A
The ABN is a unique 11-digit number that identifies your business or organisation to the government and community. Register for an ABN via https://register.business.gov.au/.
A formal record that represents a single aspect of business such as money, assets and resources.
A person whose job is to keep, inspect, and analyse financial accounts.
The process of recording and reporting financial transactions.
The time period of when financial statements are prepared. Most accounting periods are calculated on a monthly, quarterly or yearly basis.
The specific principles, bases, conventions, rules and practices applied by an entity in preparing and presenting financial statements.
Accounting software manages and records the day-to-day financial transactions of an organisation, including fixed asset management, expense management, revenue management, accounts receivable, accounts payable, subledger accounting, and reporting and analytics. A complete accounting system keeps track of an organisation’s assets, liabilities, revenues, and expenses. These transactions then populate the general ledger in real time, providing CFOs, treasurers, and controllers immediate access to real time, accurate financial data.
Refers to the bills you need to pay. Payables or AP. It may also refer to the person who processes invoices or pays bills.
Refers to what you’re owed by customers. Any invoice that has been sent becomes part of your accounts receivable until it has been paid. The name is given to the money that is owed and the process of collecting it.
Account to Account Transfer - Also known as A2A transfer, allows you to move money directly from a payer's bank account to a payee's bank account without the need for intermediaries, such as credit or debit cards.
Expenses that have been incurred but not paid, such as salaries or the interest payable on a loan. Estimates of these items should be included in profit and loss accounts and adjusted when the invoice is received.
A system used to record revenue and expenses when a transaction occurs as opposed to when cash exchanges hands. When invoices are issued on credit, they are subject to tax whether it has been paid or not. The accrual method is used by most businesses.
When accounts receivable are sorted by age. Aging is often used to focus on accounts that are overdue.
The effects of transactions and other events are recognised when they occur (and not as cash or its equivalent is received or paid) and they are recorded in the accounting records and reported in the financial statements of the periods to which they relate.
The systematic allocation of the depreciable amount of an intangible asset over its useful life.
A report for shareholders that includes a breakdown of a company’s annual statements, shareholders and equity cash flows, and any other important financial information.
The financial year or similar period to which annual financial statements relate.
When an asset increases in value. For example, if a piece of machinery was purchased for $1,000, but goes up in value to $1,100 the next year, the appreciation is $100. Appreciation is the opposite of depreciation.
Bills that haven’t been paid. For example, rent that is three months late is considered three months in arrears.
A resource: a) controlled by an entity as a result of past events; and b) from which future economic benefits are expected to flow to the entity.
A review of a company's financial records and processes by an independent third party to ensure accuracy and compliance with accounting standards and regulations.
B
Amounts owed to a company that is recognised, but cannot be paid. Sometimes bad debts can be deducted as an expense.
A financial statement that contains details of a company's assets or liabilities at a specific point in time. It is one of the three core financial statements (income statement and cash flow statement being the other two) used for evaluating the performance of a business.
The process of matching the balances in an entity's accounting records for a cash account to the corresponding information on a bank statement.
When an individual or company has greater liabilities than it does assets they can be declared bankrupt by creditors. With regards to a limited liability company, the term “insolvent” is used.
Book value is the accounting value of the company's assets less all claims senior to common equity (such as the company's liabilities).
BPAY® is an easy and secure way to stay in control of your bill payments from the security of your online banking. You can choose which account to pay bills, from and schedule payments on a date that works for you.
Commerce between two businesses or companies.
Commerce between a business and a customer or end user.
A free tool to help you create and claim a business domain name via Shopify https://www.shopify.com/tools/business-name-generator.
C
Money invested by business owners in order to acquire assets and begin operation.
To claim for depreciation against profits, HMRC provide a proportion of fixed assets to be claimed before the tax bill is calculated. This is usually a certain percentage of their value.
When a fixed price asset is sold for a profit, the profit may be subject to capital gains tax; however, when determining the final amount, allowances, inflation and other aspects relating to the age of the asset must be taken into account.
Cash on hand and demand deposits.
An accounting method that records revenues and expenses when cash is received or paid, regardless of when they are earned or incurred.
Short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value.
The amount of cash or cash-equivalent which the company receives or gives out by the way of payment(s) to creditors is known as cash flow. Cash flow analysis is often used to analyse the liquidity position of the company.
The predicted cash flow of an upcoming financial period.
A list of all of the accounts that are held in which business transactions are classified and recorded.
When a cardholder cancels or challenges a credit or debit card transaction. When a chargeback occurs many banks charge fees for the process.
Assets that turn from cash to goods, and then back to cash again. Examples include purchasing materials to build a product; manufacturing the product (which results in stock); and selling the stock for cash.
A term used to describe making the final entries and balancing the profit and loss account at the end of the financial year.
A mistake that has been cancelled out by another mistake.
When interest is applied to capital and accrued up until that particular date. For example, a $1,000 loan with 20% interest will have a balance of $1,200 when interest is added after the first year, then $1,440 at the end of the second year.
Combined financial statements of a parent company and all of its subsidiaries. Consolidation Combining assets, liabilities, equity and operating accounts into one single parent company and financial statement.
The price of making a non-current asset ready to use.
A pricing method where companies base their fees on the price of manufacturing.
When companies split up expense accounts into separate departments to determine which department is spending the most money.
Bookkeeping credit represents decreasing an asset or expense account or increasing capital or liability. Business credit is when a supplier agrees to allow the buyer to pay after (typically 30 to 60 days) receiving the goods.
A document that is sent to a customer which cancel’s their debt. Usually issued for defective goods or poor service.
Suppliers that a business owes money to.
The financial statements of a group in which the assets, liabilities, equity, income, expenses and cash flows of the parent and its subsidiaries are presented as those of a single economic entity.
A possible asset that arises from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the entity.
Is: a) a possible obligation that arises from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the entity; or b) a present obligation that arises from past events but is not recognised because: it is not probable that an outflow of resources embodying economic benefits will be required to settle the obligation; or ii. the amount of the obligation cannot be measured with sufficient reliability.
The capacity of an entity to dominate decision-making, directly or indirectly, in relation to the financial and operating policies of another entity so as to enable that other entity to operate with it in achieving the objectives of the controlling entity.
The cost of sales is the accumulated total of all costs used to create a product or service, which has been sold.
The Australian Government created two new income support payments to assist individuals affected by state and territory government decisions relating to COVID-19: More information can be found at: https://www.aph.gov.au/About_Parliament/Parliamentary_Departments/Parliamentary_Library/pubs/rp/rp2122/Quick_Guides/COVID-19DisasterPayments.
A score to show how likely you are to be accepted for borrowing/credit. This is based on credit history: number of open accounts, total levels of debt, repayment history, and other factors.
A document a credit reporting body produces using your information supplied by credit providers and other sources. Includes information about your credit activity and current credit situation such as loan paying history.
An entity shall classify an asset as current when: a) It expects to realise the asset, or intends to sell or consume it, in its normal operating cycle; b) It holds the asset primarily for the purpose of trading; c) It expects to realise the asset within twelve months after the reporting period; or d) The asset is cash or a cash equivalent unless the asset is restricted from being exchanged or used to settle a liability for at least twelve months after the reporting period.
When the valuation of assets are calculated at their current market value as opposed to their historical value.
An entity shall classify a liability as current when: a) It expects to settle the liability in its normal operating cycle; b) It holds the liability primarily for the purpose of trading; c) The liability is due to be settled within twelve months after the reporting period; or d) The entity does not have an unconditional right to defer settlement of the liability for at least twelve months after the reporting period. An entity shall classify all other liabilities as non-current.
Processes that ensure any transactions for particular accounting period are isolated and recorded, and transactions that are not relevant excluded.
D
Customers who owe money to a business.
When a company is unable to meet a financial obligation to a creditor.
Expenses that aren’t relevant or included in the present accounting period are declared deferred expenditure as non-current assets. They are transferred to a profit and loss account only when they become current assets.
Income that is received or recorded before it is earned.
When income or liabilities exceed assets.
The systematic allocation of the depreciable amount of an asset over its useful life.
The expenses a business incurs to make a product or deliver a service, or when it buys a wholesale product for resale.
When a company takes over another company with a greater price/earning ratio than they currently have the deal is called dilutive to earnings. Companies that conduct such deals reduce their earnings per share (EPS).
Divulging accounting information in good faith so financial statements are understood.
A method of assessing investments which could reduce the value of cash flow.
After tax profits which are distributed to shareholders. Most small companies distribute dividends at the end of each financial year; however, larger companies usually distribute on a quarterly basis.
A system of accounting where every aspect of a transaction is recorded twice; as a debit and credit.
Money that is taken by a company owner for their own personal use. Not to be confused with wages.
E
The amount of wages, salary or service fees earned as compensation for products or services.
A businesses net profit for a specific accounting period, divided by their shares outstanding.
An abbreviation for 'earnings before interest and tax.'
An abbreviation for 'earnings before interest, tax and amortisation.'
An abbreviation for 'earnings before interest, tax, depreciation and amortisation.'
Money that is reserved for any purpose.
An aspect of a transaction that’s recorded in a journal or ledger.
End of financial year or fiscal year is a 12-month accounting period that a business uses for financial and tax reporting purposes. A fiscal year is also known as a financial year.
The residual interest in the assets of a company after deducting liabilities.
Money that is held by a third party until the fulfilment of specified conditions have been met.
The amount of non-taxable income.
Anything that is purchased for a business – stock, payment of salaries, etc. Expenditure affects income and profits and usually involves cash transactions.
Decreases in economic benefits during the accounting period in the form of outflows or depletions of assets or incurrences of liabilities that result in decreases in equity, other than those relating to distributions to equity participants.
F
The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
The price at which a willing buyer will pay a willing seller when both parties know the relevant facts about the supplied product or service.
Documents that present financial data such as balance sheets, income statements and cash flow.
Any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity.
Activities that result in changes in the size and composition of the contributed equity and borrowings of the entity. Impairment loss. The amount by which the carrying amount of an asset exceeds its recoverable amount. Income Increases in economic benefits during the accounting period in the form of inflows or enhancements of assets or decreases of liabilities that result in increases in equity, other than those relating to contributions from equity participants.
Strategic planning, organising, directing, and controlling of financial undertakings in an organisation or an institute. It also includes applying management principles to the financial assets of an organisation, while also playing an important part in fiscal management.
A period of 12 consecutive months chosen by a business as their accounting year. A fiscal year can begin on any date.
An asset with a lifespan that exceeds one year, such as vehicles, property, machinery and other long-term investments.
A cost that remains the same, such as salaries and rental agreements.
An estimate of the future finances of a company based on assumptions of past performance. A forecast usually includes a quantified amount.
The deliberate misuse or application of a company’s resources or assets.
A report that shows how a company’s balance sheet data has progressed from one accounting period to the next.
G
An abbreviation for 'generally accepted accounting principles.'
When money is borrowed with fixed interest with the purpose of leveraging that money for further financial gain. Also known as leveraging.
A repository for compiling all of a company’s accounting information. Also known as the book of entry, it provides all of the required data for preparing financial statements.
The difference between the fair value and book value of an asset. Examples of goodwill involve overpayment by way of upholding a company’s reputation or rewarding customers for their loyalty.
The profit margin before making any deductions or discounts.
The difference between revenue and the cost of goods sold, which represents the profit earned from the sale of goods or services before deducting operating expenses.
The difference between the cost of a product or service and the selling price. For example, if a product is sold for $100, but costs $70 for manufacture the gross margin would be 30%.
A method with which a business can grow. Growth explains how a company can grow and expand its operations. Acquisition is growth by buying other companies.
Goods and services tax (GST) is a tax of 10% on most goods, services and other items sold or consumed in Australia. If your business is registered for GST, you have to collect this extra money (one-eleventh of the sale price) from your customers. You pay this to the Australian Taxation Office (ATO) when it's due.
An online tool to help you calculate goods and services tax (usually 10%).
H
The original price of an asset, stock or material – often used in price change accounting to replace current prices.
I
An abbreviation for 'International Accounting Standard.'
A reduction in the carrying value of an asset that has exceeded its depreciation period.
Accounts that are not held in the name of a person that’s associated with customers or suppliers.
The money a business receives for its commercial activities.
A financial statement that shows a company's revenue and expenses, and the resulting net income or loss, over a specific period of time.
The date in which a business is legally established.
General business and administration expenses that aren’t directly linked to making products or delivering services. They’re the opposite of direct costs.
A payment to the lender of money. Usually calculated by percentage.
An identifiable non-monetary asset without physical substance.
The supply of stock or goods that a business has for sale.
Inventory that can no longer be sold. For example, clothing that has gone out of fashion or too much stock.
When there is a reduction of stock from reasons other than selling, such as theft.
The purchase of products or services that could increase profit.
People or businesses who have invested money into a business for a share of ownership.
The acquisition and disposal of long-term assets and other investments not included in cash equivalents.
A document that maintains a record of a transaction between a buyer and seller.
A document layout that makes it simple to create, edit, and customise your invoices.
J
A book or set of books used to record chronological business transactions.
When persons or businesses gather capital to provide products or services. Most joint ventures are carried out as business partnerships and make both parties responsible for the whole operation.
K
Those persons having authority and responsibility for planning, directing and controlling the activities of the entity, directly or indirectly, including any director (whether executive or otherwise) of that entity.
A quantified measurement used to calculate the performance of a business.
L
A rental agreement that grants a person or business the use of an asset for a certain amount of time.
A financial record that keeps track of business transactions. Journal entries are posted to be re-organised into accounts.
A present obligation of the entity arising from past events, the settlement of which is expected to result in an outflow from the entity of resources embodying economic benefits.
The availability of cash in the near future after taking account of financial commitments over this period.
A company where the liabilities of its owners are limited by how much they have contributed.
A general partnership where all of the partners have limited liability status.
A company that has shares available to buy and sell on a Stock Exchange.
Rules that are imposed by a Stock Exchange to companies whose shares are available to buy and sell.
Financial obligations that aren’t due for more than one year. Examples include mortgages and long-term loans.
When expenditure exceeds revenue.
M
When reports are tailored to suit the needs of company managers or directors instead of organisations that are not directly associated with the business. The purpose of management accounting is to help management make better decisions.
The difference between revenue and expenses.
Analysing sales and expenses for a certain accounting period in order to determine how much profit was made.
The repayment date of a liability.
When two organisations absorb into one entity and share assets and liabilities, yet no new entity is created.
The process of disguising illegally obtained funds so they seem legal.
A method of presenting data on graphs. For example, rather than having single figures at specific points of a graph, the figures are added together and divided; this results in a graph that moves smoothly. Moving average is often used to clearly display trends.
N
Failure to exhibit care that one ought to exhibit.
The financial status of a company after expenses and deductions have been taken into account. Also known as the net worth, net income and net profit. Fundamentally, the net represents the true value of a company.
The value of cash and assets minus company liabilities.
The difference between revenue and expenses, which represents the profit or loss of a company or individual.
The named value of a share when it is issued.
Assets that don’t meet the criteria of a fixed or current asset. Non-current assets can’t be touched. Examples include trademarks and copyrights, etc.
A company that exists for charitable reasons. Trustees and shareholders receive no financial benefits.
An asset that does not meet the definition of a current asset. Non-current liability A liability that does not meet the definition of a current liability. FS 024 Glossary of Accounting Terms Updated 3 December 2019.
O
When a business closes their books at the end of the year and a new set is opened.
The principal non-investment activities that keep a business operational.
A section within a company’s financial documents that explains the most important elements of the financial statements.
The period of time between the purchase of goods or services and the final delivery.
The ratio of the fixed operating costs to the variable operating costs.
When the cost of fixed operating costs is high and could cause a fluctuation in profits.
Buying the rights to purchase an asset for a certain period of time. For example, a business may option an asset for 6 months for 10% of the sale cost. During this time they do not own the asset; however, the company that does own it is not allowed to sell it during this period.
The principal revenue-producing activities of an entity and other activities that are not investing or financing activities.
A share of a limited company that entitles owners to a share of the dividend. Ordinary shares usually carry the highest risk but offer the biggest rewards.
The cost of running a business. Costs associated with production or sales are not included in overheads, only costs that consist of expense accounts, such as salary and rent.
P
A company that controls one or more subsidiaries.
An agreement between two or more people whereby they agree to conduct business together for profit. Unlike shareholders, partners are usually liable for the debts of a company.
When a buyer pays for goods or services only after they have been received.
Price to Earnings ratio - an equation used to determine how much confidence there is in a company’s shares: share price multiplied by net profit and divided by shares.
When the inventory balance is updated after every transaction.
A small sum of money that’s held in reserve. Petty cash is usually used for items of small value when another form of payment wouldn’t be suitable.
The place where a transaction is conducted.
Items that: a) Are held for use in the production or supply of goods or services, for rental to others, or for administrative purposes; and b) Are expected to be used during more than one period.
A type of share that’s issued by a limited company and allows the holder to have preference to receive a dividend before an ordinary share is declared.
The excess amount that is paid above face value.
An amount paid for in advance, such as insurance or rent for the forthcoming year. Pre-payments usually last for a certain period of time and will expire on a fixed date.
The present value of a sum of money in comparison its future value. Present value is used to analyse investment opportunities to determine whether they will provide a future payoff.
Information that would change the price of a share if known to the public.
A limited liability company that doesn’t have to offer shares to the public.
Hypothetical assumptions used to estimate future financial statements.
An account that is set up to accommodate a future payment, such as a bill that is yet to be received.
Money owed by the entity to its suppliers shown as a liability in the Statement of Financial Position.
A tool to help users understand their salary information.
The overall revenue of a business minus expenses.
The total of income less expenses, excluding the components of other comprehensive income.
A financial statement which shows the revenue, expenses and profit for a certain financial period. Also known as an income statement.
The percentage difference between the cost of a product or service and the price it’s sold for. The profit margin is also known as the mark up.
A liability of uncertain timing or amount.
Q
A report issued by an auditor when accounts are fairly presented, but do not comply with generally accepted accounting practices.
The opinion of investors regarding profit. Quality is considered poor during times of high inflation.
R
Materials purchased in order to manufacture products.
An arrangement to replace existing financing with funding from elsewhere.
When revenue can only be recognised when the goods or services that generated that revenue have been delivered.
A partial refund for overpayment or services that have been cancelled before they have ended. For example, if a 1 year insurance policy is cancelled after 3 months, the buyer may be entitled to a 9 month rebate.
A confirmation of payment, usually in written form.
A government official responsible for maintaining financial information and ensuring it doesn’t breach legal policies.
A transfer of resources, services or obligations between a reporting entity and a related party, regardless of whether a price is charged.
A measure used to calculate the cost of replacing an asset or liability.
An account that is set up to retain earnings. They are usually used to make balance sheets clearer, or if a company wants to reserve money against future purchases or liabilities.
Net income that is retained by a company rather than distributed to shareholders as dividends. Retained earnings are not spendable.
A profitability ratio most frequently calculated by dividing the gain from the investment by the cost of the investment. ROI is a very popular metric due to its simplicity. If an investment doesn’t have a positive ROI, it should not be undertaken.
A legally enforceable claim for payment held by an entity for goods supplied and/or services rendered that customers/clients have ordered but not paid for. Shown as an asset in the Statement of Financial Position.
The gross inflow of economic benefits during the period arising in the course of ordinary activities of an entity when those inflows result in increases in equity, other than increases in equity, other than increases relating to contributions from equity participants.
The possibility of financial loss. High risk investments require a higher return than low risk investments.
S
The total income received from selling goods or services.
A loan where the borrower pledges a particular asset in exchange for a loan. The lender then uses this asset as collateral.
A form of accounting used to separate divisions of a business for individual reporting.
Working for oneself as either a freelancer or business owner.
The owner of shares in a limited company or corporation.
A part of a company. After purchasing shares the buyer will receive a document stating what percentage of the company they own.
Interest that is applied to the original sum. For example, $1,000 invested over a three-year period with 10% will result in $1,300.
A fund used to set aside money over time in order to repay a debt or replace a wasting asset.
An abbreviation for 'Small and Medium Enterprises.'
A person who is the exclusive owner of a business, entitled to keep all profits after tax has been paid but liable for all losses.
An entity that is controlled by another entity. FS 024 Glossary of Accounting Terms Updated 3 December 2019.
The up-front capital that’s required to start a new business.
A basic financial statement that shows how changes in the balance sheet affects cash. The statement of cash flows is used to break down operating, investing and other financial activities.
Goods that are manufactured for sale or purchased for re-sale. Stock can also refer to shares within a limited company.
An organisation that sets the legal legislations for buying and selling shares. Also known as the stock market.
The average number of days in which inventory is held before a sale.
An alternative term for shareholders.
A method of estimating the financial wear-and-tear of an asset based on its expected use. The amount of straight-line depreciation is the asset price divided by the estimated number of useful years remaining. For example, the straight-line depreciation of an asset worth $5,000 that is expected to last five years is $1,000.
The amount of money that is owed to unsecured creditors after a company is liquidated.
A company that is controlled by a parent company.
The total of smaller items that are grouped together.
Money that has already been spent and cannot be recovered.
A temporary account with which funds are deposited before allocation to the correct place. For example, if there is too much money in one account, it will be transferred to a suspense account until its correct location is discovered.
T
A compulsory contribution to a state revenue based on income and business profits, etc.
Online service from the ATO for agents https://onlineservices.ato.gov.au/onlineservices/login.html.
A tool to help a user understand how much tax they’ll need to pay on their income.
A business expense that can lower the amount of tax you have to pay. It's deducted from your gross income to arrive at your taxable income.
An online tool to help you calculate your tax refund https://www.ato.gov.au/calculators-and-tools/income-tax-estimator/.
An asset of a physical nature, such as buildings, vehicles and machinery.
The levying of tax by the government against a person or business.
The real, total cost of an asset. For example, an asset may cost $1,000 up-front, but have an annual renewal fee of $200; therefore, assuming it’ll have a lifespan of five years, the TCO would be $2,000.
The income of a business over a particular period of time.
U
An account that shows the total of money that a company has received, but not banked or spent. Also known as a cash-in-hand account.
A limited liability company that is not listed on a stock exchange.
A creditor who doesn’t have a claim against a particular asset. If a company dissolves, an unsecured creditor must take their share of whatever is left.
A debt without any collateral attached to it.
Either: a) The period over which an asset is expected to be available for use by an entity; or b) The number of production or similar units expected to be obtained from the asset by the entity.
V
A process which involves determining the worth of a company's assets.
The difference between the estimated cost and the actual cost. An adverse variance is when the actual cost exceeds the planned cost; while a favourable variance is when the actual cost is cheaper than the planned cost.
W
Payments made to employees for their services.
The amount of money that’s withheld from an employee’s salary and paid (by the employer) to the correct authority.
The capital of a business which is used in its day-to-day trading operations, calculated as the current assets minus the current liabilities.
The total stock holding and customer collection period, minus the supplier payment period.
Partially completed goods or services that will be recorded as an asset upon completion.
A partial value reduction of an asset. A write-down is a non-cash expense that affects profits.
The total value reduction of an asset. A write-off is a non-cash expense that affects profits.
X
Your username and password that is used to log into your Xero account.
