Accounting period: The regular period (normally a year) for which a business accounts for its income, expenditure, assets and liabilities.
Accounts: The financial records of a business. These include an analysis of the profit and loss account and the balance sheet.
Accounts payable: Money that a business owes to suppliers for products and services bought on credit.
Accruals: A term used in accounts to describe income due or costs incurred during an accounting period, but which are not received or paid during that period.
Acid test ratio: The current assets of a business minus stock, divided by current liabilities. The ratio implies whether a business would be able to pay off its debts quickly with no time to sell any of its assets. The ideal ratio result is one or higher, though 0.7 or above is enough in most cases. Also called the 'quick ratio'.
Added value: The value of improvement made to goods or services at any particular stage in their production.
Administration: The process for a company in severe financial difficulty to apply to the court for protection from its creditors. The court appoints an administrator to take over the management of the company while a restructuring plan is implemented. The process can last for up to a year and may save the company from being forced into liquidation.
Alternative finance: Ways of raising finance outside the traditional channels of banking, venture capital, private equity or stock market listings. The main alternative finance sources for small businesses are 'crowdfunding' and 'peer-to-peer' lending.
Amortisation: An annual charge made in a business' profit and loss account to reduce the value of an intangible asset in the business balance sheet.
Annual Percentage Rate (APR): Where interest on loans is expressed as something other than a yearly rate (1.5% per month, for example), the APR is the equivalent rate over a year.
Appropriation account: The part of the profit and loss account that shows how the profit has been divided (or appropriated) into dividends and reserves.
Assets: A business' goods, resources and property that have a monetary value.
Audit: An examination and verification of a business' financial and accounting records and supporting documents by a registered auditor. This is a legal requirement for larger limited companies.
Authorised capital: The maximum share capital a company is allowed to issue under its memorandum of association. Authorised capital can only be increased by following the rules in the Companies Act 2006.
Average collection period: Dividing the debtors' turnover ratio into the days of the year gives the average collection period in days.
Bad debts: Debts owed to a business that are unlikely to be repaid and should be written off.
Balance sheet: A statement providing a snapshot of everything a business owes and owns at a particular moment in time.
Bankruptcy: An individual incapable of settling their debts is served with a bankruptcy order by a court.
Base rate: The rate of interest, set by the Bank of England, on which financial institutions base their lending rates. Their lending rates will be a certain percentage above the base rate, and their savings rates below. Changes to the base rate generally affect all their other rates.
Book-keeping: Recording a business's financial transactions in its accounting records and keeping those accounts in order, either for internal management purposes or an external inspection.
Book value: Value of an asset as shown in the accounting records. Book value usually means original value less accumulated depreciation, though in the case of premises it may mean the latest valuation.
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