Key terms

Debit (Dr) & Credit (Cr):

The core building blocks of double-entry bookkeeping; a debit increases assets/expenses or decreases liabilities/equity/revenue, while a credit does the opposite.

General Ledger (Nominal Ledger):

The main collection of all accounts used to record a business’s transactions, often structured via a Chart of Accounts

Trial Balance:

A list of all ledger account balances (debits and credits) to test whether the total debits equal total credits

Extended Trial Balance (ETB):

A worksheet that extends the trial balance to include year-end adjustments and split figures into the Statement of Profit or Loss and Statement of Financial Position. [1, 2]

Assets:

Resources owned or controlled by the business.

• Current Assets: Items expected to be converted to cash or used within one year (e.g., Inventories [stock], Accounts Receivable [trade debtors], and Cash and cash equivalents).

• Non-current Assets (Fixed Assets): Long-term resources used in the business over more than one year (e.g., premises, machinery, vehicles). [1, 2]

Liabilities:

Amounts the business owes to outside parties.

• Current Liabilities: Debts due within 12 months (e.g., Accounts Payable [trade creditors], short-term loans).

• Non-current Liabilities: Long-term obligations due after more than one year (e.g., long-term bank loans). [1, 2]

Equity (Capital):

The residual interest in the assets of the business after deducting all liabilities (owner's investment plus retained profits).

Revenue (Sales / Turnover):

The total amount of money generated from the sale of goods or services before expenses.

Expenses:

Costs incurred in running the business (e.g., rent, wages, utilities).

Cost of Sales (Cost of Goods Sold):

The direct cost attributable to the production of the goods or services sold.

Gross Profit vs. Net Profit:

Gross profit is Revenue minus Cost of Sales; Net profit is Gross profit minus all other operating expenses.

Retained Earnings:

Cumulative net profits kept in the business rather than paid out to owners.

Accruals:

Expenses or income that relate to the current accounting period but have not yet been paid or received in cash by the year-end (e.g., Dr Expense, Cr Accruals).

Prepayments:

Expenses paid in advance that relate to a future accounting period (e.g., Dr Prepayment, Cr Expense).

Debtor (Trade Receivables):

A customer who has received goods or services on credit and has not yet paid the invoice.

Creditor (Trade Payables):

A supplier or vendor who has provided goods or services to your business on credit, and whom your business has not yet paid.