Accountancy Terms Explained: Simple Definitions for Small Business Owners
Chrissy Leach • 15 December 2025
Making sense of the jargon so you can focus on running your business.
Running a business means wearing many hats and understanding your finances is one of the most important ones. But accounting terms can sometimes sound like a different language. To help, we’ve put together a simple guide to common accountancy terms you’ll see on reports, invoices, or from your accountant, explained in plain English.
Assets
Things your business owns that have value - for example, cash, stock, vehicles, or equipment. Assets are what help your business operate and generate income.
Liabilities
The opposite of assets - these are what your business owes to others. That includes loans, unpaid bills, or taxes due.
Equity
Equity is what’s left when you subtract your liabilities from your assets. It represents the owner’s share of the business, often referred to as “net assets.”
Directors, Shareholders and Sole Traders
In the UK, there are different ways to run a business, and each comes with its own responsibilities.
- A sole trader runs the business as an individual (referred to as being self-employed) - you keep all the profits after tax but are personally responsible for any debts.
- A shareholder owns part (or all) of a limited company. Profits can be paid to shareholders as dividends.
- A director manages the day-to-day running of a limited company. Many small business owners are both directors and shareholders, meaning they can take a salary and dividends as income.
Understanding which structure applies to you helps ensure your accounts and taxes are handled correctly.
Turnover (or Revenue)
Your total sales or income before any expenses are taken off. It’s a key measure of how much your business is bringing in.
Profit
What’s left after all costs have been deducted from your turnover.
- Gross profit is your sales minus the direct costs of making or buying your products.
- Net profit is what’s left after all expenses, including overheads and tax.
Expenses
The costs of running your business, such as rent, insurance, travel, or subscriptions. Keeping track of expenses is essential for accurate accounts and tax returns.
Cash Flow
Cash flow shows how money moves in and out of your business. A positive cash flow means more money is coming in than going out which keeps things running smoothly.
Accounts Payable
Money your business owes to suppliers, often referred to as creditors.
Accounts Receivable
Money owed to your business by customers, sometimes called debtors.
Balance Sheet
A snapshot of your business’s financial position at a specific point in time (usually your accounting year end). It shows assets, liabilities, and equity all in one place.
Profit and Loss Account (P&L)
A report showing your business income and expenses over a period (usually your accounting year). It tells you if you made a profit or a loss.
VAT (Value Added Tax)
A tax added to most goods and services. If your business is VAT-registered, you’ll need to charge VAT on sales and submit returns to HMRC. You'll need to register for VAT if your taxable turnover exceeds the threshold, there's more information on this here.
Corporation Tax
If you run a limited company, you’ll pay Corporation Tax on your company’s profits each year.
Dividends
Dividends are payments made by a limited company to its shareholders from profits after Corporation Tax. They’re a common way for director/shareholders to take income, alongside a salary. Dividends must be supported by enough profit in the company, and each payment should be documented with a dividend voucher and board minute.
Self-Assessment
If you’re self-employed or receive other untaxed income, you’ll need to file a Self Assessment tax return to HMRC to calculate and pay your Income Tax and National Insurance.
Need help making sense of your accounts?
At CJL Accountancy, we believe finance doesn’t have to be complicated. We explain things clearly, help you understand your numbers, and make sure you’re compliant with HMRC - without the jargon.
📞 Get in touch
to find out how we can make your accounts simple and stress-free.
Many business owners underestimate the real cost of employment beyond the salary they agree to pay
Learn how to read rental accounts and identify the key figures every UK landlord should monitor.
Learn how to read self-employment accounts and identify the key figures every UK sole trader should monitor.
Learn how to read limited company accounts, understand FRS 105 and FRS 102 Section 1A, and identify the key figures every UK company director should monitor.
A UK Chartered Accountant’s Guide for Business Owners and Taxpayers
With anyone able to call themselves an accountant in the UK, choosing a Chartered Accountant gives you greater protection, expertise, and peace of mind.
Confused about Making Tax Digital? Here’s whether you really need an accountant, and how to stay compliant without the stress.
If you’ve been asked to pay tax in July, it’s likely a payment on account. Here’s how it works, how it’s calculated, and what to do if you can’t pay.
MTD ITSA first quarterly update explained for UK sole traders and landlords. Deadlines, what to file, and how CJL Accountancy can help.
The UK government has increased the statutory mileage rates from 6 April 2026 - here’s exactly what it means for you.
