Clear Cut Accounts Jargon Buster

 

Where other companies like to blind you with science - we speak in English - and can explain your numbers to you in a way you can understand. No more jargon... no more waffle - we just Make Numbers Make Sense!

By understanding how your company is running, and by cutting through the business-speak, you can really take an active roll in making your company improve and grow! With Clear Cut Accounts by your side - you really can feel on top of the world!

Please find below a list of helpful accounting terms and definitions.

Jargon Clear Cut Accounts Definition
Sole Trader If you run your own business, being a Sole Trader is the simplest structure your business can have. You can be a Sole Trader if you own and run a business on your own.  You can employ people and still be a Sole Trader. Benefits include keeping all of your profit (less tax), and there are no fees to register with HMRC. Negatives include having to run your business and make all of the decisions by yourself which can be stressful, and that you remain personally responsible for all debts the company runs up.
Partnership Partnerships are the same as Sole Traders, except the responsibility and decision making is shared amongst 2 or more partners. As for a Sole Trader, there is no limit to the liability the partnership may have.
LLP An LLP or Limited Liability Partnership, is as per a normal partnership, but liability is limited to the amount of money the partners have invested in the business / any personal guarantees. This means that partners have some protection if the business runs into trouble. 
Limited Company A limited company is a separate legal entity from the people that run it. Just like a partnership, the responsibility and decision making is shared amongst the directors, but there is a limit to the liability they may face if the business was to fail. Limited companies must pay to register with the HMRC and also have to register with Companies House, submitting returns and accounts to them annually. 
Self Employed A self employed person is someone who works for themselves, and works for a variety of different companies. A self-employed person could be a Sole Trader - but the terms are not necessarily the same thing, as a self-employed person could also be in a Partnership.
Asset An asset is an item of equipment, or a vehicle owned by the business. Usually it is a physical item, but could also be something intangible, like Goodwill.
Liability A liability is a debt that you owe to someone else - albeit a supplier, the bank or a third party such as the HMRC.
Turnover This is the total monetary value of a company's sales in any given period.
Stock Stock are items bought for resale as part of the business. Stock can be split into raw goods and finished products in a manufacturing company. Items that are not for resale, such as stationery and cleaning products etc, are business expenses rather than stock, and are treated differently.
Balance Sheet The balance sheet is the part of the accounts that shows all of the items that the company owns versus all of the money and debt it may owe others. It always shows a set point in time - such as the end of a financial year. For example, it may own a van and a computer, have £1000 in the bank, be owed £50 by customers but have a bank loan for £20,000. On the whole, a company's balance sheet should have a positive balance - or it is technically insolvent.
P&L The profit and Loss Account is the part of the accounts that shows the flow of money in and out of the business for one set period - usually over the course of a year. It includes goods sold, and expenses incurred - such as purchases, rent, stationery costs, insurances etc.  
Debtor Days The average amount of days from invoicing that it takes your customers to pay you. A high number means you wait a long time for your money so is not good. 
Creditor Days The average amount of days from invoicing that it takes you to pay your suppliers.  customers to pay you. A high number means you keep your money in your bank a bit longer so is good - but you must pay them by the agreed time or you could face penalties or even court action.
Depreciation This is NOT a way of working out how much your companies assets are worth. It is a way of spreading the cost of something your company buys across the time that the company has the benefit of it. For example, if you pay £400 for a computer that you estimate will be useful for 4 years, you can depreciate it by £100 each year. In this way, the cost on the company books, instead of being £400 in year 1 and nothing after that, will be £100 in each of year 1, 2, 3 and 4. 
HMRC Her Majesties Revenue and Customs are the government agency responsible for taxes. They now include the old HM Customs and Excise department, and so collect both Income Tax and VAT.
VAT Value Added Tax is a tax the government put onto most products and services in the UK. Anyone who's business has a turnover of £70,000 or more must register and charge it's customers VAT. Anyone registered can, however, got the VAT their business pays to other companies back from the government. Each quarter they must calculate the tax they have charged less the tax they have paid, and send the difference to the HMRC. Other schemes such as the Flat Rate Scheme can simplify this process for some businesses.
NI National Insurance is a tax you pay to the government to build up your entitlement to certain state benefits, including the State Pension, Contribution-based Jobseeker's Allowance, Bereavement Allowance and Contribution-based Employment and Support Allowance. The contributions you pay depend on how much you earn and whether you're employed or self-employed. You stop paying National Insurance contributions when you reach State Pension age. If you do not pay enough NI you can lose your right to benefits such as the state pension. People involved in taking care of their children at home can have entitlement via their partner / spouse.
PAYE PAYE (Pay As You Earn) is the system that the HMRC use to collect tax and NIC from employees' pay as they earn it. Employees include directors of limited companies.
CIS Scheme If you are a contractor or sub-contractor in the construction industry you must also register with the Construction Industry Scheme (CIS). As part of this scheme, your contractor will take tax from you before they pay you, a lot like PAYE. If you yourself are a contractor you will also take tax from your sub-contractors that work for you. This money is sent to the HMRC. Then at the end of the year, you take the tax already paid from the tax due on your self-assessment return, and pay / get a refund for the difference. 

 

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