Glossary | ARMS Version 6.2

Please explore the terms and their definitions below to help expand your understanding of accounting, inventory, dismantling, and bookkeeping terminology.

Account

A record of a business transaction. When you buy something on credit, the company you are dealing with sets up an "account". This means it sets up a record of what you buy and what you pay. You will do the same thing with any customers to whom you extend credit.

Accounts payable

Is money you owe to suppliers and other business creditors as a result of purchases of stock and other expenses such as overheads and taxes.

Accounts receivable

A record of what is owed to you. All of the credit "accounts" - the record of what each customer owes you - taken together are your "accounts receivable".

Audit

Detailed checking of the financial records of a business by an independent qualified person (auditor) in order to verify their correctness or to detect errors or fraud.

Australian Business Number (ABN)

An identifier for dealings with the Australian Taxation Office and for future dealings with other government departments and agencies.

Bad debts

Money owed to you that you can't collect.

Balance

The amount of money remaining in an account. The total of your money in the bank after accounting for all transactions (deposits and withdrawals) is called a "balance".

Balance sheet

An important business document that shows what a business owns and owes as of the date shown. Essentially a "balance sheet" is a list of business assets and their cost on one side and a list of liabilities and owners' equity (investment in the business) on the other side with the amount for each. The liabilities include all that the business owes.

Bank reconciliation

A comparison between the bank’s record of transactions and the record of the firm’s cash book. After taking into account such items as unpresented cheques and bank charges etc., the two records should show an identical balance.

Bookkeeping

The process of recording business transactions in the accounting records

Break-even point

The point at which volume of sales is enough to cover all costs.

Budget

An estimate of expenses and revenue required.

Business Activity Statement

A single form used to report business tax entitlements and obligations, including the amount of GST payable and your input tax credits.

Business name

The name of a business officially listed in the state or territory Register of Business Names.

Capital

The total owned and borrowed funds in a business.

Cash

Includes all money in the bank, in the cash drawer and in petty cash. Banknotes, coins, bills and negotiable securities (like cheques) is cash. But so is the money you can draw on demand - your bank accounts or savings accounts also represent "cash".

Cash book

A record of cash payments and receipts, showing these under various categories.

Cash discount

A deduction that is given for prompt payment of a bill.

Cash flow

The flow of internal funds generated within the business as a result of receipts from debtors, payments to creditors, drawings and cash sales.

Cash receipts

The money received by a business from customers

Company

A business owned by a group of people called shareholders, which has its own legal identity separate from its owners.

Cost of goods sold

The total cost to the business of the goods sold during an accounting period. In its simplest form this is the sum of the opening stock plus all purchases less the closing stock.

Credit

An entry made on the right hand side of an account and indicating a gain to a liability, owner’s equity or revenue account.

Credit limit

The upper limit of credit that a business will allow a customer to have.

Creditor

A person or business to whom money is owed.

Current assets

Includes cash, short-term deposits, customers’ accounts, stock (includes work in progress, raw materials and finished goods), that will be converted into cash during the normal course of business, within a year.

Current liabilities

Short-term debts such as bank overdraft, creditors and provisions set aside to pay taxation and other commitments (for example, holiday or long service leave) and expected to come due within one year of the Balance Sheet.

Debit

To debit is to place an entry on the left-hand side of an account. A debit in a liability account makes it smaller. A debit in an asset account makes it larger.

Debt

That which is owed. If you borrow money, buy something on credit or receive more money on an account than is owed, you have a "debt.

Debtor

A person or business who owes money.

Depreciation expense

Gradual reduction of the value of a fixed asset and gradual application of this cost to the expenses of a business over the useful life of the asset.

Depreciation schedule

A table showing depreciable assets, the year each was purchased, its cost, the percentage by which it is depreciated each year and written down current value.

Direct costs

The costs incurred, in addition to fixed costs, as a result of manufacturing a product or providing a service. Direct costs are made up of direct material, direct labour and direct manufacturing or servicing costs.

Discount

A deduction made from the normal cost or purchase price.

Drawer

The person who writes a cheque in payment for goods or services.

Expenses

Costs incurred by a business in earning income, for example, rent, advertising, wages etc.

Finance

Money resources.

Financial statements

Formal reports prepared from accounting records describing the financial position and performance of the business.

Financial year

An accounting period of 12 months, often coincident, for convenience, with the fiscal year (1 July to 30 June).

Fixed costs

Costs, which are incurred by a business whether it is operating to generate income or not and which do not necessarily increase or decrease as a total volume of production, increases or decreases. Rent, for example, must be paid whether or not any business is accomplished.

GST-free

Some supplies are GST-free, which means you do not charge GST for them but you are entitled to claim input tax credits for anything acquired or imported to use in your business.

Gross

The total overall amount. For example, gross profit is the trading profit of a business without any deductions for business expenses.

Gross profit

The excess of net sales over cost of goods sold usually expressed as a percentage.

Income

Money that is being earned by the business.

Income statement

A financial document that shows how much money (sales) came in and how much money (costs) was paid out. Subtracting the costs from the sales gives you your profit and all three are shown on the income statement.

Input taxed

Some supplies are input taxed, which means you do not charge GST for them but neither are you entitled to input tax credits for anything acquired or imported to make the supply.

Input tax credits

You are entitled to an input tax credit for the GST included in the price you pay for an acquisition or the GST paid for an importation if it is for use in your enterprise.

Invoice

Document which shows the customer charges for goods delivered or work done.

Liquidate

To settle a debt or to convert to cash. This literally means to do away with.

Margin

The difference between the selling price and the purchase price of an item usually expressed as a percentage of the selling price. Compare mark-up.

Mark-up

The price increase between buying at wholesale and selling at retail often expressed as a percentage of the wholesale or cost price. Compare margin.

Net

What is left after deducting all charges (see gross).

Net profit

The remainder after all expenses of an accounting period are deducted from all revenue of the same period.

Not negotiable

Words often written on crossed cheques, which do not prevent the cheque from being transferred. See account payee only.

Operating expense

All the expenses normally incurred in running a business, during an accounting period, excluding the cost of goods sold.

Overhead

Expenses which are incurred in producing a commodity or rendering a service, but which cannot conveniently be attributed to individual units of production or service. Examples are heating, lighting etc.

Payable

Ready to be paid.

Pay As You Go (PAYG) instalments

Are the amounts you pay directly to the Commissioner of Taxation to meet your income tax and other liabilities and are usually paid each quarter.

Payee

Person to whom money is paid

Petty cash

A small amount of money kept for minor purchases for the business, which do not warrant writing a cheque.

Posting

Making entries in an account system or book from original documents such as invoices and receipts.

Profit

Total revenue less total expenses for a period of time calculated in accordance with generally accepted accounting principles.

Profit and loss statement

Statement of revenue and expenses showing the profit or loss for a certain period of time.

Profit margin

The amount that the price of a product or service is raised above its cost in order to provide a gross profit.

Rate of stock turnover (stock turn)

The ratio of cost of goods sold over average stock (at cost). This indicates how many times, on average, the entire inventory (stock) was sold and replaced during the year.

Ratio

The proportional relationship of one thing to another.

Receipt

A written acknowledgement of having received money or goods specified

Retail

To sell directly to the consumer, usually in small quantities in comparison with the total level of sales.

Sales

The total value of goods sold or revenue from services rendered.

Stock

Physical items (inventory) that a business uses in its production process or has for sale in the ordinary course of doing business.

Stock control

The method of determining how much stock should be held and how much needs to be reordered and when, with the aim of controlling stock holding costs while maintaining efficient operation of the business.

Stock turnover

The ratio of cost of goods sold over average stock (at cost). This indicates how many times, on average, the entire inventory (stock) was sold and replaced during the year.

Stock at valuation (SAV)

Stock valued at wholesale or cost price.

Supplies

In relation to the GST, supplies include the goods and services you sell through your enterprise and many other transactions such as providing advice or information, leasing out commercial premises or providing hire equipment.

Tangible asset

Something substantial or real that is capable of being given an actual or approximate value.

Tax invoice

A document generally issued by the supplier. It shows the price of a supply, indicating whether it includes GST, and may show the amount of GST. It must show other information, including the ABN of the supplier. You must have a tax invoice before you can claim an input tax credit on your activity statement (except for purchases of $50 or less).

Trade credit

An arrangement to buy goods or services on account, that is, without making immediate cash payment.

Trade discount

An allowance made by a seller to a buyer at the time of purchase, for the deduction of a percentage of the price, provided the payment is made within agreed terms.

Trial balance

A list of all balances in the ledger at a given time.

Variable costs

The costs additional to fixed costs of running a business, that can vary depending on the level of demand and activity.

Volume

An amount or quantity of business activity.

Wholesale

Selling in large quantities to businesses which will then resell to consumers in smaller quantities.

Workers’ compensation

Money paid to an employee to compensate for injuries received in connection with their work. All employers must insure against claims for this kind of compensation.

Workstation

A desktop digital computer that is conventionally considered to be more powerful than a microcomputer

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