Accounting Made Simple: A No-Nonsense Guide to Financial Terms for SMEs

Let’s be honest—accounting jargon can be intimidating. But here’s the deal: understanding your business finances doesn’t have to be a headache. At TrueLedger Accounting, we’ve spent over 25 years cutting through the jargon to help businesses like yours thrive.

So, we’ve put together this no-nonsense guide to break down the financial terms that every SME owner needs to know. No fluff, no confusion—just simple, actionable insights to help you own your numbers like a pro.

Bookkeeping Basics

Bookkeeping is the foundation of your business finances. Here’s the lowdown on the terms you’ll encounter:

• Accounts Receivable: Fancy term for "money people owe you." Think unpaid invoices waiting to hit your bank account.

• Accounts Payable: The flip side—money your business owes to suppliers. Keeping this in check avoids awkward payment chases.

• Bank Reconciliation: Matching your records with your bank statements. It’s like balancing your wallet at the end of the day.

• Petty Cash: A small amount of cash kept on hand for minor expenses, like office supplies.

• Trial Balance: A summary of all your accounts to ensure your bookkeeping is accurate and balanced.

Tax Terminology

Taxes can feel like a minefield, but these terms will help you navigate it with confidence:

• VAT Return: The regular report that shows the VAT you’ve collected and paid. Stay on top of it to keep HMRC happy.

• PAYE (Pay As You Earn): The system that deducts tax from your employees’ wages before they even see it.

• Self-Assessment: Your annual personal tax return. It’s how HMRC knows what you’ve earned and what you owe.

• Corporation Tax: The tax your business pays on its profits.

• Capital Allowances: Tax relief for investments in business assets like equipment or machinery.

Financial Reports

These are your business’s report cards, giving you a clear picture of its health:

• Balance Sheet: A snapshot of what your business owns (assets) and what it owes (liabilities). Think of it as your business’s net worth tracker.

• Profit & Loss Statement: Also known as an income statement, this report shows whether your business is making or losing money over a period.

• Cash Flow Statement: Tracks the money coming in and going out. It’s your secret weapon for avoiding cash crunches.

• Debtors and Creditors Report: A report showing who owes you money (debtors) and who you owe money to (creditors).

Payroll Terms

Got employees? Payroll can be a maze, but these terms will keep you on track:

• CIS Returns: If you’re in construction, this is the tax system for contractors and subcontractors.

• P60: The annual summary of an employee’s pay and deductions. Think of it as their financial yearbook.

• P45: A document given to employees when they leave your business, summarizing their earnings and tax paid so far.

• Statutory Payments: These are the non-negotiables like sick pay and maternity pay. You’ve got to provide them—it’s the law.

• National Insurance Contributions (NICs): Payments made by both employees and employers to fund state benefits like pensions.

Advanced Accounting Terms

For those looking to level up their financial knowledge, here are some advanced terms:

• Depreciation: The reduction in value of an asset over time, like wear and tear on equipment.

• Accruals: Expenses or revenues that have been incurred but not yet paid or received.

• Retained Earnings: Profits that your business keeps after paying dividends to shareholders.

• Working Capital: The money available to cover your business’s day-to-day operations.

• Break-Even Point: The point at which your business’s revenue equals its expenses—everything after that is profit.

Why TrueLedger Has Your Back

At TrueLedger, we’re not just about crunching numbers—we’re about helping you understand them. Whether you’re a start-up or scaling up, we offer cost-effective, tailored solutions designed to reduce overheads, improve efficiency, and give you financial clarity.

From bookkeeping to payroll, VAT, and beyond, we’re here to make accounting simple and accessible. And hey, we’re not just here to help you survive—we’re here to help you thrive.

Let’s Simplify Your Finances

Understanding your finances is a game-changer. With this guide, you’re already one step closer to taking control of your business’s financial health.

Want to take it further? Drop us a line at accounts@trueledger.co.uk or visit our website to subscribe to our newsletter and get more tips like this straight to your inbox.

Your business deserves more than just a bookkeeper—it deserves a partner who’s as invested in your success as you are. Let’s make it happen.