Glossary of Terms

ABBREVIATED ACCOUNTS - Annual Accounts and reports of a REGISTERED company, from which some details have been omitted before filing at Companies House. A private company may file abbreviated accounts if it qualifies as a small or medium-sized company.

ACCOUNTING ASSET - an asset that can be given a monetary value.

ACCOUNTING DATE - the date to which a company makes up its accounts.

ACCOUNTING REFERENCE DATE - the date that indicates the end of an accounting period for a company.

ACID TEST RATIO - also known as Liquidity Ratio and Quick Ratio. Indicates the ability of a company to meet its short term debts.

ACQUISITION - the combining of two businesses/companies in such a way that the owner of one of the companies gives up their interest in exchange for money or other consideration. Also known as "takeover."

ADMINISTRATION ORDER - an order by the court, providing for the administration of a company's assets during a given period. The person managing this is known as an Administrator.

ADMINISTRATIVE RECEIVER - a person who is appointed, subject to a floating charge, to receive monies/property owed.

ADMINISTRATOR - a person appointed by the court to manage the activities and assets of a company that has been the subject of an Administration Order.

ALLOTTED SHARE - a share is allotted when an individual acquires the unconditional right to be included in the company's register of members. The individual who has that right is called the "allottee" of the share.

ALLOTTED SHARE CAPITAL - shares which have been issued and allotted (taken on) to individual members in a company.

ALLOTTEE - an individual who has acquired newly allotted shares in a company, therefore, gaining the unconditional right to be included in the company's register of members.

ANNUAL ACCOUNTS - financial statements that are normally prepared once a year.

ANNUAL RETURN - this document is a yearly update of key information regarding a company, such as ownership, directors' details, registered office, etc. It is a requirement under company law to file this document once a year.

ARTICLES OF ASSOCIATION - a document containing rules governing a company and its members.

ASSETS - items owned by a company/business.

AUDIT - the independent examination, and expression of an opinion, on the accounting statements of a company.

AUDITORS REPORT - report of the people who conducted the audit. Attached to the published accounts of limited companies in accordance with company law and accounting practice.

AUTHORISED CAPITAL - also known as "Nominal Share Capital."

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BAD DEBT - a debt that is unlikely to be paid, probably because of insolvency or fraud.

BALANCE SHEET - a statement of assets and liabilities. See the balance sheet page.

BANKRUPTCY - legal status imposed by adjudication of a court on an individual.

BLUE CHIP - a listed company, which because of its size, stability and history, commands a high level of respect from investors. It is interesting that the term stems from the high value chips used in gambling, which are coloured blue.

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CALLED UP SHARE CAPITAL - the amount that the company has required shareholders to pay on the shares issued.

CAPITAL - the amount belonging to the owners of a business

CAPITAL EMPLOYED - Net Worth plus Long-term Liabilities.

CERTIFICATE OF INCORPORATION - a document given by the Registrar of Companies to certify that a company has been incorporated under the Companies Act. As from the date on the certificate, the company acts as a separate legal entity.

CHAIRMAN'S STATEMENT - the published statement by the chairman of a company, which is included in the annual accounts. Usually found in the accounts of Public Limited Companies and should not be confused with the Directors Report.

CHAMBER OF COMMERCE - an association of business people within a given region/area, formed to promote and help commerce and industry in that particular area.

CHARITY - a body of individuals or trust established for non-profit making purposes.

CHARTERED COMPANY - a company incorporated by a charter granted by the Crown (Royal Charter).

CHATTEL - an item of personal property. The term is usually used to refer only to items in procession, sometimes excluding currency.

COMPANIES ACT - a statute regulating the formation, management, finance and dissolution of registered companies.

COMPANIES HOUSE - responsible for the formation of limited companies; ensure those companies file pertinent documents on time; also has a responsibility to make information available to the public. All limited companies must register with Companies House.

COMPANY LIMITED BY GUARANTEE - a company whose members do not contribute capital to the company, unless it is necessary to do so when the company is wound up. The amount contributed is usually nominal.

COMPANY LIMITED BY SHARES - a company in which the limit of a member's liability is the nominal value of the shares allotted to the member.

COMPULSORY WINDING UP - the winding up of a company under the Insolvency Act 1986, by the court.

CONSOLIDATED ACCOUNTS - bringing together the results of subsidiary companies into the group company accounts.

CORPORATION TAX - an amount charged on a company's taxable profits.

COUNTY COURT JUDGMENT (CCJ) - a debt that has been officially recognised and order is made by the court for payment of an outstanding debt made against the debtor. Will stay on official records for six years. CCJ's are 'settled' once the debt has been paid. A CCJ that has been settled promptly may be an indication that the company has been unable to amicably resolve a dispute with a supplier rather than demonstrating an inability to pay. Unsettled CCJ's, however, are a strong indication of problems.

CREDITORS - people who are owed money by a business. The figure quoted in a company's accounts is a snapshot at the end of the accounting period, not an average figure. This can be misleading if, for example, the company completed a very large purchase just before the end of the accounting period and has not yet settled it.

CREDITORS' COMMITTEE - a committee appointed by the creditors of a company in relation to which an Administration Order has been made, which assist the Administrator with his duties.

CREDITORS VOLUNTARY LIQUIDATION - this is a common reason for "winding up," when the directors have concluded that the company cannot meet its debts and is unable to continue trading. This allows an insolvent company to place itself into liquidation without the need for a court order.

CUMULATIVE PREFERENCE SHARES - the dividend on these shares is fixed and guaranteed. Where the company is unable to pay in any one year, the dividend accumulates. All cumulative preference shareholders must be paid before any other shareholder.

CURRENT ASSET - covers mainly stock, debtors and cash values.

CURRENT LIABILITY - short-term debts covering things such as trade creditors, short-term loans and bank overdraft.

CURRENT RATIO - Current Asset divided by Current Liabilities. Measures a company's cash flow and indicates their ability to meet its short-term debts.

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DEBENTURE - legal document securing loan finance. This may be a fixed or floating charge on the assets of the business.

DEBENTURE HOLDER - a person to whom a company is indebted and to whom the company has granted a charge over some or all of its property.

DEBTOR - an individual or business that owes money for goods or services supplied to them by another concern. The figure quoted in a company's accounts is a snapshot at the end of the accounting period, not an average figure. This can be misleading if, for example, the company completed a very large sale just before the end of the accounting period and has not yet been paid.

DEED - a document stating the promise of a person, which is executed with a particular formality to make clear that the person is to be bound by the promise.

DEFERRED SHARES - shares in a company bearing the restriction that no dividend can be paid to the shareholder for a financial year, unless ordinary shareholders are paid a certain amount of dividend for that year. Also known as Founder Shares.

DEPRECIATION - a calculation that spreads the cost of an asset over its useful life.

DIRECTOR - a person who manages and directs a company for its owners.

DIVIDEND - an amount paid by limited companies to their shareholders.

DORMANT COMPANY - a company that has no entries in company accounting records during the financial year.

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EMPLOYEE RATIOS - a set of ratios that use the number of employees or aggregate employee remuneration as a basis for the calculations.

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FINAL ACCOUNTS - accounts drawn up at the end of the accounting period. Usually refers to the Profit and Loss Account and Balance Sheet at the end of the financial year.

FINANCE HOUSE - an enterprise that finances credit purchases. Also known as a finance company.

FINANCIAL STATEMENTS - a statement, in monetary terms, of the results of an accounting entity's transactions over a given period.

FIXED ASSETS - any asset that is being held for use in the business, e.g. buildings, machinery, land, etc.

FIXED CHARGE - a charge given as security for the fulfilment of a financial obligation, which is a charge on a special identifiable item of property, giving the chargee the right to utilise that particular item of property if the obligation is not fulfilled.

FULL ACCOUNTS - "Full Accounts" is the term given to a set of accounts that is not either "Small" or "Medium". When a company files Full accounts you should see a profit and loss account, balance sheet and notes to the accounts. It must be noted that even if a company qualifies for either "Small" or "Medium" they are perfectly within their rights to still file Full accounts.

FLOATING CHARGE - a charge given as security for the fulfilment of a financial obligation in which the property charged is defined by naming a type of property. If the financial obligation is not fulfilled, the chargee has the right to utilise whatever property of that type happens to be owned by the giver of the charge at the time when the charge is enforced.

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GEARING - a comparison between the amount of external borrowing a company has and it's shareholder funds.

GOING CONCERN - an accounting concept that assumes a business has a continuing existence.

GROSS PROFIT - Sales, less cost of sales. Calculated in the trading account.

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HIGH COURT WRIT - these are records of writs issued against companies for a variety of civil proceedings, including monies owed. Also known as a Claim Form.

HOLDING COMPANY - the company that directly holds more than 50% of the ordinary voting shares in another company.

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INCORPORATION DATE - the date when a company was officially registered (the birthday of the company).

INDEMNITY - a promise to a person of reimbursement for losses incurred in defined circumstances, in particular, a promise to pay for goods or services supplied to, or to repay loans made to, a specified third party.

INSOLVENCY - the inability of a company or person to pay their debts as they fall due.

INTERIM ACCOUNTS - accounts drawn up for a time period less than the usual annual accounting period. The most common interim accounts are the six monthly accounts required for listed companies.

ISSUED SHARE - another term for allotted shares.

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JOINT VENTURE - a business association between two or more persons/ companies for a special purpose.

JUDGMENT DEBTOR - a person who has been declared by the courts to owe a certain sum of money to another.

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KEY RATIOS - key financial indicators of the performance of a company.

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LIABILITIES - what a business owes. They are broadly divided in the balance sheet into short term (current liabilities) and long term (capital).

LIMITED COMPANY - enterprise where shareholders liability is limited to investment. Can be public or private company.

LIMITED LIABILITY - the liability of a member of a company to contribute capital to the company that is limited to a known amount agreed between the company and the member.

LIMITED PARTNERSHIP - a partnership where one or more of the partners liability is limited to their capital input.

LIQUIDATION - termination of a company, where assets are turned into cash to pay off outstanding creditors. Another term for "winding up".

LIQUIDATION COMMITTEE - a body appointed by the creditors/members of a company in creditors voluntary winding up, which oversees the work of a liquidator who is not an official receiver.

LIQUIDATOR - the person appointed by a company's creditors to assess the company's assets and liabilities, to sell assets, pay liabilities and distribute the remaining monies to shareholders and creditors.

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MANAGEMENT ACCOUNTING - provision of data required by management, including planning and controlling activities, decision making on activities and safeguarding assets.

MANAGEMENT BUYOUT - an agreement made on the initiative of the company's managers, under which the company is paid money to give up its ownership of the business. Usually, the managers become the new owners of the business.

MEDIUM SIZED COMPANY - companies satisfying two out of three criteria, namely, Turnover less than £11.2 million; Net Worth not exceeding £5.6 million; Employees less than 250. A medium sized company may not disclose its turnover. However it needs to be remembered that just because a company qualifies for "Medium" status does not mean they must take advantage of it - they can and often do file "Full" accounts.

MEMBER - another name describing a shareholder in a company.

MEMBERS VOLUNTARY WINDING UP (LIQUIDATION) - a voluntary winding up.

MEMORANDUM OF ASSOCIATION - document stating important facts about a company, such as its legal status, country of incorporation, etc.

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NET ASSETS - Total Assets minus Total Liabilities.

NET BOOK VALUE - historical cost of a fixed asset less the accumulated depreciation of that fixed asset.

NET CURRENT ASSETS - current assets minus current liabilities.

NET WORTH - another term for owners' equity (shareholders funds).

NOMINAL SHARE CAPITAL - the total that could be invested into the company by its members. When a company is formed the Nominal Capital is established and written into the Memorandum of Association. This is the sum proposed to raise capital to carry on or continue business.

NON-CUMULATIVE PREFERENCE SHARE - see preference share.

NON-TRADING - a company is not doing business BUT may still have other accounting transactions going through its books.

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OBJECTS CLAUSE - found in the Memorandum of Association and gives the activities for which a company was incorporated.

OFFICIAL RECEIVER - a person appointed by the DTI to investigate the causes of insolvencies that are dealt with by the court.

ORDINARY SHARES - a class of share capital representing the ultimate power in a company.

OVERSEAS COMPANY - a company incorporated outside of the UK but that has a place of business in the UK.

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PAID UP SHARE CAPITAL - the nominal value of all issued (allotted) shares in a company less any amount not yet called on or partly paid.

PARTNERSHIP - two or more individuals engaged in business together.

PREFERENCE SHARES - a class of share capital that has preferential treatment for the payment of dividends and return of capital in the event of liquidation.

PRIVATE COMPANY - normally this type of concern raises capital from its founder members. It is conducted in private hands. It does not issue invitations to the general public to invest in it.

PROFIT AND LOSS ACCOUNT - an account showing the revenue received and the expenses incurred by a business during a specific trading period.

PUBLIC LIMITED COMPANY - a concern that is a public company. Public Quoted Companies would generally issue invitations to the public to invest in it.

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QUALIFIED AUDITORS' REPORT - a statement by the statutory auditor that can range from saying that they have not been present at the year end stock take to the existence of serious irregularities in record keeping.

QUICK RATIO - another term for the Acid Test Ratio. (Current Asset minus Stock divided by Current Liabilities).

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RECEIVERSHIP - when a company is unable to pay its debts it may be put into receivership. A receiver is appointed by a charge holder to run the business and they will sell its assets in order to pay off its debts.

REDEEMABLE SHARE - issued on condition that the company will buy it back at some time in the future.

REGISTERED OFFICE - a company's official address, which is notified to, and recognised by Companies House. It is a requirement of company law that all registered companies at Companies House have a registered office.

REGISTRAR OF COMPANIES - official appointed by the Secretary of State. His/her responsibilities include receiving and approving applications for incorporations, making available information to the general public, etc. He/she is responsible for the running of Companies House.

RETAINED PROFITS - the profits left in the business each year, if any, after all charges have been paid and dividends declared. This number is added, or subtracted if it is a loss, to shareholders' funds at the end of the year.

RETURN ON CAPITAL EMPLOYED - This ratio is a measure of how effectively a company is using its capital (Pre-tax Profit divided by Total Asset minus Current Liabilities and times by 100).

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SEQUESTRATION - (Scottish) Award of sequestration is a legal process for dealing with individuals who are unable or unwilling to pay their debts.

SHARES - documents entitling their holders to proportionate ownership of a company.

SHARE CAPITAL - this represents the ownership of the company. Distinguished between nominal (authorised) and issued share capital.

SLEEPING PARTNER - a partner in a firm who has contributed capital to the business but take no active part in its day-to-day activities.

SMALL COMPANY - companies satisfying two of three criteria, namely: Turnover not exceeding £2.8 million; Balance Sheet Total (net worth) not exceeding £1.4 million; and number of employees not exceeding 50. An abbreviated Balance Sheet is required but no profit and loss account needs to be filed. It must be remembered that just because a company qualifies for "Small" company status does not mean that they must file "Small" accounts - they can and often do file "Full" accounts.

SOLE PROPRIETOR (SOLE TRADER) - a person engaged in a business venture on his/her own. One owner.

STRIKING OFF NOTICE - as a result of a voluntary application or the non-filing of company documents, a company can be struck off the register and dissolved by the Registrar of Companies.

SUBSIDIARY - a company where in excess of 50% of its ordinary share capital is owned by another company.

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TRADE CREDITOR - trade suppliers that provide a business with goods/services on credit.

TRADE DEBTOR - customers who have received goods/services on credit.

TRADING ACCOUNT - part of a financial statement showing the amount of gross profit or loss and how it is derived from the turnover or net sales.

TRUST DEED - a formal legally binding agreement between an individual who is unable to pay his/her creditors and a licensed Insolvency Practitioner (the Trustee). The Trustee will put together a form of proposals to the Creditors for approval and administer the Trust Deed. A Trust Deed is a form of informal bankruptcy but still regulated by The Bankruptcy (Scotland) Act 1985.

TURNOVER - total amount of goods sold and other income received, by a company during an accounting period.

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ULTIMATE PARENT COMPANY - the company at the top of the corporate tree. Parent to the entire group, of which both the subject company and its holding company are part.

UNLIMITED COMPANY - an organisation with a separate legal identity but whose members do not have limited liability.

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VENTURE CAPITAL - money contributed to an enterprise, especially in the early stages of a new enterprise.

VOLUNTARY ARRANGEMENT - this allows a company with financial problems to reach a formal binding agreement with its creditors.

VOLUNTARY WINDING UP (VOLUNTARY LIQUIDATION) - when the members of a company decide (for whatever reason) to wind up the company.

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WINDING UP - the process of bringing to an end the life of a company.

WINDING UP ORDER - where the court has ordered that a company be wound up. This will mean the sale of the company's assets to raise revenue for payment of outstanding debts.

WORKING CAPITAL - current assets minus current liabilities. Indicates the liquidity of a company.

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YIELD - the rate of return on shares, relating cash received to cash invested and expressed as a percentage.

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