Accounting Definitions for the Curious Layperson (Letters N-Z)

Accounting Definitions for the Curious Layperson (Letters N-Z)

To those who’ve joined from the previous article on accounting definitions, welcome back!

To the undefinitiated, a big welcome to you as well! However, before you too get comfy, I’d recommend taking a look at part 1 of our foray into accounting terminology. No worries if you’d rather not, just be aware your understanding of industry jargon will end up localised entirely within the second half of the alphabet.

That’s the scaremongering outta the way! Without any further ado, let’s get started on the letter ‘N’.

N

Net – This is what’s left after all your deductions have been made. E.g. net profit is the income left over after inventory costs, salaries, advertising fees etc. have been taken into account.

Top tip: Always get ‘gross’ and ‘net’ in a muddle? Try thinking of the ‘net’ as ‘nothing else (to) take’. As you’d probably hope for someone working at an accountancy firm, it’s not a mnemonic I use anymore, though that little trick saved my bacon more than once back in GCSE Business Studies.

O

Overheads – These are expenses that can’t easily be attributed to a particular service or product. Stuff like heating, rent, office equipment all count as overheads.

P

PAYE – Short for Pay As You Earn, this is the system through which employees pay tax and National Insurance Contributions to HMRC.

Personal Allowance – This is the amount of money you can earn annually without needing to pay any tax. Right now, the standard Personal Allowance is £12,570, but it’s likely to increase in a few years’ time; I’m hoping for some superstitious decision-makers and a big ol’ jump to £14k or beyond.

Petty cash – Cash amounts used to cover very low-value expenditure.

Profit – Income minus expenses. I’ve already mentioned profit briefly in ‘G’ and ‘N’, so I’m not gonna cover it in detail here. As both carrot cake and Love Island prove (seriously, 8 weeks and a winter special?!), it’s possible to have too much of a good thing.

Q

Nope, nothing to see here.

R

Reconciliation – Comparing the financial records of two or more sources to ensure that they align (e.g. a bank account and accounting software). Also something my tween cousin has made no overtures towards since our ill-tempered bowling fixture last year.

S

Self-Assessment – For sole traders and business partnerships, tax isn’t taken at source in the same way as PAYE. Instead, they use Self-Assessment tax returns to declare their annual earnings and pay the relevant tax owed. 

Shares – These represent ownership in a company.

Shareholders – Anyone who owns at least one share is known as a shareholder.

Shareholder equity – The value of shareholder assets minus any liabilities. (No quips for a while, I know! I’m not phoning in, I promise – just can’t think of anything much to add!)

T

Tax year – This is the annual accounting period that the government uses for calculating Self-Assessment taxes; in the UK, this runs from 5th April to 6th April each year.

Turnover – Unfortunately, we’re not talking the appley, pastry-y kind. In business contexts, turnover refers to income before any subtractions for expenses have been made.

U

UTR – Short for Unique Taxpayer Reference, this is a 10-digit number issued by HMRC to any company or individual that needs to complete a tax return. Whilst you shouldn’t give your UTR out to all and sundry, sharing it with your financial advisor/trusted accountant and HMRC (obviously) is par for the course.

V

VAT – *Yay*, another acronym. Short for Value Added Tax, this is a tax applied to the purchase of products and goods. If your taxable turnover is £85,000 or over across the last 12 months, you must register for VAT and charge the appropriate rate on your goods (usually 20%).

W

Write-off – This refers to the cancellation of a debt. E.g. if a client’s company has gone bankrupt, it’s better for the creditor to wave the white flag rather than chase something that’s both penniless and no longer a legally-existing entity.

X

Ever seen the guys on Countdown muster up a word beginning with ‘X’? Me neither.  

Y

Year-end – The end of a company’s annual accounting period. Year-end is almost always towards late March (end of fiscal year) or late December (end of actual year), but there’s no hard and fast rules that say that those are the only decent options. Plumping for the 31st October, for example, would open up a whole gamut of trick or treat puns at your next financial review presentation. The world really is your oyster.

Zzz

What I’d assume most people who started this article are doing right now. Here’s to you for bucking the trend and staying the course!

Bonus Definition/Pitch Time

I hope disrupting my otherwise unimpeachable alphabetical order will be worth it…

B

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