AbandonmentSeen 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.
AbatementTraditionally 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 returnsIs the difference between actual returns and those that are expected, for example, ‘normal return’.
Absolute AdvantageThe ability of an entity or country to produce more of a given product using a given amount of resources than another entity or country.
Account ageingRefers 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 assumptionHere the company is treated as a separate legal entity to the owner.
Accounting principlesRefers 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 payableAmounts owed by an organisation/individual for goods/services received from suppliers.
Accounts preparationAn annual summation of transactions undertaken by a business, including what has been bought and sold.
Accounts receivableAmounts due to an organisation/individual for goods/services supplied to customers.
Accretion1. 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.
AccrualRecognition of income/costs incurred during an accounting period not received/paid.
Accrual conceptsAll 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 assetsRevenues from assets that have been earned but not received.
Accumulated DividendDividend due to holders of cumulative preference shares which has not yet been paid.
Acid TestCurrent 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.
AcquisitionTerm referring to one company taking a controlling interest in another, either by agreement or hostile.
Active MarketTerm denoting that there is a high degree of liquidity in a stock market.
ActuaryBusiness professional who deals with the financial impact of risk and uncertainty; Expert in statistics who calculates insurance risks and premiums.
AdministrationAn insolvency procedure in which a company in severe trouble, with the potential for recovery, is put into the charge of a court-appointed administrator.
AE (Annual Exemption)The level of capital gain a UK taxpayer is entitled to make before paying capital gains tax.
AER (Annual Equivalent Rate)Interest rate on loans or savings indicating the rate if interest was compounded and paid once a year.
AffidavitA written statement signed on oath and witnessed by a commissioner for oaths.
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.
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.
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.
AllotmentThe distribution of shares to applicants in a new issue.
Allowable ExpensesExpenses incurred by a person/company which can be offset against income to reduce the personal/company tax liability.
AmalgamationIs the merger of several companies, whereby the surviving entity incorporates the merged companies into its base.
AmortisationDepreciation of an intangible asset such as a patent over its lifetime.
Annual reportAlso 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.
AnnualiseA 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.
AnnuityA 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.
ArbitragePractice 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.
ArrearsOverdue debt or payment occurring at the end of a period.
Articles of AssociationThe document that lists the regulations that govern the running of a company.
Asset strippingThe practice of acquiring a company and then selling parts of it in order to realise enough cash to match the entire acquisition cost.
Asset turnoverAnnual sales divided by net assets employed in the business. This measures a company’s efficiency at using its assets to generate sales or revenue.
AssignmentThe transfer of ownership of an item from one organisation/individual to another.
At parThe sale of a security at a price equal to its face value.
AuditA 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.
AuditorAuditors 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 reportStates 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.
Back OfficeBrokerage house administrative operations supporting the trading of stocks and other securities.
Back-end loadA charge imposed when investors sell shares in mutual funds which has the effect of discouraging withdrawals.
Balance sheetProvides a snapshot of everything a company owes and owns at the end of its financial year. A component of a company’s annual report.
Balloon paymentA final payment on, for example, a loan.
Bank reconciliationThe 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.
Banker’s draftCheque made out to a creditor by a debtor’s bank offering more security than a standard cheque.
BankruptcySituation where an individual is incapable of settling his/her debts.
BarterAn exchange of products or services between individuals/organisations without the involvement of money.
Base currencyThe currency that forming the base of a quotation. E.g. Sterling is the base currency in the dollar/pound rate.
Base rateInterest rate set by the Bank of England upon which other banks base themselves.
Basic state pensionPayments made to retired individuals who have made national insurance payments during their life.
Basket tradeContract or other instrument for the purchase/sale of a group of shares/currencies traded together.
Bear marketMarket in which sellers outnumber buyers with a consequent downwards trend of share prices.
Benchmark (benchmarking)Standard or point of reference by which performance can be measured.
Beneficial loanLoan 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.
BeneficiaryAn individual or organisation standing to benefit from a contractual or fiduciary relationship, usually relating to a trust or will.
Big Mac IndexAnalysis 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
Black economySegment of the economy that operates on barter and unreported private cash transactions with the aim of avoiding tax.
Board of directorsThe individuals elected to run a company by its shareholders.
Bond1. 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.
Bond ratingCredit 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 issueIssue of shares for free to shareholders in proportion to their existing holdings.
Book transferTransfer of title from seller to buyer without physical movement of the asset.
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.
Breach of contractThe breaking of terms agreed upon, within a contract. Mainly witnessed in employment contracts.
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.
Break-up valueThe total value of a company’s separate operations if sold separately.
Bridging LoanIs 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.
Budget deficitGap between government spending and revenue and thus the amount that needs to be borrowed.
Budgetary accountingMeasures the cost of planned acquisitions to the use of economic resources in the future.
Bull marketMarket in which prices are rising and in which investor confidence in the continuation of rising prices is high.
Burn rateThe speed at which a company spends its finances.
Business cycleFluctuations in economic/business activity between peaks and troughs over a given period.
Business Property ReliefDeduction made from the value of business property when assessed for inheritance tax.
Buy backPurchase by a company of its own shares.
Call loanLoans which are repayable on demand.
CapA means to limit capital use in assets.
Capital GainRepresents the gain generated through the disposal of an asset.
Capital marketIs the generalised term used to describe the market of debt and equity securities.
Capital rationingAssesses a mixture of projects that can provide the highest overall net present value (NPV) when a company has a limit on capital spending.
Capital reductionInvolves the reduction of a company’s declared or stated capital base.
Capital ReserveIs a fund that has been set aside for a specific purpose. It cannot be used for anything else.
Capital structureThe financing components of a company, including ordinary and preference shares, debentures and loan stock.
Capitalised interestRefers to the interest cost incurred whilst an asset is being prepared for its intended use.
Capitalised leaseIs a type of lease which is recorded as an asset acquisition which is then accompanied by a corresponding liability by the lessee.
Carrying valueIs the amount that an asset or a liability is recorded on a balance sheet.
Cash basisA type of bookkeeping that notes down when revenues and expenditures are received and paid.
Cash cowSegment 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.
Certified financial plannerA trained individual who can successfully implement financial plans for clients using knowledge based around income/estate tax, investments and risk management analysis.
Chart of accountsRefers to the list of accounts appearing in the nominal ledger. The list is usually arranged in the order accounts appear in the financial statements.
Clearing accountIs 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.
Clearing HouseInstitution whereby interbank indebtedness is computed, and net amounts owing can be calculated.
Coding of accountsInvolves the assignment of an identification number to every account in the financial statements.
Collection periodRepresents the number of days needed to collect accounts receivable. The length of this period is determined by the rate of turnover a company has.
Commercial bankA financial institution that provides a commercial banking service, including accepting bank deposits and offering business loans, to individuals and companies.
Compensating balancesA deposit that banks can use to offset an unpaid loan.
Compound interestProcess of adding back interest earned on an investment to the original investment, thereby increasing the principle on which further interest is calculated.
Consistency ConceptRepresents the uniformity of accounting concepts and procedures used by an entity in the preparation of financial statements.
ContraEntry made to offset or nullify a previous entry.
Control accountAccount which gives summary to the balance of all accounts on another ledger.
Convertible BondA bond that can be converted into shares of the issuing company.
Corporate cultureValues and beliefs held by people within an organisation
Corporation taxTax payable by a company on its profits.
Cost accountingFocuses on the cost accumulation used for inventory valuations that are needed for external reporting and internal profit measurement.
CouponAnnual rate of interest paid by the issuer of a bond until maturity.
CovenantA formal agreement that some act will or will not be carried out, e.g. a promise to pay interest.
CPI (Consumer Price Index)Index that tracks the prices of a variety of goods purchased by an average consumer.
Credit controlMethods used to ensure customers settle their accounts within the agreed time period.
Credit crunchSituation occurring when the supply of money cannot keep pace with demand.
Credit default swapSpecific kind of counterparty agreement allowing the transfer of third party credit risk from one party to the other.
Credit derivativeFinancial 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 ratingRating used by financial institutions making loans which they use to judge an individual or company’s credit worthiness.
Credit Ratings AgencyAn agency that rates the creditworthiness of companies based on detailed financial information.
Credit riskThe risk that an issuer might default on a payment or go into liquidation.
CreditorIndividuals/organisations owed money.
Creditor daysRatio 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.
Cumulative preference sharesWhen 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 hedgingA technique used to guard against foreign exchange fluctuations.
Currency riskThe potential for losses arising from adverse movements in a currency.
Currency swapArrangement in which two parties exchange a series of cash flows in one currency for another, at agreed intervals over an agreed period.
Current assetsAssets that are regularly turned over and can be readily converted into cash, including debtors and stocks.
Current liabilitiesLiabilities owed by a company that are due for settlement within 12 months, including trade creditors and bank overdrafts.
Current ratioIs a measurement of liquidity where current assets are divided by current liabilities. This is commonly used to measure short-term solvency.
Current yieldThe annual interest rate paid by a bond, expressed as a percentage of its current market price.
Cut-off rateA set maximum/minimum rate that is susceptible to – in this circumstance – rates which cannot be exceeded on either end.
Debit notesIssued when a payment is short on the full amount owed.
Debt financingThe raising of capital via the selling of bonds and other debt instruments.
DefaultWhen a debtor fails to meet principal or interest payments on the due date of their debt.
DefeasanceProcess of rendering a contract or deed null and void following a specified act.
Deferred incomeIncome that a company has received in cash, but has not yet earned.
Deferred taxA 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 schemeA pension plan in which an employee’s pension benefit is related to the number of years service and final salary.
Defined contribution pension schemeA pension plan in which benefits are dependent on contributions and the growth of the pension fund.
DeflationA situation in which there is a fall in the general price level of goods and services.
Demand depositIs a bank deposit account where withdrawals can be made without the need for giving advance notice.
Demand noteA note sent to debtors that is considered to be payable on demand.
DemergerCorporate restructuring in which one part of a company is spun off as a new company.
DemutualisationProcess 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.
Departmental accountingWhere a company has different departments that have a variety of different autonomies.
Deposit1. 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.
DepreciationCharge to account for an assets reduced value as its useful economic life is exhausted.
DerivativeA security whose value is based on the value of an underlying asset such as commodities, bonds, stocks and equities.
DevaluationFormal reduction in the value of a currency with respect to another.
Directors’ reportStatement 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.
DisbursementMonies paid out, for example by a solicitor, to cover costs incurred on a clients behalf, such as court fees.
Discretionary trustPrivate trust empowering trustees to use their discretion in distributing funds to beneficiaries.
DisintermediationThe removal of an intermediary from a transaction.
Disposable incomeAssessments of a household’s income after tax deductions and additional benefits have been made.
DissolutionThe end of the legal existence of a business.
DiversificationDistribution of capital among various assets or industries, usually to reduce risk.
DividendDistribution 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.
Dividend coverRatio 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.
Dividend growthThe amount by which a company’s yearly dividends grow.
Dividend yieldMeasures 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.
DomicileCountry in which a person lives for tax purposes.
Double taxationSituation in which money is taxed in two different countries.
Double taxation reliefDouble 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.
Doubtful debtA debt considered to have a low probability of being collected.
Due diligenceProcess of checking as much as possible about a company’s financial performance and its liabilities, usually undertaken before one company acquires another.
Earning powerAn assessment of the future profitability of a company based on its discounted present value.
EBITDA (Earning before interest, tax, depreciation and amortisation)It is calculated by taking the pre-tax profit of a company and adding back total interest charges paid on debt, depreciation and amortisation.
Economic book valueAn analysis where company assets are adjusted to match their market value.
Economic entityIn terms of accounting this refers to a method that enables accountants to gain a ‘point of view’ on the different economic events that have influenced their recorded financial records.
Economic lifeSee ‘useful economic life’.
Economically feasibleWhere the benefits and activity are greater than the cost of implementing it.
Effective tax rateCalculated as tax liability divided by taxable income.
Efficient market theoryTheory that states the current price of a share reflects all known information about the company and its future earnings potential, and therefore that is it impossible to beat the market consistently.
Efficient portfolioPortfolio that provides the greatest expected return for a given level of risk, or the lowest risk for a given expected return.
EGM (Extraordinary general meeting)Special meeting of a company and its shareholders that can be called by company directors or anyone with at least 10% of the voting rights.
EIS (Enterprise Investment Scheme)Tax incentive scheme designed to encourage investors to invest in qualifying unquoted companies by offering certain tax reliefs.
Emerging marketsThe stock markets of countries which have a low per head income compared with the developed world.
EmolumentsTotal remuneration of an employee or director which includes salary and bonuses.
Enterprise zoneRegion in which businesses receive special tax advantages as an incentive to set up business there.
EntityIn accounting a seperate economic unit that is subject to financial measurements i.e. corporation, partnerships and trusts.
Entrepreneurs reliefIntroduced on 6 April 2008 allowing relief to be claimed on the first £1 million of gains made on the disposal of all or part of a business, or a disposal of a business’s assets after a business has ceased.
Ex dividendPurchase of shares without entitlement to recently declared dividends.
Ex rightsPurchase of shares without entitlement to current rights issues.
Exceptional itemCosts which materially affect a company’s results which are associated with normal activities.
Excise dutyTax levied on certain products, including alcohol and tobacco, which are produced in the UK.
Exempt items (VAT)Goods and services that are not taxable for VAT. Sale or supply of exempt items prevents an individual or company registering for VAT. Sale or supply of some exempt items and some VATable items means the business is partially exempt and will only be able to reclaim VAT related to the VATable items sold.
Exercise pricePrice at which an option or warrant holder can buy or sell the underlying instrument
Exit strategyThe termination of an individual’s ownership of a business or part of a business’s operation, usually with the aim of recouping the original investment or realising a gain.
Extraordinary itemCosts which materially affect a company’s results which are associated with non-recurring events and not arising from normal activities.
FactoringThe sale of debts to a third party in return for an upfront payment. Receipts will usually be less than the original debt, the difference being held by the “factoring” company (usually a bank) as a margin of safety for security.
Fair valueRefers to a current valuation, as opposed to the historic cost, derived either from a market value or by a calculation of the present value.
FiduciaryAn individual/institution responsible for holding and managing the assets and interests of another, for example a guardian, trustee or administrator.
FII (franked investment income)Dividends paid by UK companies to other companies with a tax credit reflecting the fact that the company which has paid the dividend has done so out of post tax profits.
Final dividendThe end of year dividend.
Finance ChargeInterest accrued on and fees charged for credit, repressing the total of borrowing.
Financial institutionAn institution that accepts funds from the public and reinvests in financial assets, e.g. bank deposits and stocks.
Financial intermediariesName given to institutions such as banks and building societies.
Financial statementA report that contains key financial information about a business.Standard statements will include a Balance Sheet, Profit and Loss Account, and Cash Flow Statement.
Fiscal policyThe use of spending and taxation by the government in order to achieve its economic objectives.
Fiscal year12 month period commencing 6th April and ending 5th April the following year.
Fixed assetsAssets likely to be used by a business for more than a year to generate profits and can include land, property and equipment.
Fixed overheadInclude expenses such as rent, utilities and loan repayments that will not tend to change when in line with sales volumes.
FlotationThe listing of a companies shares on a stock market, also known as an initial public offering (IPO).
Foreign direct investmentInvestment in tangible assets such as land and capital involving cross border flows.
Forensic AccountingThe application of accounting facts gathered through auditing methods and procedures to resolve legal problems.
Forward buying contractContract between a buyer and a seller agreeing the delivery/provision of a specified amount of a specified asset at a specified future date at a price agreed at the time of the trade.
FRA (Forward Rate Agreement)An interest rate derivative that allows the interest rate on a short-term loan to be set for a pre-determined period.
FranchiseA licence granted by one company (franchisor) to another company/individual (franchisee), entitling the franchisee to produce/market a product/service in a specific area.
FreeholdThe permanent ownership of land or buildings.
Fringe benefitsBenefits to employees additional to salary.
FSA (Financial Services Authority)The regulating body carrying all regulatory responsibilities for the UK financial services industry.
Futures contractA legal agreement to make or take delivery of a specified instrument, e.g. a commodity or a bond, at a fixed future date at a price determined at the time of dealing
GDP (Gross domestic product)The value of all goods and services created within an economy in a given year. It is equal to total consumer and government spending, investment, plus the value of exports, minus the value of imports.
GearingTerm used to describe the level of a company’s net debt (net of cash or cash equivalents) compared with its equity capital, usually expressed as a percentage. A heavily geared company has a high proportion of financing from debt, such as bank loans.
GiltOtherwise known as a gilt edged security, this is a fixed rate bond/security issued by the UK government.
GNP (Gross national product)Equal to GDP plus the income accruing to domestic residents as a result of investments abroad, minus the income earned in domestic markets accruing to foreigners abroad.
Going concern conceptPresumption made when preparing financial statements that a business will continue to exist for the foreseeable future, usually considered to be a period of one year or greater.
GoodwillThe value of a business to a purchaser over and above its net asset value, reflecting the value of intangible assets such as reputation and brand name.
Higher rate taxThe highest rate of income tax in the UK which in the 2008/09 tax year is 40%.
Hire purchaseA transaction in which the purchaser of an asset pays an initial deposit and takes possession, and then pays subsequent instalments over a specified time after which ownership passes to the purchaser.
HMRC (Her Majesty’s Revenue & Customs)The government department responsible for collecting the majority of UK tax revenue, as well as paying tax credits and child benefits.
Holding companyA company controlling one or more other subsidiary companies often by holding the majority of the shares.
Holdover reliefDeferral of a capital gains tax liability on a gift by transferring the liability to the recipient. When the recipient sells the gift the full CGT bill will normally fall due and the recipient will have to pay it.
Hostile takeoverA takeover bid for one company by another which is opposed by the directors of the target company.
Human resource accountingA method of accounting that recognises human resources and presents them on a company’s balance sheet. These can include experience, education and the future earning power of a company.
HyperinflationA condition in which prices increase extremely rapidly as a currency loses its value.
ImmovableAssets, such as land or property, which cannot be changed or moved.
Implicit costRelates to the foregone benefits of any single transaction, for example, the implicit cost of taking a holiday is the wages that would have been earned if the individual had worked instead.
Imprest systemMaintaining a constant cash float. The system ensures greater control over cash expenses as documentation must be made to calculate the balance required for reimbursement. The system is therefore far easier to reconcile.
Inflation accountingA method of accounting designed to correct problems arising from historical cost accounting in the presence of inflation.
Inflation taxThe hidden cost incurred due to effects of inflation on the value cash balances.
Inheritance taxTax levied on the transfer of an individuals estate on his/her death to non-exempt beneficiaries, subject to a nil rate band.
InsolventOccurs when an individual or company has insufficient funds to settle debts when they become payable.
Intangible AssetsAssets without physical substance controlled by an entity which provide expected future economic benefits, e.g. goodwill, patents, trademarks and copyrights.
Interbank rateRate that banks charge each other for loans for periods between one day and several years.
Interest bearingTerm describing securities paying a specified rate of interest in one or a series of payments over its life.
Interest coverIt is calculated by dividing operating profits by net interest payments and compares the interest paid on borrowings, net of interest bearing deposits, with its operating profit, e.g. a low figure means profits are more exposed to rises in the cost of borrowing.
Interest payableAmount a company pays in the form of interest, e.g. on cash borrowings.
Interest rate futuresFutures contracts traded on fixed income securities based on the levels of official interest rates.
Interest rate swapArrangement in which two parties agree to exchange interest rate flows at agreed intervals over an agreed period, but without any principal being paid.
Interest receivableAmount of income a company receives in the form of interest payments, e.g. on cash.
Interim dividendThe dividend declared part-way through the financial year, before annual earnings are established.
IntermediaryAn agent, broker or financial institution that can give advice and act as a middle person between one individual/organisation and another.
Internal rate of returnThe interest rate which, when used as the discount rate for a series of cash flows, gives a net present value of zero.
InterpolationThe process of determining a figure or rate that lies between other known data.
InventoryA company’s finished goods, work in progress and raw materials.
Investment incomeIncome, paid from an investment, such as dividends and interest.
IP (Intellectual Property)Treatment of certain intangible products similarly to physical assets, with the majority of countries granting certain rights, under IP laws, over these intangibles.
IPO (Initial Public Offering)The first offering of a company’s shares to the public.
ISA (Individual Saving Account)A financial product designed for the purpose of investment and savings offering favourable tax status.
ISC (Issued share capital)Amount of authorised share capital in a company that shareholders have subscribed to own.
Issue pricePrice at which a company’s shares are offered to the market for the first time.
Job costingManagement accounting technique enabling cost allocations through examining time, materials and all other expenses involved in creating a project.
Joint and several liabilityAn undertaking by a group of two or more parties to be responsible, either individually or jointly, for any liability which may exist after any member or members have failed to meet their obligations.
Joint liabilityLegal liability of two or more parties for claims against or debts incurred by them jointly.
Joint ownershipEqual ownership of property by two or more people.
Joint ventureCo-operation between two or more individuals/businesses in the undertaking of a specific enterprise, sharing risks, control, expertise, revenues and costs.
Junk bondsBonds which offer high rates of interest but with correspondingly higher risk attached.
Keyman/Keywoman insuranceInsurance policy providing cover for a company should a key figurehead pass away which would cause significant loss.
LeakagesParts of national income which are not used for consumptions purposes, including net taxes, savings and imports.
LeaseLegal contract in which the owner of an asset, e.g. a property, agrees to another individual/business utilising that asset in return for a consideration, such as rental payments.
Lease backSituation in which a property is sold by its owner to another person/company on condition that the purchaser leases the property back to the original owner for an agreed rent over a set term.
LedgerA book in which the accounts of a business are kept. The main types of ledger are the nominal ledger, containing the nominal accounts which list revenue and costs, the sales ledger which lists the sales accounts of customers, and the purchase ledger which lists the purchase accounts of suppliers.
LesseeA person to whom a lease is granted, also known as a tenant.
LessorA person who grants a lease, also known as a landlord.
LeverageThe use of financial instruments to increase the return on an investment, or the amount of debt used to finance a business’ assets.
Leveraged buyoutThe takeover of a company by investors who use the company’s own assets as collateral to raise the money that finances the bid.
LIBOR (London Inter Bank Offered Rate)Interest rate at which banks lend money to each other.
LienThe right of a creditor to take possession or control of the property of a debtor upon them failing to satisfy a debt.
Limited liabilityThe principle that a shareholder’s liability for company debts is limited to the nominal value of their shares and therefore that their personal assets are not at risk should the company become insolvent.
Liquid marketA market in which large quantities of securities are being bought and sold daily with relative ease.
LiquidationThe sale of the assets of a bankrupt company to pay creditors.
LiquidatorAn official appointed to supervise the liquidation of a company.
LiquidityThe level of ease with which an asset can be converted into cash.
Liquidity ratioSee ‘acid test ratio’.
LitigationThe process of a person or company taking legal action against another.
Loan capitalThe part of a company’s capital structure which is raised by loans, e.g. debentures, which usually pay fixed interest over a fixed period.
Loan stockA security bearing a fixed rate of interest and where the capital is repaid after a given period of time.
Long term liabilitiesDebts of a person or company not due for repayment within the next accounting period.
Loss adjusterAn independent assessor called in by an insurance company to check the validity of claims.
Main residenceThe place where you normally live and consider to be your home.
Management buy-inThe purchase of a company by outside investors who bring in new management.
Management buy-outThe purchase of some or all of a company’s shares by its managers in order to run the company independently.
Marginal costThe incremental cost attributable to one extra unit of production.
Market capitalisationCalculated by multiplying share price as quoted on an exchange by the number of shares in issue. This gives the market value of a company.
Market trendThe general direction of overall price movements in a market.
Market valueThe price which you can obtain for an asset if you sold it freely on the open market.
Marketable securityA tradable equity that is classified as a current asset.
Married couples allowanceAn extra tax allowance you are entitled to if you are married.
MatchingThe principle that costs/liabilities are matched with corresponding income/assets.
Maturity dateDate at which an asset or liability becomes repayable.
Memorandum of associationCompany document containing items such as name, objects and powers, and original share capital.
MergerThe process of two companies becoming one.
Monetary policyThe control of the money supply and interest rates by a government or central bank.
Money launderingThe manipulation of money, usually originating from an illegal source, so as to seem to have originated from a lawful one.
Money Purchase SchemePension scheme in which benefits are dependent on contributions and growth of the fund.
Mutual FundScheme enabling investment by small private investors in shares, bonds and other securities.
National InsuranceContributions paid by employees, self-employed individuals and employers based on income earned for the provision of the benefits such as the state pension. The contributions are administered by HM Revenue & Customs.
National taxTax treated as having been paid and not repayable. Applicable to, for example, life insurance policy gains and foreign income dividends.
Near moneyAssets which are readily convertible into cash without running the risk of causing significant losses in value.
Negative goodwillArises when the fair value of the net assets of a business exceed the price paid on acquisition.
Negotiable instrumentCan be a cheque or security that represents money that is payable and which can be transferred from one entity to another.
Net current assetsCalculated by subtracting current liabilities from current assets.
Net present valueThe total series of expected cash flows discounted over the time period in which they are incurred/earned less the initial dividend. NPV calculations are primarily used to appraise long-term projects by accounting for the time value of money.
Net profit marginCalculated as net profit as a percentage of sales, indicating a company’s ability to control its costs and overheads and generate an underlying return.
Net realisable valueGenerally equal to the selling price of goods or assets less the selling costs incurred.
Net yieldThe return on an investment after deducting tax, commission and other expenses.
NeutralityThe absence of bias when handling financial information.
Nominal accountA ledger account used to itemise/analyse revenue, expenditure, assets and liabilities.
Nominal ledgerSee ‘ledger’.
Non contributory pension planAn employer funded employee pension scheme to which employees do not make contributions.
Non discretionaryMeans the action/payment is mandatory and is not up to the individual or company to change.
Notice of codingThe notification of your PAYE code that you receive from the Inland Revenue.
ObsoleteAn asset that is considered to no longer be valuable to a business.
Occupational pension schemeScheme set up by companies that entitles employees to a pension upon their retirement.
OEIC (Open ended investment company)A set of managed funds you can buy into. Shares issued are unlimited to meet demand with their value being derived from the value of the underlying assets of the fund. The price of shares should be the same whether they are bought or sold.
OMO (Open market option)Scheme dating back to 1975 Finance act that offers an individual upon their retirement the right to buy an annuity from a provider other than the one who has given them a pension fund.
Operating cash flowCash generated from the operations of a business during the year. The calculation takes account of non operating cash flows such as interest, tax, depreciation and amortisation, as well as any changes in working capital.
Operating costsCosts in addition to direct costs generally linked with the selling and administrative activities of a business. Also known as overheads.
Operating expensesRelates to costs linked in with the selling and administrative activities of a business.
Operating marginCalculated as operating profit divided by turnover, it reflects the return on a business sales after taking account of the core trading costs.
Operating profitThe profit of a business after deducting operating costs from gross profit.
OptionThe right, but not obligation, to buy (call option) or sell (put option) shares or other financial instruments at a predetermined price on or before a predetermined date.
Ordinary sharesAuthorised shares issued by a limited company representing the ownership of that company. Shareholders have the right to vote on matters such as corporate policy and the composition of members of the board of directors and usually have an entitlement to any dividends declared. Once issued shares can be traded either privately or publicly, if the company is listed on a recognised stock exchange. Ordinary shares are not secured on the company’s assets.
Output TaxThe VAT charged on the supply of goods or services made by a person or company registered for VAT which must be paid to HM Revenue & Customs.
OverdraftA short term banking facility enabling an account holder to borrow up to an agreed amount.
Overlap profitsProfits which have been taxed twice because part of an accounting period falls within the basis period for tax computations for more than one year.
Overlap reliefTax relief given for overlap profits brought forward on a change of accounting date, if the basis period is longer than 12 months, or on the cessation of trade.
Paper profitRepresents an assets increase in value whilst it remains on the market and therefore would be realised if it were sold.
Per capita incomeA measurement of average income earned for a particular group, usually the population of a country. It is calculated as total income divided by total population of the group.
Performing assetAn asset that generates a positive annual return.
Personal pension schemeA scheme dedicated to those who are self-employed or are employed but are not members of an occupational scheme. Here they can make their own provisions towards their pension.
Phased retirementA personal pension plan given in segments allowing the recipient to phase the purchase of annuities or income drawdowns.
Pre-emptive rightsRights given to existing shareholders entitling them to first refusal on the purchase of shares in a new issue. This allows them to maintain their fractional ownership or stake in the company.
Preference sharesShares in a company with preferential rights over ordinary shares, usually giving the holder an entitlement to a fixed dividend. Preference shares do not usually carry voting rights but do entitle the holders to any balance of proceeds following the liquidation of a company before ordinary shareholders.
Premium bondsBonds offered under the National Savings and Investments scheme which do not pay interest but are instead entered into monthly prize draws. Any winnings are exempt from income and capital gains tax.
PrepaymentsCosts paid in advance of the accounting period to which they relate and therefore not recognised in the profit and loss account for the current accounting period.
Present valueSee ‘net present value’.
Price earning ratio – P/E ratioCalculated as the current share price of a company divided by its earnings per share. The ratio is used by investors to assess the expected future growth of earnings.
Profit before taxA company’s net profit before deduction of corporation tax.
ProvisionsA present obligation of uncertain timing or amount arising from a past event.
Prudence conceptExercise of caution when making judgements or estimates required under conditions of uncertainty, in order to prevent the overstatement of assets and/or understatement of liabilities.
Public limited company (plc)A limited company permitted to offer its shares to the general public which are usually traded on a recognised exchange such as the London Stock Exchange.
Qualitative researchBased on an understanding of human tendencies or behaviour and the drivers behind these.
Quantitative researchUses data for evaluation and applies models to analyse data over time periods.
Quasi subsidiaryA company or other arrangement not fulfilling the definition of a subsidiary but is directly or indirectly controlled by a reporting entity and gives rise to benefits for that entity, in substance the same as those arising if it were a subsidiary.
Rate of returnThe measure of the profitability of an investment, generally calculated as net profits divided by capital employed for a business.
Real interest rateNominal interest rate net of the current rate of inflation.
ReceivablesOutstanding debts owed to a company.
RecessionA period of general economic decline, normally with stagnating or declining economic activity, often defined as a period of two or more consecutive quarters of falling economic output.
Redeemable preference sharesPreference shares that the issuing company reserves the right to redeem.
Registrar of CompaniesThe official body, Companies House, with responsibility for the registration of limited companies, storing appropriate information and making it available to the general public.
Regressive taxTax imposed at a rate which decreases as the amount subject to taxation increases. Most commonly arising with the levy of fixed, lump sum taxes.
Residence statusThe definition of a person’s status when living or working abroad with regard to his/her taxation liabilities.
Retained earningsA company’s post tax profits not distributed as dividends.
Returns to scaleTerm referring to the change in outputs subsequent to a change in inputs. If outputs increase proportionately more than inputs there are increasing returns to scale, if outputs increase in line with inputs there are constant returns to scale, and if outputs increase proportionately less than inputs there are decreasing returns to scale.
RevenueThe right to consideration in exchange for performance, usually in the form of the supply of goods or services to a customer. Generally stated in the financial statements net of value added tax and trade discounts.
Reversionary interestThe right to receive property which is held in a trust at a future date.
Rights issueAn offer to buy shares made by a company to existing shareholders in proportion to their existing holding.
Risk premiumThe additional return expected for investing in a riskier class of asset over a less risky one.
ROCE (return on capital employed)Calculated as earnings before interest and tax divided by total capital employed, giving a measure of a company’s profitability.
Rollover reliefCapital gains tax relief applying to a person or company which disposes of a business or an asset and then reinvests the sale proceeds in a qualifying replacement within a qualifying period.
RPI (Retail Price Index)The measurement of inflation calculated by comparing the change in price of a basket of consumer goods, reflecting typical spending patterns, over a period of time.
Sales ledgerSee ‘ledger’.
SecuritiesA generalised name for stocks, shares and other financial instruments.
Self-assessmentTerm used to indicate an individual or company is responsible for the computation of their tax liability payable to HM Revenue & Customs.
SERPS (State Earnings Related Pension Scheme)Scheme allowing employees to increase their basic state pension via additional payments based on earnings.
ShareA stake in a company entitling the holder to receive a pro-rata share of the company’s profits through dividends, based on their holding.
Share capitalThe proportion of a company’s capital issued to shareholders in the form of ordinary and preference shares.
Share optionOption to buy shares in a company at a fixed price between a specified exercise period. This is used as an incentive, offered to company directors and employees, to promote loyalty and commitment.
ShareholderThe owner of shares in a company.
Stakeholder pensionScheme to encourage people to make provisions for their own future if they have not been able to afford a personal pension.
Stamp dutyA UK tax imposed on the buying of shares and property.
Statement of accountStatement suppliers issue to customer detailing transactions entered into over a given period.
Statutory accountsSee ‘annual report’.
Statutory sick payPayments made by employers to employees when they are unable to work due to illness or injury for more than three consecutive days.
StocksGoods that a company has produced or purchases but not yet sold, and are thus are held as current assets. Also known as inventories.
Tangible assetsAssets with physical substance controlled by an entity which provide expected future economic benefits either by use on a continuing basis in the company’s activities, e.g. plant and machinery, or for use within the trade of the company, e.g. stock.
Tax allowancesTax allowances are concessions given by the tax authorities available to be used to reduce a person’s or company’s taxable income.
Tax avoidanceThe minimising of individual or company tax liabilities using legal methods.
Tax codesSupplied by HM Revenue & Customs for employees and used by employers to determine how much tax to deduct from salaries or wages for remittance to the tax authorities.
Tax evasionThe minimising of individual or company tax liabilities by failing to declare or understating taxable income or taxable capital gains to the tax authorities. This is a criminal offence with potentially severe penalties.
Tax shelterMethod of reducing taxable income and thereby reducing tax liabilities.
Tax year12 month period commencing 6th April and ending 5th April the following year. Also known as the fiscal year.
Taxable earningsThe portion of an individual’s annual income subject to taxation. Generally calculated as gross income less reliefs and allowances.
Taxable gainThe portion of a sale that is liable to taxation.
Tied agentA financial advisor who has an agreement with a company to recommend their products to others. Tied agents cannot be assumed to give impartial advice. They are regulated by the FSA.
Time depositsDeposits that require notification before a withdrawal can be made in order to avoid incurring a penalty.
Time value of moneyRepresents the interest potentially earned on a payment received today if held until a future date, hence £1 received today is worth more than £1 received in a years time.
Total returnCalculation that examines the combination of capital growth with income, such as dividends or interest.
Trade creditorAn amount owed to a supplier as a result of trading with them on credit terms.
Trade debtorAn amount owed from a customer as a result of having supplied them with goods or services on credit terms.
Trial balanceA listing of all debit and credit nominal account balances of a business as taken from the nominal ledger, sales ledger and purchase ledger over a specified period.
TrustArrangement empowering an individual or organisation (the trustee) to safeguard and administer the assets within the trust, e.g. land and property, on behalf of another (the beneficiary).
TurnoverA person’s or company’s total net sales recorded over a specific period.
UK GAAP – UK generally accepted accounting principlesRules, conventions and standards that set out accounting practices for UK companies, established by the Accounting Standards Board.
UnderwritingA guarantee by a financial institution to buy any shares not subscribed for in a new share issue or Rights Issue.
Undistributed profitsEarnings from a company not distributed to its shareholders, but instead retained within the company.
Unlimited liabilityA business in which the liabilities of the owners are not restricted to the capital they have invested in the business.
Unlisted securitiesShares that are not listed on a recognised stock exchange.
Unqualified opinionUsed in reference to audit opinion that is not qualified for material scope restrictions and departures from accepted accounting principle (GAAP).
Useful economic lifeThe period of time an asset is expected to provide economic benefits to a business.
Variable interest rateBased on an underlying interest rate index, such as the Bank of England base rate.
VarianceAverage deviation of figures from their mean. In accounting this term is used in reference to the difference between a projected number and its actual number.
VAT – value added taxAn indirect tax levied on most business-business and business-consumer transactions in the UK and a number of other countries. There are three types of VAT: standard, reduced and zero. Business registered for VAT must charge VAT on their supplies and can reclaim any VAT on purchases.
VCT – venture capital trustVCTs are companies listed on the London Stock Exchange and are vehicles set up as part of a scheme designed to encourage individuals to invest indirectly in a range of small higher-risk trading companies whose shares and securities are not listed on a recognised stock exchange. Individuals investing in VCTs may be entitled to various income tax and capital gains tax reliefs. VCTs are exempt from corporation tax on any gains arising on the disposal of their investments.
Venture capitalCapital which has been invested in small companies in their infancy, generally considered to be higher risk investments than a publicly listed company. Venture capitalists will usually receive an equity share in the company in return.
WalkEconomic theory stating stock market prices behave unpredictably due to the efficiency of the market.
Wasting assetAn asset which has a limited economic lifespan.
Wear and tear allowanceAn allowance that is tax deductible for the cost of furniture and fittings provided in dwelling houses which are let out furnished.
White KnightA company which comes to the aid of another facing a hostile takeover.
Windfall profitsA large profit resulting from an unusual or unexpected event.
Withholding taxTax deducted at source from earnings, such as dividends and interest. The purpose being to facilitate or accelerate collection.
Working capitalCapital used by an individual or company to fund the general day to day running of the business. Calculated as current assets (e.g. stock, debtors, cash) less current liabilities (e.g. trade creditors, bank overdraft).
Working lifeDefined as the start of the tax year in which an individual reaches 16 years to the end of the tax year before reaching the prevailing state pension entitlement age.
Writing down allowanceSee ‘capital allowances’.
Written down valueThe cost of an asset, such as a car, after deducting amounts written off. For tax purposes it is the cost less capital allowances given to date.
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