Glossary

ABN: Australian business number.

abnormal expenses: Expenses that aren’t part of your everyday business, such as lawsuit expenses, capital losses or entertaining aliens from outer space.

abnormal income: Any income that’s not really part of your everyday business, such as interest income, one-off capital gains or gifts from mysterious great-aunties.

absorption costing: The process of costing an item where you factor in not just the cost of raw materials, but also freight and the cost of labour, plus an allowance for factory overheads, such as electricity, insurance and rent.

account: A classification that enables you to group similar transactions together.

account classification: There are six account classifications: Assets, liabilities, equity, income, cost of sales and expenses.

accounting equation: Assets = liabilities + equity (the essential equation behind all bookkeeping activities).

accounts list: See chart of accounts.

accounts payable: Money that you owe to suppliers.

accounts receivable: Money that customers owe you.

accounts receivable ratio: A quick measure of the success of your debt collection activities.

accrual: An adjustment for expenses that you haven’t received a bill for yet, but that the business has incurred, or an adjustment for income that you’ve earned, but you haven’t billed for yet.

accrual accounting: A system of accounting where you recognise income at the time the sale occurs, regardless of when you receive cash from a customer, and you recognise expenses at the time you receive a bill from a supplier, regardless of when you pay this bill.

accumulated depreciation: The amount of depreciation that has been accumulated on a non-current asset since it was purchased.

acid test ratio: A ratio that measures the liquidity of a business by looking at the relationship between current assets and current liabilities.

adjusted tax value: The written-down value of an asset.

adjusting entries: Entries made on the last day of an accounting period to ensure that all revenues and expenses are recorded in the correct accounting period.

adjustment note: A credit note.

Aged Payables report: A report that lists how much money you owe to suppliers, grouped according to how old the bills are.

Aged Receivables report: A report that lists how much each customer owes you, grouped according to how old the debts are.

Annual withholding declaration: A form summarising total wages and tax for each employee (Australia only), due in August each year.

asset: Something that the business owns, such as cash, money in bank accounts, computers, buildings or motor vehicles.

audit: A review of the annual accounts, usually carried out by an independent person or a firm of accountants.

auspicing: The process whereby one organisation manages funds on behalf of another organisation or group.

average weekly earnings: Total gross earnings an employee receives over the 12 months before their annual holiday, divided by 52 (New Zealand only).

award: A special document that outlines minimum wages and conditions of employment for groups of employees in a particular industry or occupation.

backup: An extra copy of computer data that is stored elsewhere (preferably well away from your computer).

bad debt: An amount owing from a customer that you know isn’t going to be paid.

balance date: The last day of the financial year (New Zealand only).

Balance Sheet: A report that provides a snapshot of the value of assets, liabilities and equity at any point in time.

Bank Reconciliation report: A report showing the difference between the balance on a bank account as per the bank statement, and the balance on a bank account in the Balance Sheet.

BAS: See Business activity statement.

BAS agent: A person or an entity licensed by the Tax Practitioners Board to provide BAS services (Australia only).

BAS services: Any bookkeeping activity related to GST or PAYG, including configuring tax codes in accounting software, coding tax invoices, generating employee payment summaries or preparing Business activity statements (Australia only).

budget: An estimate of the planned income and expenses for the next financial period.

bundy clock: A system where employees have to swipe cards when they arrive or leave.

Business activity statement: A document that all businesses that are registered for GST must complete either monthly or quarterly, summarising how much GST and other taxes are owing (Australia only).

capital acquisitions: Purchases of new assets, such as motor vehicles or plant and equipment.

cash-basis accounting: A system of accounting where you only recognise income when you receive cash from a customer, and you only recognise expenses when you pay cash to a supplier.

cashbook balance: The bank statement balance adjusted for any uncleared withdrawals or deposits.

Cashflow Statement: See Statement of Cashflow.

cash payments journal: A special journal listing all payments and outgoings.

cash receipts journal: A special journal listing all business receipts.

chart of accounts: The list of accounts to which you allocate transactions. These accounts describe what a business owns and what it owes, where money comes from and where money goes.

chattel mortgage: A form of finance where ownership transfers to the purchaser right from the start.

code of conduct: A set of expectations and responsibilities that bind any person who is a member of a particular group.

collective agreement: An agreement between the employer and all the employees.

company: A form of business structure where shareholders own shares and have ownership of the company, and appoint directors to manage the business.

contra account: An account that offsets another account.

control account: A general ledger account where the balance reflects the total of balances in other related ledgers.

cost centre: A department, program, project or location within a business where you group costs and income together in order to measure and monitor performance.

cost of sales: What it costs in raw materials, supplies or production labour to make the goods that you sell (also called cost of goods sold).

credit: Any transaction that increases liabilities, equity or income, or that decreases assets or expenses.

credit policy: A set of rules that sets out the deal for any customer who receives credit.

crossed cheque: A cheque that has two parallel lines with the words ‘not negotiable’ printed across the middle. This means that the cheque can only be paid into an account and cannot be cashed over the counter.

current asset: Anything that a business owns that can realistically be converted into cash within the next 12 months.

current liability: An amount owed by the business that is due within the next 12 months.

debit: Any transaction that increases assets or expenses, or that decreases liabilities, equity or income.

debtor: A person, a business or an organisation that owes money.

depreciation: The allocation of the cost of an asset over its estimated useful life, usually several years.

depreciation schedule: A report showing the assets that a business owns, the cost value of each asset, and how much depreciation has been claimed so far for each one.

detail account: See subaccount.

differential backups: A system of backing up where you only save the files that changed since the last full backup.

diminishing value: A depreciation method where you calculate depreciation on the written-down value of the asset.

dividend: A distribution of profits made to the shareholders or owners of a company.

double-entry bookkeeping: The system whereby every transaction affects at least two accounts.

drawings: See owner’s drawings.

equity: The ‘interest’ that shareholders or an owner has in the business, including both capital contributed and the profit or loss built up over time.

expenditure: Outgoings including not just regular expenses, but also money spent on capital equipment.

expense accrual: An adjustment for expenses that you haven’t received a bill for yet, but which the business has incurred.

expenses: The day-to-day running costs of your business, including things like advertising, bank charges, computer consumables, electricity, motor vehicle, rent, telephone and wages.

financial statements: The formal end-of-year accounts that your accountant generates as part of doing your tax, which usually include a Profit & Loss report and a Balance Sheet as a minimum.

first in/first out (FIFO): A system of valuing inventory where the first items you bring into inventory are the first ones you sell.

fixed asset: See non-current asset.

fixed expenses: Expenses that don’t directly relate to sales.

franked dividends: Company dividends that include an imputation credit.

fringe benefit: A benefit provided to an employee from an employer that’s anything other than wages.

fringe benefits tax: A tax imposed on fringe benefits.

garnishee orders: When a third party serves an order on an employer to deduct money from employee wages to pay off outstanding debts.

general journal: A journal, typically an adjustment, that transfers amounts from one account to another.

general ledger: A ledger that lists transactions in account order, and then in date order within each account.

goodwill: The difference between the total value of a business and the value of its net assets.

grant acquittal: Where you report how you spent the grant money and what the outcomes of the project were.

gross profit: The difference between net sales and cost of goods sold.

gross profit margin: The percentage of gross profit against sales.

GST: Goods and services tax.

header accounts: The headings under which detail accounts or subaccounts are grouped.

hire purchase: A loan allowing you to buy goods, such as equipment, vehicles or other assets on credit. You pay interest on this loan, and ownership transfers to you when the final loan payment is made.

historical cost: The original cost of an asset.

hybrid basis: A method of GST reporting that combines the invoice basis for sales and the payment basis for payments (New Zealand only).

imputation credit: A tax credit that is part of a franked dividend.

income: Money generated from sales to customers or returns on investments.

Income & Expenditure report: The same as a Profit & Loss report, but includes all expenditure rather than just expenses.

individual employment agreement: A one-to-one agreement between the employer and the employee.

injury cover: The insurance premiums that employers in New Zealand pay to cover employees in the event that they have an injury at work.

input tax credit: The credit a business claims for the GST paid on goods or services.

input-taxed purchases: Expenses related to input-taxed sales.

input-taxed sales: Interest income, dividend income or residential income.

Instalment Activity Statement (IAS): The form used to report for monthly PAYG withholding tax if GST is paid quarterly, or a form used to pay PAYG withholding tax and PAYG instalment tax for businesses that aren’t registered for GST (Australia only).

intangible asset: An asset that you can’t touch, smell or see, such as goodwill, intellectual property and trademarks.

internal controls: Procedures in place that safeguard the flow of money into and out of the business.

inventory: Stock that gets sold to customers or raw materials that get assembled to make goods.

invoice basis: The method where you pay GST in the period that you bill the customer or receive a bill from the supplier, regardless of whether any money has exchanged hands (New Zealand only).

ir-File: An online method of submitting forms to the IRD (New Zealand only).

journal: The record where a bookkeeper initially records all transactions.

KiwiSaver deductions: Superannuation contributions an employee chooses to have deducted from their salary (New Zealand only).

KiwiSaver employer contributions: Compulsory superannuation contributions that the employer makes on behalf of the employee (New Zealand only).

last cost: An inventory costing method where all inventory items are valued at whatever the last cost was for an item.

last in/first out (LIFO): An inventory costing method where the last items you bring into inventory are the first you sell.

lease: A form of finance where a finance company buys an asset on behalf of a business and then rents it back to the business. The business pays rent every month for an agreed amount of time, and then, if it chooses, buys the asset from the finance company for a reduced price at the end of this period.

leave loading: A bonus 17.5 per cent payment that employees receive on top of regular holiday pay.

leave provision: An entry in your accounts that allows for leave entitlements owing to employees.

liability: Any kind of debt, such as credit card debts, supplier accounts, money owing to the tax office and bank loans.

liquid ratio: See acid test ratio.

matching principle: The core principle of accrual accounting, which aims to recognise income in the period that it is earned, and match associated expenses into this same period.

net profit: Total income less total expenses.

non-current asset: Physical assets such as office equipment, land and buildings, computers and motor vehicles, that aren’t expected to be converted into cash within the next 12 months.

non-current liability: Anything you owe that isn’t due to be paid out within the next 12 months, such as hire purchase debts and bank loans.

ordinary time earnings: Regular wages, not including irregular payments such as annual holiday leave loading, one-off bonuses, overtime and so on (Australia only).

ordinary weekly pay: Everything an employee normally receives weekly, including regular allowances, regular productivity payments, regular overtime and the cash value of board or lodgings (New Zealand only).

other expenses: See abnormal expenses.

other income: See abnormal income.

overheads: See fixed expenses.

owner’s drawings: Personal spending by the business owner.

partnership: A business association of two or more individuals where profits are shared in agreed proportions.

PAYE tax: Tax deducted from employee’s wages (New Zealand only).

PAYG instalment tax: Tax paid on business earnings (Australia only).

PAYG withholding tax: Tax deducted from employee’s wages (Australia only).

payment summary: A summary issued to each employee of wages earned and tax deducted, due by 14 July each year (Australia only).

payments-basis: The method of reporting for GST where you only recognise income when you receive cash from a customer or pay cash to a supplier (New Zealand only).

payroll tax: A state-based tax imposed on businesses with larger payrolls (upwards of $600,000) of between 4 and 6 per cent of the total wages bill.

periodic method: An accounting method where you don’t account for cost of goods sold with every sale, but instead only account for cost of goods sold and stock on hand when you do a stocktake.

perpetual method: An accounting method where you record the cost of goods sold with every sales transaction, and keep track of the current balance of inventory on a day-to-day basis.

posting: The process of transferring totals from general journals into the general ledger.

prime cost depreciation: The method where you spread the cost of the asset evenly over the number of years you estimate the life of the asset to be.

principal: An accounting term meaning the amount of the loan before interest.

professional indemnity insurance: Insurance that protects you against claims for professional negligence if you make a mistake or fail to exercise a sufficient level of skill.

Profit & Loss report: A report that summarises income, expenses and net profit over a specified period of time.

provision: An adjustment for expenses or income not yet billed for where the exact amount is uncertain.

quick ratio: See acid test ratio.

ratios: Calculations that look at the relationship between one financial figure and another and, from the result, arrive at conclusions about the health of a business.

relevant daily pay: The amount of pay that the employee would have received had they worked on the day concerned, remembering to include things like commission, overtime or the cash value of any board or lodgings (New Zealand only).

residual: A lump-sum payment payable at the end of the lease term that roughly equates to the value of the asset.

résumé fraud: Where an employee applies for a job and lies about their experience and qualifications.

retained earnings: The income that a company holds onto and doesn’t distribute to shareholders.

Romalpa clause: A clause that stipulates that you retain title to the goods you sell until a customer pays in full.

SaaS: Software that is sold on a subscription basis.

sales journal: A journal that lists the value of every sale made.

session date: The day a transaction is recorded, as opposed to the date of the transaction itself.

SGC: See Superannuation Guarantee Contribution.

sole trader: A business structure operated by a single person that has unlimited liability.

source document: A document that proves the legitimacy of a payment, such as a receipt or a supplier bill.

stale transactions: Transactions that are more than eight weeks old and still haven’t cleared through the bank account.

Statement of Cashflow: A special report that examines the cashflows in and out of a business.

stock turnover ratio: A measure of how well a business manages stock levels.

straight-line depreciation: See prime cost depreciation.

subaccount: A detail account that belongs under a header account.

Superannuation Guarantee Contribution: The compulsory 9 per cent of wages that employers must pay in employee superannuation (Australia only).

Tax Invoice: An invoice from a supplier who is registered for the GST which includes the supplier’s ABN or GST registration number and the amount of GST.

trade creditors: See accounts payable.

trade debtors: See accounts receivable.

Trading Statement: A report summarising sales, cost of goods sold and gross profit.

transaction: An exchange between two people, of either money or goods.

trial balance: A report listing the debit and credit balances of all general ledger accounts at any point in time.

unfranked dividends: Company dividends that don’t include an imputation credit.

unpresented cheques: Cheques that have been sent to a supplier but that haven’t yet been debited out of the bank account.

variable expenses: Expenses that directly relate to sales, such as production labour, raw materials and sales commissions.

work in progress: Jobs that have started but aren’t yet complete.

workers compensation insurance: The insurance premium an employer has to pay to cover employees in the event that they have an injury at work.

written-down value: The original cost of an asset less how much has been claimed so far in depreciation.