TERMINOLOGY Precise terminology is important in bookkeeping and accounting. Key terms are given at the end of each chapter to highlight appropriate terminology. It is important to be clear on the following: Sales - the exchange of goods or services for money. Items such as commission and fees received are also used instead of sales for some services. perhaps by professional businesses such as accountants and lawyers. Purchases - goods and services obtained for resale to customers, or for use or consumption in the business. Receipts - money received, mainly from cash sales or from customers who have been allowed a period of credit before making payment. Payments - money paid out in cash or from the bank account by cheque or digital or electronic means. Income - a more general term than sales to also include interest received, rent received from letting part of the business premises and so on. Expenses - cash paid for rent, electricity for lighting, telephone charges and so on. This does not include purchases of goods for resale or the purchase of assets, such as machinery and equipment for use in the business. Expenditure - includes purchases, expenses and money spent on buying anything else for the business. Petty cash - relatively small amounts of cash in the form of notes and coins used to pay small, occasional expenses, such as office refreshments or travel expenses. Normally, the cost would be paid by an employee who would then receive a cash reimbursement. Payroll -is accounting for the costs of having employees, which includes all elements of gross pay (before any tax deductions) such as basic wage or salary, plus any bonus, commission and also additional employer costs.
Expenses - Money spent for rent, electricity for lighting, telephone accounts and so on. This does not include purchases of goods for resale or the purchase of assets for use in the business on a continuing basis. Income - A more general term than sales to also include items such as interest received, rent received from letting part of the business premises. Ledger account - A record of similar financial transactions in a business. Payroll - List of employees and the wages or salaries due to each. Petty cash - A small amount of notes and coins held to reimburse employees for small payments made on behalf of the business. Purchases - Buying goods and/or services for use in the business or for resale to customers.
Receipt - Written statement of an amount of money that has been paid/received. Sales - The exchange of goods or services for money. Terms such as commission and fees are also used instead of sales for some services Till roll - Printed listing of all payments received through a till/point of sale desk in a retail outlet.
Advice note - Document issued to a customer or received from a supplier, advising that a delivery will be made on a specific day and listing the items to be delivered. Credit note - Document issued to a customer or received from a supplier, indicating that the amount owed is being reduced for sales returns/purchase returns. Debit note - A debit note is a document raised by a customer and issued to a supplier to request a credit note for goods returned because, for example, they were faulty. Delivery note - Document sent with items delivered to a customer. One copy is retained by the customer, one copy signed by the customer and retained by the supplier. Internal cheque requisition - Form for use within a business, properly authorising payment to be made to a supplier.
Payslip - Document given to each employee giving details of pay and deductions from pay. Petty cash voucher - Document giving details of money paid out from petty cash and the reasons for the expense. Price quotation - Document sent to a potential customer quoting the price for some goods or a service. If signed and accepted by the customer, it becomes a purchase order from the customer. Purchase invoice - Written request for payment from a supplier, giving details of items delivered. Purchase order - Order from a customer on a form or document produced by the customer. Purchase requisition - Request for an item to be purchased for the business. It should be authorised before being acted on. Quotation - Indication of the costs of a specific contract or job. See also price quotation. Personal data - Data about a specific individual. Receipt -Written statement of an amount of money that has been paid/received. Remittance advice - Document sent with payment, listing the items/invoices that are being paid. Sales invoice - Written request to a credit customer for payment, giving details of items sold. Sales order form - Order from a customer on a form produced by the seller. Statement of account - A list of invoices, credit notes, settlement discounts received and payments made for a given period of time, sent by a supplier to a credit customer. The statement also shows the current amount owed by the customer. Till roll - Printed listing of all payments received through a till/point of sale desk in a retail outlet.
Accounting system - the inputs, processes and outputs of a system to record, process and manage accounting data. Batch processing - the processing of transactions at either predetermined intervals or when a predetermined number of transactions are ready to be processed. Block codes - a coding system commonly used as the basis of general ledger coding systems which allocate a block of codes to particular account headings so that the coding system can be added to in a logical manner if required. Hierarchical codes - are a type of faceted code whereby each digit represents a classification, and each digit further to the right represents a smaller subset than those to the left Cloud accounting - the application of cloud computing to accounting systems and processes. Cloud computing - access to software and data storage that is hosted on remote servers and is accessed via the internet. Cloud computing enables data and information stored to be accessed from any location at any time by multiple users if the user has an internet connection and can log in. Faceted codes - codes that are broken down into a number of facets or fields, each of which signifies a unit of information. General ledger - the complete set of ledger accounts used by a business in which transactions are recorded. It may also be referred to as a ‘nominal ledger’ or ‘chart of accounts’. Ledger account - a record of transactions assigned to a specific asset, liability, source of income or expense, along with a capital account for a sole proprietor. It will identify increases and decreases in that item during an accounting period. Mnemonic codes - a code in alphanumeric form and incorporate some descriptive element that makes it easy to find the correct code. Real-time processing - the processing of transactions in a computerised system whereby, as soon as a transaction has occurred, processing of that transaction is immediate. Sequential codes - codes that are allocated to items in strict numerical order. Significant digit codes - codes that incorporate digits that are part of the description of the item.
Asset - a present economic resource controlled by the business as a result of past events. Gross profit - revenue from sales less the cost of sales in the accounting period. Capital - the residual interest that the owner has in the assets of the business after all liabilities have been settled. Expense - a decrease in assets or increase in liabilities which result in a reduction of capital due to the owner. General ledger - the complete set of ledger accounts used by a business to record transactions. It may also be referred to as a ‘nominal ledger’ or ‘chart of accounts’. Journal - a record of accounting entries made to record non-routine transactions and to correct errors. Many journal entries relate to the preparation of the annual financial statements. Income - consists of increases in assets or decreases in liabilities that result in an increase in capital due to the owner. correct errors. Input tax - is sales tax paid to suppliers which is suffered and paid on purchases by a business. The journal - is a record of accounting an accounting transaction recorded in the general ledger. The journal may be maintained in book form, a log or register in hard or soft copy. Ledger account - a record of transactions assigned to a specific asset, liability, source of income or expense, along with a capital account for a sole proprietor. It will identify increases and decreases in that item during an accounting period. Liability - a present obligation of the business to transfer an economic resource as a result of past events. Net profit - gross profit less expenses incurred during the accounting period. Output tax - is sales tax charged on sales by a business and collected on behalf of the tax authority. Settlement discount - (‘early settlement discount’ or ‘prompt payment discount’) is a discount offered by the seller to the buyer for early payment of a debt i.e. within a specified period of time before the normal due date. Statement of financial position - a statement of a business’s assets, liabilities and capital at a specific point in time. Statement of profit or loss - a statement of financial performance that shows the profit or loss earned by a business for an accounting period. Taxable supplies - are goods and services sold subject to sales tax. Trade discount - is a discount given to customers ordering in large quantities or as an incentive for to encourage regular customers to place more orders.
BACS - Automated payments by bank transfer. BACS is commonly used to pay salaries to employees and to pay regular suppliers. Charge card - A charge card is similar to a credit card, however, the balance must be paid in full every month. Credit card - A form of payment whereby the cardholder makes payment to a retailer from an agreed credit facility. The outstanding amount is settled by the cardholder to the credit card company. Crossed cheque - A cheque is crossed by drawing two parallel vertical lines on it. A crossed cheque must be paid into a bank account. Debit card - Payment medium allowing instant payment from a customer’s bank account to a retailer electronically. Designated signatory - Person authorised to sign a cheque in defined circumstances. Direct debit - Order to a bank to make regular payments out of a bank account. The amounts to be paid are notified to the bank by the payee (the account holder having given written authority to the bank for the payee to do this). Drawer of a cheque - Account holder of person/business writing a cheque. Payee - The person being paid. Standing order - An order to a bank to make regular payments out of a bank account. The amount to be paid is notified by the account holder.
Gross pay - Money due to an employee before deductions for income tax and NIC, etc. Net pay - Money payable to an employee after deductions for income tax, NIC, etc. Non-statutory deductions - deductions from employees’ earnings authorised by the employee, rather than required by law, such as contributions to savings schemes and trade union subscriptions. Payroll - List of employees and the wages or salaries due to each individual. Payslip - Document given to each employee giving details of pay and deductions from pay. State benefit contributions - Amount paid by employees (and possibly the employer) to the state for purposes of social security. Statutory deductions - deductions made from employees’ earnings required by law, such as deductions for income tax.