Key Accounting Terminology for Freelancers, whether you are a freelance accountant helping out individuals or companies who are in need to get their account books in order or a small business owner, who is managing his business’ financial transactions and cash management all by himself along with handling other functions.
There are some key accounting terms that are necessary for the person who is freelancing accounting services or a small business owner who is responsible to keep his accounting books up-to-date. These terms should come handy while dealing into accounting. Having a strong grasp of accounting principles can be an essential strategy tool.
An investment that fetches returns over a period of time is known as annual return. The return can be in a variety of forms such as return of capital with appreciated value or in the form of dividends. Going beyond the simple arithmetic calculations, the annual return rates are geometrically calculated against the amount invested initially.
Asset is a value added economical resource that can be converted into cash. Cash itself is considered as asset.
The statement of financial balances of a business is called a balance sheet.
Cash Method and Accrual Method
In cash method income is recorded when cash is received and expense is recorded when cash is paid. In accrual method income is recorded when a transactions is done and expense is counted when product or service is received.
It is also known as company tax or corporation tax. In some countries corporate tax is also known as capital tax or income tax. Corporate tax is levied on the income generated in a certain period of time by employment or by holding a legal entity. Generally, partnerships are exempt from corporate tax at entity level. The tax is levied on net profit. The organizations who are generating income by doing a business in that particular company are liable to pay corporate tax.
An organization when makes payments to its shareholders is known as dividend. The dividend paid to the stockholders is a part of the profit made by the organization. The dividend can be reinvested or distributed among the shareholders. Some organizations practice retaining a portion of the earnings and pay the rest of the amount as dividends.
COGS (Cost of goods sold)
COGS are the selling of goods or materials in a particular period of time that a business holds for repairing and reselling.
A qualified accountant in Singapore is known as Certified Public Accountant (CPA).
Debit and Credit
The changing value due to business transactions in the form of entries made in the accounts ledger is known as debit and credit.
When the value of an asset decreases over a period of time it is known as depreciation.
The outflow of cash to an individual or a group in order to pay for a product or service is known as expense in accounting terminology.
A general ledger records the transactions of all the accounts related to a company’s equities, revenues, expenses, assets, and liabilities. A general ledger can be considered as the life line as it contains all the financial and non financial data of an organization.
Gross profit (GP) which is also known as sales profit is the difference between the generated revenue and the cost involved in production or offering a service. GP is calculated before deducting payrolls, taxes, interest payments, and overheads.
Is a tax legislation system designed for a contractual worker working for a client in the United Kingdom. The worker and the client are connected through an intermediary body. The client gets in touch with the intermediary body to employ the worker. If the client is not satisfied with the worker’s performance, discontinuation of the worker’s services is made through the intermediary company.
A bank account of a business to accept payments received through debit or credit cards. There is an agreement between the bank and the merchant for settlement of payment received through card transactions.
Net Income / Net Profit
Net profit or net income is the remaining money in hand after all the expenses are paid of the business. Net profit is divided by revenue and the profit is presented in percentage.
P&L (Profit and Loss Statement)
P&L is also addressed as revenue statement, financial performance statement, earning and operating statement, and operations statement. P&L statement is a company’s financial statement of revenues generated and expenses occurred in a particular period of time.
PAYE Stands for Pay-as-you-earn. It is the amount withhold from the remuneration paid to an employee. The amount that is withheld is considered as the advanced payment of due income tax.
PAYE Annual Return
It is also referred as employer annual return. The Paye annual return is consists of two forms – P35 and P14. PAYE annual return and company’s annual return are entirely different things. P35 form combines the year end payroll total of all the employees in the company. P14 form is for individual employee.
Real Time Information (RTI)
A real time information system immediately updates the appropriate master files made during a transaction. It generates a response in a fast time frame in order to keep an operation moving smoothly.
Revenue is also known as turnover. It is the income received by a company from its business activities offered to its clients in the form of products or services. Revenue is also received in the form of royalty or interest.
Vat is known as Value Added Tax. It is the tax paid on the purchase price by the buyer. VAT is the tax paid for value addition to a product.
About Author: I am James Meredith works as Accountant in Singapore. Apart from that I love sharing my knowledge with others. From this article get yourself acquainted with some of the key terminologies related to accounting. Freelance accounting service providers and small business owners can be benefitted by knowing these terms by heart.