8 Accounting Terms Made Simple!

Updated: Dec 16, 2020

We’ve made it quick and convenient for you to learn 8 common terms used by professionals in the accounting, tax & finance industry.

1. Direct Cost

If you produce a natural shampoo, conditioner or body scrub etc., your raw materials would be a direct cost. Or, if you are a hair stylist or lash tech, you’ll classify the cost of the braiding hair or lashes used on your clients as a direct cost.

2. Dividends

A sum of money usually paid annually to the shareholders of the company out of its profits (after tax). Some Directors use their dividend as a salary as well as paying themselves a monthly wage.

3. Assets

Something valuable that a business owns. For example: Equipment, Cash, Property etc., however, assets can be non-physical too such as trademarks or copyrights.

4. Capital Gain

This term is a little bit on the less common side when it comes to Accounting terms. But, to make it simple, it is the gain/profit made from the sale of property or an investment.


Short for ‘Pay as you earn’ which is the income tax and national insurance contributions deducted from your payslip as an employee.

6. Personal Allowance

A term used for personal tax returns, e.g. self-assessments and changes annually. This personal allowance is the amount of income you do not have to pay tax on, this includes taxable income beyond being self-employed. The allowance for the current tax year 6 April 2020 to 5 April 2021 is £12,500.

7. Accruals

An accrual showing in your financial accounts, reflects when something is owing. For example, an expense that has been consumed but not yet paid for. Another example, salaries earned by employees in one accounting period but not yet paid until the next accounting period.

8. Liabilities

Liabilities is the opposite of Assets. It is not what a business OWNs but what it OWES. Common liabilities are bank loans.

Annnnnd, that's all.

Did you learn anything new? We understand not everyone comprehends accounting jargon nor do they appreciate when we use it without further explanation.

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