Glossary of Accountancy Terms

  • Accounting Standards Board

    The body in the UK that sets accounting statements of practice.

  • Acid Test

    The ratio of liquid assets to current liabilities.

  • Agency

    The relationship between a principal and an agent, for example in a limited liability the company is the principal and the director is the agent.

  • Amortisation

    Similar to depreciation, applied to fixed assets.

  • Effective Interest Rate

    The rate that changes estimated future cash payments through the expected duration of the financial instrument.

  • Entity

    Something that exists independently, for example a business exists independently of its owner.

  • Equity Accounting

    Reports in the balance sheet of the group’s investment in the share capital of an associated company.

  • External Users

    Users of financial statements that are not allowed access to financial documents on a day-to-day basis.

  • Financial Information

    Information that is reported in terms of money.

  • Financial Risk

    When a company has long-term finance and they can’t commit to repayments on the loan due to interest rates or other financial factors.

  • Format

    The way in which financial statements are laid out in the order they appear.

  • IAS

    International Accounting Standard, issued by the IASB’s predecessor body.

  • Inventory

    Stocks of goods held for resale or manufacture.

  • Leverage

    An alternative phrase for gearing.

  • Loan Stock

    Loan finance traded on a stock exchange.

  • Off-Balance Sheet Finance

    An agreement to keep some assets away from the entity’s balance sheet.

  • Operating Margin

    Operating profit as a percentage of sales.

  • Prospective Investor

    An investor that is deciding whether to invest into a company.

  • Return

    The yield or reward on an investment.

  • Turnover

    The sales of a business or revenue from the operations of a business.