
Expenditure) added into the main account.

Accumulated
Fund

This is the term used for the Net Worth of the Club. Each year any surplus of income
over expenditure is added to the Accumulated Fund. A deficit would, of course, be
deducted from the Accumulated Fund.

Chairman

The chairman (chairperson) runs meetings and is the spokesperson for the Club. The
chairman would be appointed by a committee formed at the Annual General Meeting of the
Club.

AGM

This is the meeting held once a year to which all members are invited. Committee members
are appointed at this meeting and finance and any other important items are discussed.

Secretary

The Secretary organises meetings, together with the Chairman. The Secretary would be
responsible for any correspondence to be sent out on behalf of the Club and for any notes
(Minutes) of meetings to be kept as a record of proceedings.

Treasurer

The TREASURER looks after the finances of the Club and prepares a set of Accounts for
the members.

Grant

This is the term for a sum of money given to a club to be used for a specific expense e.g.
Grant for Building Repairs. This Grant may be given by the Local Council, the government
or sometimes a local business. This is not a loan and does not have to be repaid.

Donation

This is the term used for money gifted to a Club. Donations may be for specific projects
or for the general use of the Club. These gifts do not have to be repaid.

Honorarium

This is money given to a person who has done voluntary work on behalf of the club. A
Secretary or Treasurer may be given an Honorarium in recognition of the work they have
done.

Sponsorship

Business will occasionally provide equipment or sports clothing for a club. Usually the
company name is displayed on the equipment/clothing as a method of advertising, e.g. the
use of company names on football strips.

Bank
Reconciliation
Statement

A treasurer must compare the monthly bank statement sent by the bank with his/her own
record of bank transactions the Bank Account. The Bank Reconciliation Statement will
show where differences have occurred in the completion of both Accounts and will bring
together the two balances.

Unpresented
Cheques

These are cheques sent out and recorded in the Club/Business Bank Account that may not
yet have been presented for payment.

Standing Order

Also written as SO. This is an instruction to the Bank to pay a set amount of money as
regular intervals to the same person/business. The Bank will then deal with this payment
until instructed otherwise.

Bank Giro
Credit

Also written as BGC. This is a payment into someone elses Bank account made at any bank using
a Giro Credit Form. The Bank and Branch where the payees account is held must be entered on
the Giro Credit Form. Electricity Bills have a Giro Credit Form attached when sent out.

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Direct Debit

Also written as DD. This is an instruction to the Bank to pay a sum of money when it is
requested by a Creditor. This service allows the creditor to change the amount of money
to be paid.

Bank Charges

This is money deducted from the Club/Business account by the Bank to cover the cost of
looking after the account.

Cash Card

This is a card used to obtain money from a Cash Dispenser. A Cash Dispensing machine can
usually be found on the outside wall of the Bank. It is a 24-hour service. Money is obtained
by keying in a PIN Number. Each customer of the Bank is given their own special pin
number which activates the Bank computer when the card is inserted into the machine and
the number keyed in.

Overdrawn

When a Bank Statement shows a Debit Balance (DR) it means that the Bank Account
Holder has spent more money than is available in the Account. A Credit Balance (CR) on
the Bank Statement shows that the Account Holder still has funds in their account.

Current
Account

A separate account is kept in the ledger to show a partners profit, drawings, interest on
capital and drawings, and salary. The balance left on the current account represents the
amount of undrawn profits that the partner is willing to leave in the business.

Interest on
capital

Interest is sometimes granted on a partners capital to allow for difference in the capital
invested by each partner in the business.

Interest on
drawings

It is the best interests of the partnership if as little cash is withdrawn from the
partnership as possible. To deter partners from withdrawing cash they are often charged
interest on drawings. Withdrawals of cash deprives the partnership of funds which could
be used for meeting debts, funding expansion or achieving discounts through bulk
purchases.

Salary

Some partners in a business spend considerable amounts of time working for the business.
In order to compensate working partners for their work it is usual to pay them a SALARY.

Bad debts

Sometimes a debtor fails to pay his debt due to the closure of the business, death or
bankruptcy. If this occurs the Debtors account is closed and the amount placed in a Bad
Debts Accounts which is transferred at the end of the accounting period as an expense to
the Profit and Loss Account.

Provision for
bad debts

When a business realises they are going to have bad debts, they provide for them in
advance. This is done by setting aside dome of the profits as a provision for Bad Debts.
The provision will be charged against profit in the Profit and Loss account and will be
shown as a deduction from the Debtors in the Balance Sheet.

Depreciation

Depreciation represents the fall in value of a fixed asset over a period of time. Most
assets are likely to depreciate because of wear and tear and obsolescence. The estimated
depreciation is set against profits each year and transferred to a Provision for
Depreciation Account. Depreciation is shown as an expense in the Profit and Loss Account
and is deducted from the cost of the asset in the Balance Sheet.

Errors of
Omission

This is where a transaction has been completely left out of the books, e.g. sold goods on
credit to I Henderson 360 no entry has been made in the Sales Account (Cr) or in I
Hendersons Account (Dr).

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Errors of
Commission

This is where the correct amount has been entered but in the wrong persons account. E.g.,
Purchases on credit from D Philip of 55 the correct amount is entered in the Purchases
Account (Dr) but the 355 is entered in E Philips Account (Cr) not D Philips.

Errors of
Principle

When an item is entered on the correct side of the account but in the wrong class of
account. E.g., purchase of a motor van is entered in the Motor Vehicles Expenses Account
(Dr) instead of the Motor Vehicles Account.

Compensating
Error

This is where one error cancels out another. E.g., Sales 10 too much, Purchases 310 too
much, therefore both sides of the Trial Balance will agree but will be overstated by 10.

Errors of
original entry

This is where the error was made when entering information from the source document,
e.g. invoices the wrong figure is posted correctly to the ledger. The trial balance will
agree but the totals are wrong.

Complete
reversal of
entry

This is where the correct accounts are used but the amount is posted to the wrong side.
E.g., pay D Blythe 3260 by cheque is posted in error as: Dr Bank Account 260; Cr D
Blythe.

Suspense
Account

When a Trial Balance does not balance the difference between Dr and Cr side represents
the effect of the error(s). Every effort should be made to find the error(s) but should
this not be possible the amount is placed temporarily into an account called a SUSPENSE
ACCOUNT.

Ordinary
Shares

Shareholders with Ordinary Shares receive an annual Dividend. The Directors decide on
the amount of the dividend. The Dividend can change each year, e.g. Year 1 = 10% Year 2 =
5%. Dividend will be determined on Profit figures high profits usually mean high
dividends and low profits usually mean low dividends.

Preference
Shares

Shareholders with Preference Shares receive a fixed Dividend rate every year whether
or not profits are high or low. Preference Shareholders will receive Dividends before
Ordinary Shareholders.

Debentures

These are NOT shares. Debentures are Long Term Loans to the company which are to be
paid back at a specific date. Debenture holders receive a fixed rate of interest on their
Loan regardless of whether the Company makes a profit or loss this interest is paid
before Profit/Loss figure is calculated.

Interim
Dividend

This is the money paid to the Shareholders during the year. It is part of their dividend
payment. An Interim Dividend is often paid out half way through the financial year.

Final Dividend

This is the last Dividend payment due to Shareholders for a particular financial year. It is
often paid after the Accounts have been prepared and is entered as a Current Liability in
the Balance Sheet if it is still due to be paid at the end of the financial year.

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