Keeping accountancy jargon free

Jargon free accounting

Accounting is an area that is definitely rife with jargon and unfamiliar terms, which is possibly one reason why 60% of small business owners feel they aren’t very knowledgeable when it comes to finances and accounting.

So let’s look at some of the most common terms a business owner may hear…

Balance Sheet:

This financial statement provides an overview of a company’s financial position at a specific point in time. It lists assets, liabilities, and shareholders’ equity.


Any resource owned or controlled by a business or an economic entity. It is anything (tangible or intangible) that can be used to produce positive economic value. Assets represent value of ownership that can be converted into cash (although cash itself is also considered an asset).


What a business owes. It could be money, goods, or services. They are the opposite of assets, which are what a business owns. Businesses regularly owe money, goods, or services to another entity.

Shareholders Equity: 

The amount that the owners of a company have invested in their business. This includes the money they’ve directly invested and the accumulation of income the company has earned and that has been reinvested since inception.

Income Statement (Profit and Loss Statement):

This statement shows a company’s revenues, expenses, and profits (or losses) over a specific period. It’s crucial for assessing a company’s profitability.

Cash Flow Statement:

This report tracks the flow of cash in and out of a business. It helps identify how well a company manages its cash to meet its operating needs.

Accounts Payable:

This represents money a company owes to its creditors and suppliers. It’s a liability on the balance sheet.

Accounts Receivable:

This is money owed to a company by its customers for goods or services provided. It’s an asset on the balance sheet.


This accounting method allocates the cost of a tangible asset over its useful life. It reflects the asset’s decreasing value over time.

ROI (Return on Investment):

ROI measures the profitability of an investment and is calculated by dividing the net profit from the investment by the initial cost.

Earnings Before Interest and Taxes (EBIT):

EBIT shows a company’s operating profitability, excluding the effects of interest and taxes. It’s also known as operating income.

Cash Flow Forecast:

This predicts how much cash a business is likely to generate or require in the future, helping with budgeting and financial planning.

Accrual Accounting:

This method records revenue and expenses when they are earned or incurred, rather than when cash changes hands. It provides a more accurate picture of a company’s financial health.


Similar to depreciation, amortisation allocates the cost of intangible assets over time. It’s common for items like patents or copyrights.


This is the ownership interest in a company and is calculated as assets minus liabilities. It represents the shareholders’ residual interest in the business.

Cost of Goods Sold (COGS):

COGS is the direct cost of producing goods or services sold by a company. It’s subtracted from revenue to calculate gross profit.

Tax Deduction:

This is an expense that can be subtracted from a company’s taxable income, reducing the amount of income subject to taxation

These accounting phrases are fundamental for businesses of all sizes, as they help in making informed financial decisions, tracking performance, and ensuring compliance with accounting standards.

If you want to know more about the terms and phrases used in accounting and tax advice then get in touch. Where ever possible we keep things simple and explain everything in plain English. If you are looking for an effective tax adviser or accountant get in touch with us via our contact form

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