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A – D

A

Absolute Advantage

The ability of an entity or country to produce more of a given product using a given amount of resources than another entity or country.

Abandonment

Seen as the voluntary surrender of a property without the naming of a successor. Applicable to owned and leased properties. If left unnamed, the property will revert to individuals who have held a prior interest.

Abatement

Traditionally applies to tax levies, special assessments and service charges. Abatements represent the complete if not partial cancellation of a levy enforced by a government unit.

Abnormal returns

Is the difference between actual returns and those that are expected, for example, ‘normal return’.

Account ageing

Refers to tracking past customer and supplier accounts due in relation to debtors (accounts receivable) and creditors (accounts payable) using data taken from when charges were first recorded.

Accounting entity assumption

Here the company is treated as a separate legal entity to the owner.

Accounting principles

Refers to the basic principles and concepts of accounting standards and guidelines adopted in the preparation of financial statements and used to determine, for example, the measurement of assets and recognition of revenue. The key principles are going concern, consistency, prudence, and accruals.

Accounts payable

Amounts owed by an organisation/individual for goods/services received from suppliers.

Accounts preparation

An annual summation of transactions undertaken by a business, including what has been bought and sold.

Accounts receivable

Amounts due to an organisation/individual for goods/services supplied to customers.

Accretion

1. The growth of assets through the utilisation of mergers, acquisitions and company expansion.
2. The difference between the face value of a bond and the price of the bond when bought at a discount.

Accrual

Recognition of income/costs incurred during an accounting period not received/paid.

Accrual concepts

All income and charges relating to the financial year to which the accounts relate shall be taken into account, regardless of the date of payment or receipt.

Accrued assets

Revenues from assets that have been earned but not received.

Accumulated Dividend

Dividend due to holders of cumulative preference shares which has not yet been paid.

Acid Test

Current assets minus stocks divided by current liabilities. Shows whether a company would be able to pay its debts if it needed to satisfy creditors but had no time to sell any of its assets.

Active Market

Term denoting that there is a high degree of liquidity in a stock market.

Actuary

Business professional who deals with the financial impact of risk and uncertainty; Expert in statistics who calculates insurance risks and premiums.

Acquisition

Term referring to one company taking a controlling interest in another, either by agreement or hostile.

Administration

An insolvency procedure in which a company in severe trouble, with the potential for recovery, is put into the charge of a court-appointed administrator.

Affidavit

A written statement signed on oath and witnessed by a commissioner for oaths.

AER (Annual Equivalent Rate)

Interest rate on loans or savings indicating the rate if interest was compounded and paid once a year.

Amortisation

Depreciation of an intangible asset such as a patent over its lifetime.

Amalgamation

Is the merger of several companies, whereby the surviving entity incorporates the merged companies into its base.

AE (Annual Exemption)

The level of capital gain a UK taxpayer is entitled to make before paying capital gains tax.

AGM (Annual General Meeting)

An annual meeting called by the directors of a company, which shareholders are invited to attend, to discuss matters such as the audited accounts and dividend payments.

Allotment

The distribution of shares to applicants in a new issue.

Allowable Expenses

Expenses incurred by a person/company which can be offset against income to reduce the personal/company tax liability.

AIA (Annual Investment Allowance)

Tax allowance brought in to replace first year allowances. Currently set at £50,000 for a 12 month period and allowing qualifying capital expenditure incurred by a business up to this amount to be set-off against profits chargeable to corporation tax. Any expenditure above the restriction will be subject to further writing down allowances where applicable.

Annual report

Also known as statutory accounts, limited companies are legally obliged to send shareholders an annual report and accounts which typically contains five statements: directors report; auditors report; profit and loss account; balance sheet; and cash flow statement. The report must also be submitted to Companies House (in abbreviated format where possible) and HM Revenue & Customs.

AIM (Alternative Investment Market)

Market created for small, young and growing companies, operated by the London Stock Exchange with less stringent admission criteria than for the main market.

Annualise

A statistical technique that enables figures covering less than a 12 month period to be expanded to a year. To be completely successful, seasonal variations need to be taken into consideration.

Arbitrage

Practice of exploiting price differentials usually between two different, but closely related, financial instruments by purchasing at the lower price and selling at the higher price. The disparity between prices often occurs between similar instruments traded in different markets.

Annuity

A terminating stream of fixed payments over a specified period of time.

APR (Annual Percentage Rate)

Where interest on loans or savings is expressed as other than a yearly rate the APR is the equivalent rate over a year.

Arrears

Overdue debt or payment occurring at the end of a period.

Articles of Association

The document that lists the regulations that govern the running of a company.

Assignment

The transfer of ownership of an item from one organisation/individual to another.

Asset stripping

The practice of acquiring a company and then selling parts of it in order to realise enough cash to match the entire acquisition cost.

Asset turnover

Annual sales divided by net assets employed in the business. This measures a company’s efficiency at using its assets to generate sales or revenue.

At par

The sale of a security at a price equal to its face value.

Audit

A statutory assurance engagement in which the objective is to express an opinion on a set of financial statements as to whether they are prepared, in all material respects, in accordance with an applicable financial reporting framework and therefore whether they give a true and fair view and the financial performance and position of a business during and at the end of the accounting period in question.

Auditor

Auditors are required to certify that the accounts produced by their client companies have been prepared in accordance with accounting standards and represent a true and fair view of the company.

Auditors report

States whether the accounts prepared by management reflect a true and fair view of affairs and meet the legal and regulatory requirements.

AVCs (Additional Voluntary Contributions)

Relates to additional payments made into your main pension scheme. These can be paid either into your job pension or added to a separate scheme.

B

Back Office

Brokerage house administrative operations supporting the trading of stocks and other securities.

Balloon payment

A final payment on, for example, a loan.

Base rate

Interest rate set by the Bank of England upon which other banks base themselves.

Bank reconciliation

The agreement of a bank account balance as per the nominal ledger to the bank statement – adjusting for items seen as outstanding such as cheques and receipts.

Basic state pension

Payments made to retired individuals who have made national insurance payments during their life.

Bridging Loan

Is a short-term loan that is offered under the expectation of a long term loan. The interest rate applied to this loan is generally higher than that of longer loans.

Breach of contract

The breaking of terms agreed upon, within a contract. Mainly witnessed in employment contracts.

Bond

1. Written promise by company to pay the face amount at the maturity date.
2. Cash or property given to assure performance.
3. A type of insurance compensating an employer for employee dishonesty.

Budgetary accounting

Measures the cost of planned acquisitions to the use of economic resources in the future.

Burn rate

The speed at which a company spends its finances.

Back-end load

A charge imposed when investors sell shares in mutual funds which has the effect of discouraging withdrawals.

Balance sheet

Provides a snapshot of everything a company owes and owns at the end of its financial year. A component of a company’s annual report.

Barter

An exchange of products or services between individuals/organisations without the involvement of money.

Bankruptcy

Situation where an individual is incapable of settling his/her debts.

Banker’s draft

Cheque made out to a creditor by a debtor’s bank offering more security than a standard cheque.

Bear market

Market in which sellers outnumber buyers with a consequent downwards trend of share prices.

Base currency

The currency that forming the base of a quotation. E.g. Sterling is the base currency in the dollar/pound rate.

Basket trade

Contract or other instrument for the purchase/sale of a group of shares/currencies traded together.

Benchmark (benchmarking)

Standard or point of reference by which performance can be measured.

Beneficiary

An individual or organisation standing to benefit from a contractual or fiduciary relationship, usually relating to a trust or will.

Beneficial loan

Loan made by an employer to an employee on which interest is either not charged or less than the official rate. The difference between the interest charged and the official rate is taxable.

Big Mac Index

Analysis comparing the price of the snack designed to show relative price levels around the world and judge whether a currency might be over or undervalued.

BIK (benefits in kind)

Benefits, excluding salaries, given to employees which are taxed as employment income. E.g. cars and medical insurance

Board of directors

The individuals elected to run a company by its shareholders.

Black economy

Segment of the economy that operates on barter and unreported private cash transactions with the aim of avoiding tax.

Book transfer

Transfer of title from seller to buyer without physical movement of the asset.

Bond rating

Credit rating agencies grade bonds according to how likely it is that the issuer will default either on interest or capital payments. Bonds with a AAA rating are considered the least likely to default.

Bonus issue

Issue of shares for free to shareholders in proportion to their existing holdings.

Book value (net book value)

The value of an asset net of any depreciation charged or the carrying value, per a balance sheet, of other assets or liabilities.

Budget deficit

Gap between government spending and revenue and thus the amount that needs to be borrowed.

Break even (analysis)

The level of a company’s sales at which they are equal to costs and thus neither a profit nor loss is made.

Business cycle

Fluctuations in economic/business activity between peaks and troughs over a given period.

Bull market

Market in which prices are rising and in which investor confidence in the continuation of rising prices is high.

Business Property Relief

Deduction made from the value of business property when assessed for inheritance tax.

Buy back

Purchase by a company of its own shares.

Break-up value

The total value of a company’s separate operations if sold separately.

C

Convertible Bond

A bond that can be converted into shares of the issuing company.

Capital Gain

Represents the gain generated through the disposal of an asset.

Call loan

Loans which are repayable on demand.

Cap

A means to limit capital use in assets.

Capital Reserve

Is a fund that has been set aside for a specific purpose. It cannot be used for anything else.

Capital rationing

Assesses a mixture of projects that can provide the highest overall net present value (NPV) when a company has a limit on capital spending.

Capital market

Is the generalised term used to describe the market of debt and equity securities.

Capital reduction

Involves the reduction of a company’s declared or stated capital base.

Capital structure

The financing components of a company, including ordinary and preference shares, debentures and loan stock.

Capitalised interest

Refers to the interest cost incurred whilst an asset is being prepared for its intended use.

Carrying value

Is the amount that an asset or a liability is recorded on a balance sheet.

Capitalised lease

Is a type of lease which is recorded as an asset acquisition which is then accompanied by a corresponding liability by the lessee.

Certified financial planner

A trained individual who can successfully implement financial plans for clients using knowledge based around income/estate tax, investments and risk management analysis.

Cash basis

A type of bookkeeping that notes down when revenues and expenditures are received and paid.

Cash cow

Segment of the business that generates a large quantity of money.

Certificate of deposit (CD)

A type of formal instrument that is issued by banks when a deposited fund is not withdrawn for a length of time. Early withdrawals can result in a cash penalty.

Chart of accounts

Refers to the list of accounts appearing in the nominal ledger. The list is usually arranged in the order accounts appear in the financial statements.

Collection period

Represents the number of days needed to collect accounts receivable. The length of this period is determined by the rate of turnover a company has.

Clearing account

Is a temporary holding account that contains costs/amounts that at a specified date are to be transferred to another account i.e. income summary account that contains revenue and expense amounts that are to be transferred to retained earnings at the end of a fiscal period.

Coding of accounts

Involves the assignment of an identification number to every account in the financial statements.

Clearing House

Institution whereby interbank indebtedness is computed, and net amounts owing can be calculated.

Commercial bank

A financial institution that provides a commercial banking service, including accepting bank deposits and offering business loans, to individuals and companies.

Consistency Concept

Represents the uniformity of accounting concepts and procedures used by an entity in the preparation of financial statements.

Compensating balances

A deposit that banks can use to offset an unpaid loan.

Compound interest

Process of adding back interest earned on an investment to the original investment, thereby increasing the principle on which further interest is calculated.

Control account

Account which gives summary to the balance of all accounts on another ledger.

Contra

Entry made to offset or nullify a previous entry.

Corporate culture

Values and beliefs held by people within an organisation

Cut-off rate

A set maximum/minimum rate that is susceptible to – in this circumstance – rates which cannot be exceeded on either end.

Cost accounting

Focuses on the cost accumulation used for inventory valuations that are needed for external reporting and internal profit measurement.

Current ratio

Is a measurement of liquidity where current assets are divided by current liabilities. This is commonly used to measure short-term solvency.

Corporation tax

Tax payable by a company on its profits.

CPI (Consumer Price Index)

Index that tracks the prices of a variety of goods purchased by an average consumer.

Coupon

Annual rate of interest paid by the issuer of a bond until maturity.

Covenant

A formal agreement that some act will or will not be carried out, e.g. a promise to pay interest.

Credit control

Methods used to ensure customers settle their accounts within the agreed time period.

Credit crunch

Situation occurring when the supply of money cannot keep pace with demand.

Credit default swap

Specific kind of counterparty agreement allowing the transfer of third party credit risk from one party to the other.

Credit risk

The risk that an issuer might default on a payment or go into liquidation.

Credit derivative

Financial instrument used to mitigate or to assume specific forms of credit risk, often to separate the credit risk of a borrower from overall market risk.

Credit rating

Rating used by financial institutions making loans which they use to judge an individual or company’s credit worthiness.

Credit Ratings Agency

An agency that rates the creditworthiness of companies based on detailed financial information.

Creditor days

Ratio measuring the average period it takes an individual/company to pay its creditors. It is calculated by dividing trade creditors by its cost of sales and then multiplying by the number of days in the financial period in question.

Creditor

Individuals/organisations owed money.

Cumulative preference shares

When a company fails to pay a dividend, holders of cumulative preference shares are entitled to receive this missed payment when a dividend is next declared.

Currency hedging

A technique used to guard against foreign exchange fluctuations.

Current assets

Assets that are regularly turned over and can be readily converted into cash, including debtors and stocks.

Currency risk

The potential for losses arising from adverse movements in a currency.

Currency swap

Arrangement in which two parties exchange a series of cash flows in one currency for another, at agreed intervals over an agreed period.

Current liabilities

Liabilities owed by a company that are due for settlement within 12 months, including trade creditors and bank overdrafts.

Current yield

The annual interest rate paid by a bond, expressed as a percentage of its current market price.

D

Defeasance

Process of rendering a contract or deed null and void following a specified act.

Debit notes

Issued when a payment is short on the full amount owed.

Debt financing

The raising of capital via the selling of bonds and other debt instruments.

Demand deposit

Is a bank deposit account where withdrawals can be made without the need for giving advance notice.

Deferred income

Income that a company has received in cash, but has not yet earned.

Default

When a debtor fails to meet principal or interest payments on the due date of their debt.

Demand note

A note sent to debtors that is considered to be payable on demand.

Depreciation

Charge to account for an assets reduced value as its useful economic life is exhausted.

Departmental accounting

Where a company has different departments that have a variety of different autonomies.

Deposit

1. Payment given with the promise/guarantee that a service will be completed
2. Placing cash into an account
3. Money offered as a form of security in return for an item.

Derivative

A security whose value is based on the value of an underlying asset such as commodities, bonds, stocks and equities.

Disbursement

Monies paid out, for example by a solicitor, to cover costs incurred on a clients behalf, such as court fees.

Dividend

Distribution of company profits, after tax to shareholders in proportion to their shareholding. The payment and amount of dividend is at the discretion of the directors.

Doubtful debt

A debt considered to have a low probability of being collected.

Disposable income

Assessments of a household’s income after tax deductions and additional benefits have been made.

Defined contribution pension scheme

A pension plan in which benefits are dependent on contributions and the growth of the pension fund.

Deferred tax

A future tax asset or liability resulting from temporary differences between the tax value and book value of assets and liabilities, or timing differences between the recognition of gains and losses for tax and for financial statements.

Defined benefits pension scheme

A pension plan in which an employee’s pension benefit is related to the number of years service and final salary.

Deflation

A situation in which there is a fall in the general price level of goods and services.

Demerger

Corporate restructuring in which one part of a company is spun off as a new company.

Demutualisation

Process by which building societies and mutual insurers convert themselves from organisations owned by their members to profit-making companies which distribute profits to their shareholders.

Disintermediation

The removal of an intermediary from a transaction.

Devaluation

Formal reduction in the value of a currency with respect to another.

Directors’ report

Statement within the annual report/statutory accounts prepared by the company directors, in accordance with the Companies Act, detailing information including: directors in service during the period under review; the principal activities of the business; dividend recommendation; a review of the business. The size of the company dictates the level of disclosure required in the report.

Discretionary trust

Private trust empowering trustees to use their discretion in distributing funds to beneficiaries.

Dividend cover

Ratio between a company’s earnings (net profit after tax) and the net dividend paid to shareholders. It is calculated as earnings per share divided by the dividend per share.

Dissolution

The end of the legal existence of a business.

Diversification

Distribution of capital among various assets or industries, usually to reduce risk.

Domicile

Country in which a person lives for tax purposes.

Dividend growth

The amount by which a company’s yearly dividends grow.

Dividend yield

Measures how much income a shareholder is getting out of the company for the capital invested in it. It is calculated as the annual dividend income per share received from a company divided by its current share price.

DLA (directors loan account)

Company asset or liability relating to monies owed from or owed to the directors.

Double taxation

Situation in which money is taxed in two different countries.

Double taxation relief

Double taxation relief can be obtained when agreements exist between countries whereby tax already paid on income in a foreign country is offset against the same tax liability in the home country or vice versa.

Due diligence

Process of checking as much as possible about a company’s financial performance and its liabilities, usually undertaken before one company acquires another.

Professional Consultation

We help our clients determine the right strategic priorities to grow profitably and maximise value, and offer support and practical solutions to achieve these objectives. We are happy to provide no-obligation advice.