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Lyra's Business Directory (Part 1)

I was sitting down to review the various blogs I have written over the last year and realised that I have been using terms and phrases that are peculiar to the accounting world but mean little to non-accountants.

This being the case, I thought it would be helpful if I came up with a brief dictionary of words and phrases that accountants love to use:

Asset

A Labrador or any other dog; this is something that belongs to the business that has a value and is available to meet the liabilities of the business.

Balance Sheet

Nothing to do with keeping upright on a sheet, merely a list of assets and liabilities.

Cloud Accounting Software

Xero is recommended by all dogs especially me(!) as you can rely on it, it is always by your side and ready to help you. Other cloud accounting packages are available and are recommended by cats, but are you really going to put your faith in something a cat has dragged in?

Current Liability

Any breed of cat. This is something that the business owes to another party such as suppliers, HMRC, banks who have lent the business money etc. that has to be paid within the next 12 months.

Debits and Credits

Accountants love these terms as it helps them get to sleep at nights as they mutter, “For every debit there has to be a credit”.  

It’s a bit like an outtake from “Animal Farm”.

“Debits on the Balance Sheet good, credits on the Balance Sheet bad” which then turns into:
“Credits in the Profit and Loss Account good; debits in the Profit and Loss Account bad”.

Deferred Tax

As far as I can see, this is an accountant’s idea of fun and does not involve the payment of tax in the short term. 

HMRC will sometimes allow you to deduct 100% of the cost of an asset in calculating the taxable profits which is greater than the depreciation charge for the same asset in the accounts. Deferred tax aims to smooth the tax charge in the profit and loss account without impacting the tax payable. Without this adjustment the profit and loss tax charge would be all over the place (a bit like a cat on its nightly wanderings).  

Jonathan has promised me he will write a blog to explain how this works, using my favourite milk bones, so I can fully appreciate the logic of deferred tax. 

Is it wrong to say that I can hardly wait?

Desktop Software

Does this still exist?

This used to be the basis for a game of ping pong between accountants and their clients who needed urgent help: 

“Please send me the backup file”

“What do you mean it is too big to be sent over the internet?” 

“Can you drop off a memory stick (and hopefully no virus on it)?”

“Memory stick has arrived in the post; what’s the password” 

“Got the password but what version are you using?” 

“Version 9(!) but we are using version 23 so we have no way of opening it” 

“Ok, found an old machine, have dusted it off and are now upgrading to V15” 

“Still won’t open so have found another machine with V20 on it; fingers crossed this will work” 

“Yes we can access the data but what’s the software password?” 

“Got the password and we are in and able to help; what’s the question?” 

“Slight problem, your accounting data is out of date, can you send an up to date back up?”

Fixed Asset

Strangely these can move. These are assets which are purchased for long term use by the business such as office buildings, plant and equipment, vans etc.

Goodwill

What a Labrador will show you when you come home from work, unlike a cat. The value placed on a business’ brand name, its customer base and good customer relations etc.

Intangible Asset

Just like a Labrador’s love. Something that has a value but without a physical existence; such as “goodwill”.

Long Term Liability

A young cat expected to live for a long time: liabilities that are not due to be repaid within the next 12 months.

To be continued (where I will define some profit and loss accounting terms) as I can see Jonathan is attempting to generate some goodwill by taking me for a well earned walk.

Need some advice?

If you would like information on how Xero can help you run your business and to avoid the crash diet approach, please get in touch with the lovely team at Rowdens who will be only too pleased to help you.

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