This glossary explains the key financial terms you’ll come across when dealing with accountants, financial services, or while running your business.
You might or might not know these terms. Our objective is to help reinforce your knowledge of key accounting concepts.
Accounts Payable
Money which you owe to suppliers for products and services purchased on credit.
Accounts Receivable
Money that is owed to you by a customer for products or services you have provided to them on credit.
Assets
Things you own, e.g. buildings, stock, vehicles.
Balance Date
The last day of your financial year.
Beneficiary Current Account
A detailed account showing the amount that has been distributed to a beneficiary from a Trust and the amount that has been withdrawn by the beneficiary, like a bank account. The balance shows the amount available to the beneficiary to withdraw at the end of a period. When the balance is in brackets, it is overdrawn and the beneficiary has withdrawn too much.
Cost of Goods Sold
These are the direct costs involved in getting goods/services ready to be sold, e.g. in a supermarket these would be the purchases of groceries to be sold.
Creditors
People who you owe money to, e.g. suppliers, banks.
Current Assets
Cash and other assets that are reasonably expected to be converted to cash or used in the business within one year, e.g. stock on hand, cash in bank.
Current Liabilities
Obligations reasonably expected to be paid within the next year, e.g. creditors, PAYE.
Depreciation
An expense that spreads the value of an asset over its expected useful life.
Directors’ Annual Report
A company report which presents financial information such as business activity, donations, employee remunerations, audit expenditure, etc.
Dividends
Distributions of cash or other assets from a company to its shareholders.
EBIT
Earnings Before Interest and Tax – A measure of your firm’s profit excluding interest and income tax expenses.
Gross Profit
The difference between income and cost of goods/services sold.
Imputation Credits
An imputation credit (attached to dividends when they are paid out of a company) allows a company to pass on the benefit of the NZ Income Tax it has paid already to the shareholders of the company. A shareholder can claim the credits they have received to offset the tax they are liable to pay on that dividend income.
Liabilities
Things you owe, e.g. bank loans, creditors.
Net Loss
The amount by which expenses exceed income.
Net Profit
The amount by which income exceeds expenses.
Non-Current Assets
Assets that are not expected to be consumed or sold within one year, e.g. investments, goodwill.
Non-Current Liabilities
Liabilities that are not expected to be paid within one year, e.g. bank loans, hire purchases.
Notes to the Financial Statements
Notes that clarify information presented in the financial statements, as well as expand on information where additional detail is needed.
Retained Earnings
The accumulated profit from the current and previous accounting periods that has not been distributed to owners.
Share Capital
The total amount paid in by shareholders for shares in the company.
Shareholder’s Equity
This is the amount that would be returned to shareholders if all assets were liquidated and all its debts repaid.
Work in Progress (WIP)
The value of work which is currently being worked on, but not yet completed or invoiced.
Shareholder Current Account
A detailed account that shows the amount that has been distributed to a shareholder from the company, or funds that have been put into the company personally by a shareholder, and the amount withdrawn by the shareholder. The balance shows the amount available to the shareholder to withdraw at the end of a period. When the balance is in brackets this means it is overdrawn and the shareholder withdrawn too much.
Statement of Financial Performance / Profit and Loss Statement
A statement that reports on the income and expenses of an entity for a period, and the resulting net profit/loss.
Statement of Financial Position / Balance Sheet
A statement that reports on the assets, liabilities and owners’ equity of an entity at a specific date.
Management decisions rely on a sound understanding of the financial drivers in your business. Financial Awareness Coaching is a great starting point for you to gain confidence and important business knowledge to successfully lead and manage your business.
Financial Awareness is a part of our Virtual CFO service that can help you develop the knowledge and skills to identify burning issues and address them effectively.
Contact us today to learn how to take control of your financial situation.
This is general advice only and does not take into account your financial circumstances, needs and objectives. Before making any decision based on this document, you should assess your own circumstances or professional advice from a qualified accountant or financial adviser at KMT Partners.
