Vocabulary used in financial statements

Understanding vocabulary used in the financial statements will help you to understand the report and figures presented in your company accounts.

Below are frequently used vocabulary you see in your financial statements and company accounts.

Accounts

Basically, Accounts are normally consists of profit and loss account, balance sheet, notes to financial statements and directors report. For companies registered in the United Kingdom, your company accounts must comply with the Companies Act 2006.

Tangible Asset

Generally, asset is anything that a business owns. This includes buildings, cash, furniture, and equipment. Ordinarily, tangible assets are subject to depreciation or revaluation. Furthermore, tangible assets are entitled to claim capital allowances in your company tax return.

Intangible Asset

While intangible asset is asset neither be seen or touched. For instance, goodwill, patents, trademark and copyright.

Audit

Audit is a process of verifying accounting records to ensure completeness and free from material errors. Normally, the audit is done on samples test basis.

Auditor

Auditor is an individual registered to practice as qualified auditor with the main accountancy bodies to perform statutory audit. The Auditor performs the audit must not have conflict of interests in his/her role as an auditor for your company.

The professional accountancy bodies that issue auditing certificate for practitioners include The Institute of Chartered Accountants in England and Wales (ICEAW), the Institute of Chartered Accountants Scotland (ICEAS)or The Institute of Chartered Certified Accountants (ACCA) or other recognized professional bodies in the UK.

Capital

What the business is worth? Capital for limited companies are in the form of shares invested by their shareholders.

Credit

Credit is an entry on the right side of an account ledger.

Debit

Debit is an entry on the left side of an account ledger.

Ledger

A group of accounts of similar types. For example, debtors’ ledger containing the accounts of your business customers and creditors’ ledger containing the accounts of your suppliers.

Liability

Anything that a business owes. For example, mortgage, credit card charges, loans and bank overdrafts under your business names.

Liquidator

A liquidator is a person appointed either by the court, your shareholders or your creditors. Your liquidator would perform due diligence, identify assets can be sold for cash and distribute the cash after debts are settled.

Petty cash

Petty cash is a small amount of cash for day to day small expenses in your business.

Receivables

Receivables means debts owed to your business from your customers. In other words, debtors.

Receivership

A situation where your company is in default. As a result, your lender who holds a mortgage or a charge over your company’s asset, appoint a receiver to sell the asset to repay debt.

Trial Balance

Trial Balance shows expenses on the debits and income and loans on the credits and the ledger are equal. Similarly, it presents the assets on the debits. Liabilities and share equity on the credits.

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