Glossary of Accounting terms
Accrual-Adjustment made at the end of an accounting period to recognize expenses that have been incurred during the period but for which no invoice as yet been received.
Assets- Any possession or claim on others which is also of value to the organisation, they can be
- Fixed– valuable items that last more than one year, eg. Vehicle, furniture, equipment, IT, investments.
- Current– cash or things that can be turned into cash within a short period, eg. stock, money in the bank,petty cash, prepayments and debtors.
Audit
A formal check on the accounts by an independent person. A Registered Auditor must follow a set of guidelines issues by the Audit Practice Board. The Auditor does not say that the accounts are correct, but simply expresses an opinion on the accounts. Auditors must be registered in accordance with the 1989 Companies Act.
Balance Sheet
A summary of the financial position of an organisation at a particular date, showing the assets owned by the organisation and the liabilities (or debts) owed to others.
Creditors
These are people you owe money to at any particular time. In the year end accounts they will be listed under liabilities.
Debtors
Money owed to the organisation. Although debtors are considered an asset, if you are owed a vast amount, this might indicate problems collecting monies owed and possible cashflow difficulties.
Deferred grants
These will be grants received in one period but actually intended for spending in a future period. Sometimes this may be called Grants in Advance or Advance Receipts.
Depreciation
Depreciation is a way of spreading the cost of an asset over the expected useful economic life of that asset. A proportion of the original cost is charged to the to the Income and Expenditure account over an internally agreed period of time.
Independent Examination
This is a service, similar to an audit, where a group’s accounts are checked by an independent person. There are rules for who can do this, and guidelines on how it should be done. It is of particular relevance to charities.
Liabilities
Money you owe to others. These can be current (payable within one year) or long-term.
Net Current Assets
This is a figure that appears in the Balance Sheet. It comprises the current assets less the current liabilities. It can be a very important figure. For example, you may have total assets of £1,000,001, but if a million of this is an old building and only £1 is in the bank then it’s not so good.
Prepayments
These are services that the company has paid for in advance, but not used during the accounting period.
Receipts & Payments or Cash Accounts
These are accounts prepared to show simply what money has been received & paid out through the bank and petty cash during the accounting period, showing opening and closing balances.
Reserves
Each year income is received and expenditure incurred resulting in a surplus or deficit. Year-on-year, this builds up as a reserve, which can be:
Restricted – money where the donor has specified what it must be spent on;
General – uncommitted unrestricted reserves;
Designated – unrestricted money the Trustees have set aside for a particular purpose.
SOFA
Statement of Financial Activities. Not to be confused with a comfy piece of furniture! This is the name for the Income and Expenditure Account for Charities.
SORP
This is the Statement of Recommended Practice for Charities and it sets out the regulations for accounting by charities. Larger charities must follow the SORP. Smaller charities have different (easier) regulations to follow.
Statement of Assets and Liabilities
This is an accounting statement common in the accounts of smaller charities. It’s a list of what you own (fixed assets, etc) and owe (creditors, etc).
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Community Accounting Plus, Nottingham