RMD Accountancy Solutions Ltd

Glossary...

Quicklinks :

Term :	Definition :

Above the line	This term can be applied to many aspects of accounting. It means transactions, assets etc., that are associated with the everyday running of a business.
Account	A section in a ledger devoted to a single aspect of a business (eg. a Bank account, Wages account, Office expenses account).
Accounting cycle	This covers everything from opening the books at the start of the year to closing them at the end. In other words, everything you need to do in one accounting year accounting wise.
Accounting equation	The formula used to prepare a balance sheet: assets = liability + equity .
Accounts Payable	An account in the nominal ledger which contains the overall balance of the Purchase Ledger.
Accounts Payable Ledger	A subsidiary ledger which holds the accounts of a business's suppliers. A single control account is held in the nominal ledger which shows the total balance of all the accounts in the purchase ledger.
Accounts Receivable	An account in the nominal ledger which contains the overall balance of the Sales Ledger.
Accounts Receivable Ledger	A subsidiary ledger which holds the accounts of a business's customers. A single control account is held in the nominal ledger which shows the total balance of all the accounts in the sales ledger.
Accounting reference date	Date on which a company's financial year ends. This is normally 12 months after the previous accounting period ended or, for new companies, at the end of the twelfth month in which a company incorporated.
Accounting reference period (ARP)	Period covered by a company's annual accounts, usually one year.
Accounting Standards Board (ASB)	Produces formal statements of accounting standards that apply to all companies.
Accounts payable	Money owed by a company or individual for the goods or services they have received.
Accretive	If a company acquires another and says the deal is 'accretive to earnings', it means that the resulting PE ratio (price/earnings) of the acquired company is less than the acquiring company. Example: Company 'A' has an earnings per share (EPS) of £1. The current share price is £10. This gives a P/E ratio of 10 (current share price is 10 times the EPS). Company 'B' has made a net profit for the year of £20,000. If company 'A' values 'B' at, say, £180,000 (P/E ratio=9 [180,000 valuation/20,000 profit]) then the deal is accretive because company 'A' is effectively increasing its EPS (because it now has more shares and it paid less for them compared with its own share price). (see dilutive )
Accruals	If during the course of a business certain charges are incurred but no invoice is received then these charges are referred to as accruals (they 'accrue' or increase in value). A typical example is interest payable on a loan where you have not yet received a bank statement. These items (or an estimate of their value) should still be included in the profit & loss account. When the real invoice is received, an adjustment can be made to correct the estimate. Accruals can also apply to the income side.
Accrual method of accounting	Most businesses use the accrual method of accounting (because it is usually required by law). When you issue an invoice on credit (ie. regardless of whether it is paid or not), it is treated as a taxable supply on the date it was issued for income tax purposes (or corporation tax for limited companies). The same applies to bills received from suppliers. (This does not mean you pay income tax immediately, just that it must be included in that year's profit and loss account).
Accumulated Depreciation Account	This is an account held in the nominal ledger which holds the depreciation of a fixed asset until the end of the asset's useful life (either because it has been scrapped or sold). It is credited each year with that year's depreciation, hence the balance increases (ie. accumulates) over a period of time. Each fixed asset will have its own accumulated depreciation account
Acquisition	Receipt, by a person registered or liable to be registered for VAT, of goods that have been supplied by a registered person in another European Union (EU) Member State and removed from there to the UK.
Additional voluntary contribution (AVC)	These are contributions you can pay in addition to any contribution you have to pay as a member of a company pension scheme. AVCs can provide extra pension benefits.
Administration	The appointment of a licensed insolvency practitioner over a defaulting company either by a court, by a holder of a floating charge over the company's assets, or by the company itself. Administration has the primary purpose of rescuing the company by trading it back into solvency.
Administrator	Insolvency practitioner holding office in administration.
Advanced Corporation Tax (ACT - UK only - no longer in use)	This is corporation tax paid in advance when a limited company issues a dividend. ACT is then deducted from the total corporation tax due when it has been calculated at year end. ACT was abolished in April 1999. See Corporation Tax .
Aggregates levy	This is a tax on the commercial exploitation in the UK of rock, sand and gravel.
Allotment of shares	The process of allocating shares between shareholders usually pro rata or according to some prior agreement. The allotment may have conditions, which must be satisfied before the shares are issued, eg payment for them. This precedes the actual issue of shares.
Alternative investment market (AIM)	The junior stock market for younger, growth-oriented companies. New businesses, which have never traded, can join the Alternative Investment Market (AIM) - considered to be higher risk for investors, but with potentially higher rewards than the main stock market.
Amortisation	The writing off of the cost of goodwill or other intangible assets over a period of time.
Amortization	The depreciation (or repayment) of an (usually) intangible asset (eg. loan, mortgage) over a fixed period of time. Example: if a loan of 12,000 is amortized over 1 year with no interest, the monthly payments would be 1000 a month.
Annual accounts	Must be submitted to Companies House with the auditor's report, or an accountant's report for companies with turnover of less than £5 million and a balance sheet of less than £2.8 million. The accounts consist of a directors' report signed by a director or the company secretary, a profit and loss account, a balance sheet signed by a director, the auditor's report signed by the auditor or accountant's report signed by the accountant and notes to the accountants. The accounts must be laid before a general meeting of all members of the company. They must be approved by the meeting.
Annualise	To convert anything into a yearly figure. Eg. if profits are reported as running at £10k a quarter, then they would be £40k if annualized. If a credit card interest rate was quoted as 1% a month, it would be annualized as 12%.
Annual General Meeting (AGM)	Annual meeting of company shareholders where the financial statements for the previous financial year are presented. AGMs can also be used to appoint directors and auditors and allow shareholders to ask board members questions.
Appropriation Account	An account in the nominal ledger which shows how the net profits of a business (usually a partnership, limited company or corporation) have been used.
Arrears	Bills which should have been paid. For example if you have forgotten to pay your last 3 months rent.
At cost	The 'at cost' price usually refers to the price originally paid for something, as opposed to, say, the retail price.
Articles of Association	Set out the main rules for the way a company is to be run. Statutory Tables A to G set out what the articles should cover. Table A acts as the default for all companies limited by shares.
Assets	Assets represent what a business owns or is due. Equipment, vehicles, buildings, creditors, money in the bank, cash are all examples of the assets of a business. Typical breakdown includes 'Fixed assets', 'Current assets' and 'non-current assets'. Fixed refers to equipment, buildings, plant, vehicles etc. Current refers to cash, money in the bank, debtors etc. Non-current refers to any assets which do not easily fit into the previous categories (such as Deferred expenditure ).
Audit:	The process of checking every entry in a set of books to make sure they agree with the original paperwork (eg. checking a journal's entries against the original purchase and sales invoices).
Audit report	The result of the review of the annual accounts by the auditors. It must accompany the accounts when filed at Companies House. An unqualified report means that the auditors found nothing wrong with the accounts. If the auditors are concerned that the accounts are not a true reflection of the state of the company the report will be qualified by their comments on what they have found.
Auditors	Accountants appointed to review and report upon the annual accounts of a company. Only accountants qualified as members of one of the professional bodies recognised by legislation can act as auditors.
Audit Trail	A list of transactions in the order they occurred.

Bad Debts Account	An account in the nominal ledger to record the value of un-recoverable debts from customers. Real bad debts or those that are likely to happen can be deducted as expenses against tax liability (provided they refer specifically to a customer).
Balance	The amount available in your account after payment of service charges not including withdrawals or debits, or deposits not credited.
Balancing Charge	When a fixed asset is sold or disposed of, any loss or gain on the asset can be reclaimed against (or added to) any profits for income tax purposes. This is called a balancing charge.
Balance sheet	A financial statement at a given point in time. Summarising all the accounts of a business. Usually prepared at the end of each financial year. The term 'balance sheet' implies that the combined balances of assets exactly equals the liabilities and equity (aka net worth).
Bankrupt	If an individual or unincorporated company has greater liabilities than it has assets, the person or business can petition for, or be declared by its creditors, bankrupt. In the case of a limited company or corporation in the same position, the term used is insolvent .
Below the line	This term is applied to items within a business which would not normally be associated with the everyday running of a business. See above the line .
Bill	A term typically used to describe a purchase invoice (eg. an invoice from a supplier).
Bona fide	"In good faith" (Latin). In company law, this usually implies an amount of trust that the parties are acting without any hidden or ulterior motive.
Bought Ledger	See Purchase Ledger .
Burn Rate	The rate at which a company spends its money. Example: if a company had cash reserves of £120m and it was currently spending £10m a month, then you could say that at the current 'burn rate' the company will run out of cash in 1 year.

Capital Gains Tax (CGT)	This is a tax on profit made from the disposal of assets such as shares, unit trusts, property other than your home, and antiquities over and above your CGT exemption in any one year.
CAGR	(Compound Annual Growth Rate) The year on year growth rate required to show the change in value (of an investment) from its initial value to its final value. If a £1 investment was worth £1.52 over three years, the CAGR would be 15% [(1 x 1.15) x 1.15 x 1.15]
Called-up Share capital	The value of unpaid (but issued shares) which a company has requested payment for. See Paid-up Share capital .
Capital	An amount of money put into the business (often by way of a loan) as opposed to money earned by the business.
Capital account	A term usually applied to the owners equity in the business.
Capital Assets	See Fixed Assets .
Capital Employed (CE)	Gross CE=Total assets, Net CE=Fixed assets plus (current assets less current liabilities).
Capital Gains Tax	When a fixed asset is sold at a profit, the profit may be liable to a tax called Capital Gains Tax. Calculating the tax can be a complicated affair (capital gains allowances, adjustments for inflation and different computations depending on the age of the asset are all considerations you will need to take on board).
Capital Allowances (UK specific)	The depreciation on a fixed asset is shown in the Profit and Loss account, but is added back again for income tax purposes. In order to be able to claim the depreciation against any profits the Inland Revenue allow a proportion of the value of fixed assets to be claimed before working out the tax bill. These proportions (usually calculated as a percentage of the value of the fixed assets) are called Capital Allowances.
Cash Accounting	This term describes an accounting method whereby only invoices and bills which have been paid are accounted for. However, for most types of business in the UK, as far as the Inland Revenue are concerned as soon as you issue an invoice (paid or not), it is treated as revenue and must be accounted for. An exception is VAT : Customs & Excise normally require you to account for VAT on an accrual basis, however there is an option called 'Cash Accounting' whereby only paid items are included as far as VAT is concerned (eg. if most of your sales are on credit, you may benefit from this scheme - contact your local Customs & Excise office for the current rules and turnover limits).
Cash Book	A journal where a business's cash sales and purchases are entered. A cash book can also be used to record the transactions of a bank account. The side of the cash book which refers to the cash or bank account can be used as a part of the nominal ledger (rather than posting the entries to cash or bank accounts held directly in the nominal ledger - see 'Three column cash book').
Cash Flow Forecast	A report which estimates the cash flow in the future (usually required by a bank before it will lend you money, or take on your account).
Cash in Hand	See Undeposited funds account .
Charge Back	Refers to a credit card order which has been processed and is subsequently cancelled by the cardholder contacting the credit card company directly (rather than through the seller). This results in the amount being 'charged back' to the seller (often incurs a small penalty or administration fee to the seller).
Chart of Accounts	A list of all the accounts held in the nominal ledger.
CIF (Cost, Insurance, Freight [c.i.f.])	A contract (international) for the sale of goods where the seller agrees to supply the goods, pay the insurance, and pay the freight charges until the goods reach the destination (usually a port - rather than the actual buyers address). After that point, the responsibility for the goods passes to the buyer.
Circulating assets	The opposite to Fixed assets . Circulating assets describe those assets that turn from cash to goods and back again (hence the term circulating). Typically, you buy some raw materials, start to manufacture a product (the asset is called work in progress at this point), produce a product (it is now stock ), sell it (it is now back to cash again).
Climate change levy (CCL)	The climate change levy is a tax on energy used by businesses. The levy is charged on electricity, natural gas, liquefied petroleum gas and several forms of coal and coke.
Closing the books	A term used to describe the journal entries necessary to close the sales and expense accounts of a business at year end by posting their balances to the profit and loss account, and ultimately to close the profit & loss account too by posting its balance to a capital or other account.
Committed facilities	Agreements between lenders and borrowers to provide funds up to a specific amount at a specific interest rate for a specific period. Unlike uncommitted facilities, like overdrafts, they can't be removed on demand by the lender.
Community Interest Company (CIC)	A new kind of limited liability company designed for social enterprises, or organisations that operate for the benefit of the community and not solely for private profit. CICs are registered with Companies House in the same way as a normal limited company, but they must also be approved by an independent regulator. The regulator will apply a "community interest test" to ensure that the company is a social enterprise and an "asset lock test" to ensure that assets and profits of the enterprise are used principally for the benefit of the community.
Companies House (UK only)	The title given to the government department which collects and stores information supplied by limited companies. A limited company must supply Companies House with a statement of its final accounts every year (eg. trading and profit and loss accounts, and balance sheet).
Company seal	An embossing press used to indicate the official signature of a company when accompanied by the signatures of two officers of the company. Since 1989 it has been possible for a company to indicate its agreement by two signatures - those of the directors or secretary - accompanied by a formal declaration without use of the seal. However, some companies still prefer to use a seal and the articles of a company can override the law and require a seal to be used.
Company secretary	Appointed by the director/s. Responsible for ensuring that the legal obligations of the company are met. In a public company they must be suitably qualified so will usually be a solicitor or an accountant. They can be a director and their general responsibilities are set by the directors though they have specific responsibilities laid down in legislation on filing documents.
Company share option plan (CSOP)	Company policy giving employees the right to buy a certain number of company shares at a fixed price at some point in the future.
Compensating error	A double-entry term applied to a mistake which has cancelled out another mistake.
Cook the books	Falsify a set of accounts. See also creative accounting .
Compound interest	Apply interest on the capital plus all interest accrued to date. Eg. A loan with an annually applied rate of 10% for 1000 over two years would yield a gross total of 1210 at the end of the period (year 1 interest=100, year two interest=110). The same loan with simple interest applied would yield 1200 (interest on both years is 100 per year).
Contra account	An account created to offset another account. Eg: a Sales contra account would be Sales Discounts. They are accounts included in the same section of a set of books, which when compared together, give the net balance. Example: Sales=10,000 Sales Discounts=1,000 therefore Net Sales=9,000. This example, affecting the revenue side of a business, is also referred to as Contra revenue . The tell-tale sign of a contra account is that it has the oposite balance to that expected for an account in that section (in the above example, the Sales Discounts balance would be shown in brackets - eg. it has a debit balance where Sales has a credit balance).
Control Account	An account held in a ledger which summarises the balance of all the accounts in the same or another ledger. Typically each subsidiary ledger will have a control account which will be mirrored by another control account in the nominal ledger (see 'Self-balancing ledgers').
Corporation tax (CT)	A tax paid by companies on profits and termed gains.
Corporation tax self assessment (CTSA)	Tax return used to calculate and pay the corporation tax owed by a company based on its profits.
Corporation Tax (CT - UK only)	The tax paid by a limited company on its profits. At present this is calculated at year end and due within 9 months of that date. From April 1999 Advanced Corporation Tax was abolished and large (UK) companies now pay CT in instalments. Small and medium-sized companies are exempted from the instalment plan.
Cost accounting	An area of management accounting which deals with the costs of a business in terms of enabling the management to manage the business more effectively.
Cost-based pricing	Where a company bases its pricing policy solely on the costs of manufacturing rather than current market conditions.
Cost-benefit	Calculating not only the financial costs of a project, but also the cost of the effects it will have from a social point of view. This is not easy to do since it requires valuations of intangible items like the cost of job losses or the effects on the environment. Genetically modified crops are a good example of where cost-benefits would be calculated - and also impossible to answer with any degree of certainty!
Cost centre	Splitting up your expenses by department. Eg. rather than having one account to handle all power costs for a company, a power account would be opened for each department. You can then analyse which department is using the most power, and hopefully find of way of reducing those costs.
Cost of finished goods	The value (at cost) of newly manufactured goods shown in a business's manufacturing account. The valuation is based on the opening raw materials balance, less direct costs involved in manufacturing, less the closing raw materials balance, and less any other overheads. This balance is subsequently transferred to the trading account.
Cost of Goods Sold (COGS)	A formula for working out the direct costs of your stock sold over a particular period. The result represents the gross profit. The formula is: Opening stock + purchases - closing stock.
Cost of Sales	A formula for working out the direct costs of your sales (including stock) over a particular period. The result represents the gross profit. The formula is: Opening stock + purchases + direct expenses - closing stock. Also, see Cost of Goods Sold .
Creative accounting	A questionable! means of making a companies figures appear more (or less) appealing to shareholders etc. An example is 'branding' where the 'value' of a brand name is added to intangible assets which increases shareholders funds (and therefore decreases the gearing ). Capitalizing expenses is another method (ie. moving them to the assets section rather than declaring them in the Profit & Loss account).
Credit	A column in a journal or ledger to record the 'From' side of a transaction (eg. if you buy some petrol using a cheque then the money is paid from the bank to the petrol account, you would therefore credit the bank when making the journal entry).
Credit Note	A sales invoice in reverse. A typical example is where you issue an invoice for £100, the customer then returns £25 worth of the goods, so you issue the customer with a credit note to say that you owe the customer £25.
Creditors	A list of suppliers to whom the business owes money.
Creditors (control account)	An account in the nominal ledger which contains the overall balance of the Purchase Ledger.
Current Assets	These include money in the bank, petty cash, money received but not yet banked (see 'cash in hand'), money owed to the business by its customers, raw materials for manufacturing, and stock bought for re-sale. They are termed 'current' because they are active accounts. Money flows in and out of them each financial year and we will need frequent reports of their balances if the business is to survive (eg. 'do we need more stock and have we got enough money in the bank to buy it?').
Current cost accounting	The valuing of assets, stock, raw materials etc. at current market value as opposed to its historical cost
Current Liabilities	These include bank overdrafts, short term loans (less than a year), and what the business owes its suppliers. They are termed 'current' for the same reasons outlined under 'current assets' in the previous paragraph.
Custom and practice	In some industries there are trading terms or practices which have become established as normal and these are implied into a contract as custom and practice unless the contract actually states otherwise.
Customs and Excise	The government department usually responsible for collecting sales tax (eg. VAT in the UK).

Days Sales Outstanding (DSO)	How long on average it takes a company to collect the money owed to it.
Debenture	This is a type of share issued by a limited company. It is the safest type of share in that it is really a loan to the company and is usually tied to some of the company's assets so should the company fail, the debenture holder will have first call on any assets left after the company has been wound up.
Debit	A column in a journal or ledger to record the 'To' side of a transaction (eg. if you are paying money into your bank account you would debit the bank when making the journal entry).
Debtors	A list of customers who owe money to the business.
Debtors (control account)	An account in the nominal ledger which contains the overall balance of the Sales Ledger.
Deferred expenditure	Expenses incurred which do not apply to the current accounting period. Instead, they are debited to a 'Deferred expenditure' account in the non-current assets area of your chart of accounts . When they become current, they can then be transferred to the profit and loss account as normal.
Depreciation	The value of assets usually decreases as time goes by. The amount or percentage it decreases by is called depreciation. This is normally calculated at the end of every accounting period (usually a year) at a typical rate of 25% of its last value. It is shown in both the profit & loss account and balance sheet of a business. See straight-line depreciation .
Dilutive	If a company acquires another and says the deal is 'dilutive to earnings', it means that the resulting P/E (price/earnings) ratio of the acquired company is greater than the acquiring company. Example: Company 'A' has an earnings per share (EPS) of £1. The current share price is £10. This gives a P/E ratio of 10 (current share price is 10 times the EPS). Company 'B' has made a net profit for the year of $20,000. If company 'A' values 'B' at, say, £220,000 (P/E ratio=11 [220,000 valuation/20,000 profit]) then the deal is dilutive because company 'A' is effectively decreasing its EPS (because it now has more shares and it paid more for them in comparison with its own share price). (see Accretive )
Directors	Legal executives of a company. They take management decisions in board meetings. Directors are personally responsible for delivering accounts and the annual return on time. They also ensure that the registered office address is current and attended.
Directors' and officers' liability insurance	Insurance that indemnifies against any claims for compensation and legal fees for any actions on the part of the company directors or officers, which is outside of their duties, responsibilities or powers.
Distraint	The legal process which allows HM Revenue & Customs (HMRC) to take (the legal term is "seize") a taxpayer's possessions and, if necessary, sell them to settle a debt owed to HMRC.
Dividends	These are payments to the shareholders of a limited company.
Dividend	A payment to shareholders as a return on their investment in the form of cash, stock, or property. Dividends are declared from operating surplus. Dividend is also a term used by a licenced insolvency practitioner to describe the distribution of assets of an insolvent estate to the creditors of the insolvent business.
Double-entry book-keeping:	A system which accounts for every aspect of a transaction - where it came from and where it went to. This from and to aspect of a transaction (called crediting and debiting) is what the term double-entry means. Modern double-entry was first mentioned by G Cotrugli, then expanded upon by L Paccioli in the 15th century.
Drawings	The money taken out of a business by its owner(s) for personal use. This is entirely different to wages paid to a business's employees or the wages or remuneration of a limited company's directors (see 'Wages').

Earnings before interest and tax (EBIT)	Another variation is EBITDA - earnings before interest, tax, depreciation and amortisation.
EBIT	Earnings before interest and tax (profit before any interest or taxes have been deducted).
EBITA	Earnings before interest, tax and amortization (profit before any interest, taxes or amortization have been deducted).
EBITDA	Earnings before interest, tax, depreciation and amortization (profit before any interest, taxes, depreciation or amortization have been deducted).
Encumbrance	A liability (eg. a mortgage is an encumbrance on a property). Also, any money set aside (ie. reserved) for any purpose.
Entry	Part of a transaction recorded in a journal or posted to a ledger.
Equity	The value of the business to the owner of the business (which is the difference between the business's assets and liabilities).
Error of Commission	A double-entry term which means that one or both sides of a double-entry has been posted to the wrong account (but is within the same class of account). Example: Petrol expense posted to Vehicle maintenance expense.
Error of Ommission	A double-entry term which means that a transaction has been ommitted from the books entirely.
Error of Original Entry	A double-entry term which means that a transaction has been entered with the wrong amount.
Error of Principle	A double-entry term which means that one or both sides of a double-entry has been posted to the wrong account (which is also a different class of account). Example: Petrol expense posted to Fixtures and Fittings.
Expenses	Goods or services purchased directly for the running of the business. This does not include goods bought for re-sale or any items of a capital nature (see Stock and Fixed Assets ).
Excise Duty	A UK duty charged on both UK produced and imported goods. Goods subject to excise duty include beer, wine, spirits and other alcoholic drinks, hydrocarbon oils (including fuel oil), and tobacco goods. The rate of duty is set separately for each product.

Going concern	Accounting concept that states a business should be valued on the basis that it will be continuing in business and able to use its assets for their intended purpose. The alternative would be a break-up basis which sets values according to what the assets could be sold for immediately - this is often much less than their value would be if they were kept in use.
Guarantee company	A company which has no share capital but the members have agreed, by way of guarantee, to pay a specified sum if the company is wound up. Commonly used for non-trading companies such as charities.

Incorporate	In company law means the legal act of creating a company. This differs from the contract law definition, which means inclusion in or adoption of some term or condition as part of the contract.
Individuals and trustees self assessment (ITSA)	Also known as income tax self assessment.
Insurance Premium Tax (IPT)	A tax on premiums received under taxable insurance contracts. All types of insurance risk located in the UK are taxable unless they are specifically exempted.
Issue of shares	When all or part of the authorised capital is allotted or allocated to persons who are then registered as the owners of the shares. Registration may be in paper certificate form or electronic, dematerialised form.

Landfill tax	This tax aims to encourage waste producers to produce less waste, recover more value from waste (for example through recycling or composting) and to use more environmentally friendly methods of waste disposal. The tax applies to waste disposed of at a licensed landfill site.
Limited liability	Usually refers to limited companies where the owners' liability to pay the debts of the company is limited to the value of their shares or the amount of their guarantee (guarantee company). But it can also apply to contracts where a valid limitation clause has been included in the terms - not all limitation clauses are valid.
Lower earnings limit (LEL)	This is the amount of salary that an employee can be paid without having to pay National Insurance. Once the salary exceeds the LEL then National Insurance is due on the entire amount of salary.

Memorandum of association	Statement of the name, purpose (objects), and liability of a company, signed by the first members as subscribers. For a limited company the type of limitation (shares or guarantee) and extent will also be stated. Other clauses can be placed in the memorandum if it is intended to make them permanent - articles are much easier to change. So the non-profit clause of a charity must be in the memorandum.

National Insurance (NI)	Payments made to the government out of earnings that entitle people to a state pension and other benefits. Contributions are paid both by an employee and the employer.
NIC	National Insurance contribution.
Non-executive director	A director who does not work full-time for a company but advises the other directors. Non-executive directors have the full powers and authority of any other director and can bind the company to any contract. However, it might be suspicious if a non-executive is signing contracts for trading goods and stock as they would not normally be involved. Although they might well be a signatory in large strategic contracts.

Ordinary resolution	A simple resolution passed by a company by more than half of those who vote on it. Usually all that is needed to authorise the directors to enter into a major contract or to ratify one they have already agreed. However, directors are usually assumed to have general authority to enter into any contract in the course of business and the other party to a contract is not required to check their authority.

Parent company	A company that owns - ie has more than 50 per cent of the voting rights in - one or more businesses (known as subsidiaries). Sometimes, the parent has less than 50 per cent but can control the board of directors of the subsidiary, ie it has the power to appoint and remove directors without referring to other shareholders.
Pay As You Earn (PAYE)	The collection system for the basic income tax of employees.
PAYE settlement agreement (PSA)	Voluntary agreement between a company and its HM Revenue & Customs office covering tax on certain expenses and benefits in kind. The agreement allows the business to pay the tax due without having to operate PAYE on them, enter them on a P11D or P9 or assess the National Insurance due on them.
Private companies	Companies with no minimum or maximum capital but that can be limited by shares or guarantee. Private compnaies cannot offer to sell shares to the public and so cannot be listed on the stock exchange. Private companies have "Ltd" after the company name.
Privity of contract	The principle that a contract is private to the parties that agreed to it. Historically this meant that if the contract affected or even named persons who should benefit from it, they could not sue to enforce it if they were not actual parties to the agreement. This principle has now been greatly undermined by statute and third parties can now sue to enforce contracts that affect them.
Proxy	A person who acts on behalf of another for a specific purpose. In a company a proxy is appointed to attend a meeting and vote on behalf of the shareholder that appointed the proxy. "Proxy" can refer to both the business making the appointment and the person appointed.
Public Limited Company (PLC)	A PLC must issue at least £50,000 worth of shares. Before it can start trading the company must hold 25 pence for each £1 share. A public company must have at least two directors and a company secretary. Public companies can be listed on the stock exchange but this is not compulsory.

Rateable value	Annual theorectical rental value assessed on commercial properties for the purposes of calculating business rates.
Ratification	Giving authority to an act already done. A resolution of a company in a general meeting can ratify an act previously carried out by the directors and a principal can choose to ratify an act of an agent that was beyond the power of the agent.
Receivership	The appointment of a licensed insolvency practitioner to take over the running of a company. The receiver is appointed by a creditor with a secured debt and the job of the receiver is to recover the debt either by taking the security and selling it or by running the business until the debt is paid off.
Rectification	The correction of a document by court order. The court can rectify a document that cannot be legally altered by anyone else - even the parties who created it. This includes company records and signed contracts.
Redemption of shares	Where a company issues shares on the terms that they can be bought back by the company. Not all shares can be redeemed - only those stated to be redeemable when they were issued. The payment for the shares must generally come from reserves of profit so that the capital of the company is preserved.
Registered office	The official address of the company as stated on the register at Companies House. Any documents delivered to this address are legally served on the company.
Restoration	A court order to restore a company to the register after it has been struck off. If a company has been struck off at the end of a winding up it can only be restored within two years - but if struck off for another reason, such as failure to file returns, it can be restored within twenty years. The usual reasons are to regain property the company owned when it was struck off or because it needs to be made party to a court case.

Service contract	Directors and officers are usually given service contracts that are formed differently from a contract of service, which is a more formal description of an employment contract. This is because directors and officers are not always employees.
Special resolution	A resolution requiring a majority of three quarters to vote in favour of it. Used for particular types of resolution as set out in legislation, eg a change of name or alteration to the articles.
SSAP	Statement of standard accounting practice.
Stamp Duty (SD)	Tax on transactions. Only applied to specific types of transactions, eg dealings in land buildings shares and ships.
Stamp Duty Land Tax (SDLT)	The tax payable to the government upon the transfer of ownership of a property or share.
Stamp Duty Reserve Tax (SDRT)	Tax payable on the purchase of shares in UK companies and foreign companies with a register in the UK.
Statement of auditing standards (SAS)	Statement detailing the practices, responsibilities and procedures which all auditors must abide by when completing an audit.
Striking off	The removal of a company's name from the official register kept at Companies House. Signifies the official death of the company. Its name can then be taken by a new company, but its registration number cannot be reused.
Subsidiary company	A company that is over half owned by another company - its parent company.

Table A	Standard form of articles of association for a company limited by shares. Companies limited by guarantee or unlimited must file full articles or specifically adopt one of the other tables. Table A provisions act as default terms to cover points not expressly mentioned in the company's own constitution.
Transfer of shares	An existing shareholder transfers issued shares to another person who is then registered as the holder of those shares.

Upper earnings limit (UEL)	Employees pay National Insurance contributions on earnings between the Lower Earnings Limit and the UEL. An additional 1 per cent is paid on all earnings over the UEL.

Value added tax (VAT)	A tax on the final consumption of most goods and services. It is collected at every stage of production and distribution. If in any period of 12 months or less your taxable turnover exceeds the registration threshold or there are reasonable grounds for believing that your turnover in the next 30 days alone will exceed the registration threshold, you must register with HM Revenue & Customs for VAT. For Example : an item that sells at £10 will be priced £11.75 when 17.5% VAT is added

Wages	Payments made to the employees of a business for their work on behalf of the business. These are classed as expense items and must not be confused with 'drawings' taken by sole-proprietors and partnerships (see Drawings ).
Work in Progress	The value of partly finished (ie. partly manufactured) goods.

Zero Based Account (ZBA)	Usually applied to a personal account (checking) where the balance is kept as close to zero as possible by transferring money between that account and, say, a deposit account.
Zero Based Budget (ZBB)	Starting a budget at zero and justifying every cost that increases that budget.