Like many specialist subjects, accountancy and finance have developed their own terminology. Below are some of the most common terms but if you would like to add some of your own, please post a comment below.

Once we have quite a few additions I will incorporate them into a new list.

Income
The total funds generated by the business. The figure includes total sales as well as income generated from activities that are not sales related e.g. asset sales, interest and outside investments.

Sales
The major source of income for a business. When money is exchanged to purchase goods or services, a sale is made.

Cost of Goods Sold (also Direct Costs)
Costs that can be directly attributed to the manufacture or purchase of the product or service

Gross Profit
The profit remaining after the Cost of Goods Sold has been deducted from sales

Overheads (Indirect Costs)
The running costs of the business - its general operating expenses. These costs cannot be directly attributed to any particular product or service but are carried by the business as a whole (e.g. rent)

Net Profit
The Profit that remains after the Overheads have been deducted from the Gross Profit

Tax
The amount payable to Inland Revenue and is based on the Net Profit.

Net Profit after Tax
The amount of profit left that the owner(s) can draw upon for their own use

Drawings
Funds withdrawn by the owner from the business. They are not wages because the funds are not taxed at source (i.e. do not pay P.A.Y.E). As they are not a business expense any money withdrawn as Drawings will be subject to taxation

Variable Costs
Expenses that vary in direct proportion to sales e.g. Cost of Goods Sold

Fixed Costs
Expenses that remain unchanged regardless of sales e.g. rent, insurance etc.

Cashbook
A cashbook records cash into and out of the business and reflects ‘real-time’ activity (i.e. not items such as depreciation for example). By categorizing items of income and expenditure it is possible to determine which streams of revenue are the most lucrative and which expenses are the highest.

Bank Reconciliation
Although the cashbook reflects real-time activity it doesn’t record bank-generated items such as account fees, direct debit and automatic payments. These are however, recorded on the bank statement as are cheques when they are cashed. A bank reconciliation does just that – reconciles what you see on the bank statement to what you have recorded on the cashbook.

Assets
Described as either Fixed or Current. A Fixed Asset is anything relatively permanent, used for producing income either directly or indirectly. A Current Asset is anything held by a business which can be converted to cash quickly e.g. cash or claims to cash and are used to generate a flow of income.

Liabilities
These are the businesses debts. They can be short-term (e.g. goods purchases on credit) or long-term (e.g. bank loans).

Owner’s Equity
The owner’s interest in the assets of the business

Working Capital
Funds available to finance the day-to-day activities of the business.

Depreciation
The process of writing off the cost of an asset over time is known as depreciation.

Profit and Loss
This statement shows the profit made by a business in a given period. (Total Income – Total Expenses = Profit). It is always prepared at financial year-end but can be done at any time.

Cashflow
The cashflow is a running total of income and expenses. Usually compiled for 12 months into the future and so shows when funds are needed. It can also be used as a budgeting tool for achieving maximum profitability.

Balance Sheet
A financial report that shows where the business obtained its finance and what the finance was used for.

Break –Even
The minimum level of sales required to fully recover all the costs and expenses of the business without making