A
- Accounts Payable (AP)
- Money your business owes to suppliers or vendors for goods and services already received but not yet paid for. Recorded as a current liability on the balance sheet.
- Accounts Receivable (AR)
- Money owed to your business by customers for goods or services already delivered but not yet paid. Recorded as a current asset on the balance sheet.
- Accrual Accounting
- An accounting method that records revenue when earned and expenses when incurred — regardless of when cash actually changes hands. Required for most businesses above a certain size; contrast with cash-basis accounting.
- Amortisation
- The process of spreading the cost of an intangible asset (software licence, patent, goodwill) over its useful life. The intangible-asset equivalent of depreciation.
- Asset
- Anything of economic value owned or controlled by a business — cash, receivables, inventory, equipment, intellectual property. Assets appear on the left side of a balance sheet.
- Audit
- An independent examination of financial statements by a third party (usually a chartered accountant) to verify they give a true and fair view of a company's financial position.
B
- Balance Sheet
- A financial snapshot at a specific date showing what a business owns (assets), what it owes (liabilities), and the owners' stake (equity). Assets always equal liabilities plus equity.
- Break-Even Point
- The sales volume at which total revenue exactly covers total costs — zero profit, zero loss. Break-even = fixed costs ÷ (selling price per unit − variable cost per unit).
C
- Capital Expenditure (CapEx)
- Spending on long-term assets — buildings, machinery, vehicles, software. Unlike operating expenses, CapEx is capitalised (recorded as an asset) and depreciated over time.
- Cash Flow
- The movement of money into and out of a business over a period. Classified as operating (day-to-day), investing (assets), and financing (loans/equity). A business can be profitable but still fail from poor cash flow.
- Cost of Goods Sold (COGS)
- The direct costs of producing or purchasing the goods a business sells — materials, direct labour, manufacturing overhead. Gross profit = revenue − COGS.
- Credit Note
- A document issued by a seller to reduce the amount a customer owes — typically for returned goods, a pricing error, or an agreed discount after invoicing.
D
- Depreciation
- The systematic allocation of a tangible asset's cost over its useful life. A £10,000 machine with a 5-year life depreciates at £2,000/year (straight-line method). Reduces reported profit without affecting cash.
- Dividend
- A share of profits distributed to shareholders, usually in proportion to the shares they hold. Paid out of after-tax profit; declared by the board and approved at a shareholder meeting.
- Double-Entry Bookkeeping
- The foundation of modern accounting: every transaction affects at least two accounts — a debit in one and a credit in another — keeping the accounting equation (Assets = Liabilities + Equity) always balanced.
E
- EBITDA
- Earnings Before Interest, Taxes, Depreciation and Amortisation. A widely used proxy for operating cash generation, often used in valuation multiples. Strips out financing and accounting choices to compare businesses more cleanly.
- Equity
- The owners' residual interest in a business after all liabilities are deducted from total assets. Includes share capital, retained earnings, and reserves. Also called shareholders' funds or net assets.
F
- Fiscal Year
- A 12-month accounting period used for financial reporting and tax purposes. Does not have to match the calendar year — a company may run April–March, or July–June.
- Fixed Assets
- Long-term tangible assets used in business operations and not intended for resale — property, plant, and equipment (PP&E). Reported at cost less accumulated depreciation.
G
- General Ledger
- The master record of all financial transactions of a business, organised by account. Every journal entry posts to the general ledger, which feeds the balance sheet and income statement.
- Gross Profit
- Revenue minus the cost of goods sold. Measures how efficiently a business produces or sells its goods before accounting for overhead, interest, and tax. Gross profit margin = gross profit ÷ revenue × 100.
I
- Income Statement (P&L)
- A financial statement showing revenues, expenses, and profit (or loss) over a period. Also called the profit and loss statement. Covers a time span — contrast with the balance sheet which is a point-in-time snapshot.
- Invoice
- A document sent by a seller to a buyer requesting payment for goods or services. Must identify both parties, describe the goods/services, state the amount, and specify payment terms.
J
- Journal Entry
- The primary record of a financial transaction in double-entry bookkeeping. Each entry specifies the accounts debited and credited, the date, amounts, and a brief description.
L
- Liability
- A financial obligation owed to an external party — bank loans, trade creditors, tax payable, deferred revenue. Current liabilities are due within 12 months; non-current liabilities are longer term.
- Liquidity
- The ability to meet short-term financial obligations quickly by converting assets to cash. High liquidity = low insolvency risk. Measured by ratios like current ratio (current assets ÷ current liabilities).
N
- Net Profit
- Revenue minus all expenses: COGS, operating expenses, interest, and taxes. The "bottom line." Net profit margin = net profit ÷ revenue × 100.
O
- Operating Expenses (OpEx)
- The day-to-day costs of running a business that are not tied to producing specific goods — rent, salaries, utilities, software subscriptions, marketing. Expensed in the period incurred.
- Overhead
- Indirect costs not directly linked to specific production or sales — management salaries, insurance, office maintenance. Must be recovered across all products/services through pricing.
P
- Payroll
- The total compensation paid to employees — wages, salaries, bonuses — plus associated employer taxes and contributions (social security, pension). Payroll processing ensures correct deductions and timely payment.
- Prepayment
- A payment made before the goods are received or the service is rendered. Recorded as a current asset until the obligation is fulfilled, then recognised as an expense.
- Profit Margin
- Profit expressed as a percentage of revenue. Gross margin measures production efficiency; net margin measures overall profitability. Higher is better, but industry norms vary widely.
R
- Reconciliation
- The process of matching accounting records to an external source (bank statement, supplier invoice) to identify and resolve discrepancies. Bank reconciliation is typically performed monthly.
- Retained Earnings
- Cumulative profits kept in the business rather than distributed as dividends. Adds to equity over time and is available for reinvestment or to cover future losses.
- Revenue
- The total income generated from selling goods or services before any deductions. Sometimes called "top line" (it appears at the top of the income statement). Do not confuse with profit.
S
- Sole Trader
- A business structure where one individual owns and operates the business with no legal separation between person and business. Simple to set up; the owner is personally liable for all debts.
T
- Tax Base
- The amount on which a tax is calculated. For income tax, it's taxable income (gross income minus allowable deductions). For VAT, it's the sale price excluding VAT.
- Trial Balance
- A list of all general ledger accounts and their balances at a point in time, used to verify that total debits equal total credits before preparing financial statements.
V
- VAT (Value Added Tax)
- A consumption tax levied at each stage of production and distribution. Businesses collect VAT from customers and remit it to the tax authority after deducting VAT paid on their own purchases (input VAT). Standard EU rate varies by country (Lithuania 21%, Germany 19%, France 20%).
W
- Working Capital
- Current assets minus current liabilities. Measures short-term financial health. Positive working capital means the business can cover near-term obligations; negative working capital signals potential liquidity risk.
- Write-Off
- Reducing an asset's book value to zero — most commonly applied to uncollectable debt (bad debt write-off) or inventory that has become worthless. A non-cash expense that reduces profit.