Accounting and Tax Glossary

Accounts Payable
Amounts companies owe suppliers for goods and services. Listed in the current liabilities section on the statement of financial position.

Accounts Receivable
Amounts customers owe a company from sales of goods or services that the company expects to collect within one year. Listed in the current assets section on the statement of financial position.

Actual Cost
Is the amount paid for an asset; not its retail value, market value or insurance value.

Annual Report
A report a company publishes for its stockholders at the end of each fiscal year. The report includes required elements such as an auditors’ report and the company’s statement of earnings, statement of financial position, and statement of cash flows. The report also includes elements such as letters and articles by the company’s executives, information on its financial condition, and significant events.

A firm of certified public accountants a company hires as an independent third party to review its financial information. The auditor’s main purpose is to make sure the statement of earnings, statement of financial position, and statement of cash flows fairly present the company’s financial condition.

Balance Date
For most businesses the accounting year ends on 31 March. This is their balance date.

Balance Sheet
A financial statement that reports a company’s assets and the claims against them – liabilities and stockholders’ equity – at a set date noted on the statement. Also called statement of financial position.

Business Income
This is income earned from goods and services you sell (including invoices you’ve issued but have not yet received payment for).

Capital Expenditure
Any expenditure that creates an asset, for example:

Purchase of plant or machinery
Improvements to assets that increase their usefulness or extend their useful life
Expenditure incurred in transporting an asset to its site and preparing it for use

Capital Gain or Loss
Is the difference between the market or book value at purchase or other acquisition and that realized from the sale or disposition of a capital asset.

A statement of detailing the source and application of a company’s funds for a reporting period.

A formal and legal entity in its own right, separate from its shareholders (or owners).

Company Constitution
The rules under which a company operates Under the Companies Act 1955, these were known as the “Articles of Association”.

Are the entities to which a debt is owed by another entity.

Current Liabilities
Short term liabilities, e.g. bank overdraft, creditors, loans due within 12 months.

Can be short or long term. Characterised by lower risk to the capital provider compared with equity capital.

Spreading the cost of assets over their useful life. In accounting terms, this typically uses the historic cost of fixed assets as its base, rather than changes in the replacement cost of the assets.

A deemed disposal is:

An asset that is compulsorily acquired
An asset taken out of New Zealand (other than only temporarily)
Changes in use or location of use of a business asset
Ceasing intangible asset rights
An asset that is irreparably damaged
Any distribution of assets (including distributions of assets to the beneficial owners for no cost
Ceasing deemed ownership of a fixture or improvement
An asset that is lost or stolen if that asset is not recovered in the income year when the loss or theft occurs

Company profits paid to shareholders according to the proportion of the company they own.

The money that you take out of a business to either live on and/or pay any personal expenses. Drawings are part of the net profit and not a business expense.

The part of a businesses assets that belongs to the stockholders. In other words, the amount that would remain if a business sold all of its assets and paid off all of its liabilities.

Costs associated with producing business income, for example, paying wages, rent, buying stationery; but not including capital expenditure.

Financial Year
A company’s usual 12 month reporting period.

Fixed Assets
Plant, equipment, land and other ‘physical’ assets.

Fringe Benefit Tax (FBT)
A tax on benefits that employees receive or enjoy as a result of their employment.

An intangible asset that adds value to the worth of a company; for example, the reputation of its products, services, or personnel. It is listed in the asset category.

Gross Profit
The difference between a businesses total sales and its cost of sales. Listed as a category on the statement of earnings. Also called gross income.

Goods & Services Tax (GST)
Goods and services tax is a 15% tax on the consumption of most goods and services in New Zealand. When you start up a business, you may be required, or may choose, to register for GST and then charge it on the goods/services you produce. GST is not a tax on your business. Instead, your customers/clients pay GST when buying your goods or services, you are in effect only collecting it.

Imputation Credit
A tax credit received from a company for tax it has already paid on the profits it derives.

Income Statement
A financial statement that reports the results of a businesses operations (revenue and expenses) for a set period, usually one year.

Liquid Asset
An asset which can be quickly converted into cash.

Net Debt
Interest bearing debt (both current and non current) – cash (at bank, on hand and in short term deposits).

Net Profit
Business income minus allowable expenses.

Non-Profit Organisation
A non-profit organisation is any society, association or organisation:

Not carried on for the profit or gain of any member, and…
Whose rules do not allow money, property, or any other benefits to be distributed to any of its members

Operating Revenue
Income from the sale of goods/services. Excludes items such as sale of assets and investment income.

Where two or more people are in a business partnership. Each partner contributes something to the business and, in return, receives a share of any profit or loss.

Profit and Loss Account
The statement of revenues and expenditure, including the ‘bottom line’ for accountants. Statement of financial performance.

Provisional Tax
Tax paid in instalments during the year based on what you expect your income to be, or what it was last year. Kind of a pay as you go tax.

Resident Withholding Tax
An amount of tax deducted from investment income. For example, when banks pay interest they deduct resident withholding tax before paying the recipients.

The total flow of funds into a company, mostly for sales of its goods or services. Listed as the first category on the statement of earnings.

Sole Trader or Soletrader
A person trading on their own. The business is controlled, managed and owned by that person.

Tax Credit
A credit for tax that has already been deducted or paid on your behalf. An example is PAYE, when your employer makes a PAYE deduction from your wages. At year end, you will have a tax credit equal to the total amount of tax deductions made during the tax year. Another common example is resident withholding tax (RWT), where interest is taxed at source (for example, at the bank). The person receiving or entitled to interest will receive a tax credit (RWT credit) for the amount of tax deducted.

Terminal Tax
Terminal Tax is Income Tax paid in the year after the profit was earned.

Total Assets
All the assets on a business statement of financial position.

Total Liabilities
All the liabilities on a business statement of financial position. Equates to (i.e. ‘balances’) total assets.

Total Revenue
Operating revenue together with investment income and any abnormal gains and losses.

Withholding Tax
Tax deducted by your customer. For example a self-employed labour only builder working mainly for one customer, maybe a construction company. The construction company removes withholding tax on payments to the builder for Inland Revenue. This is allows IRD to collect income tax as profit is earned during the year. This often is used for “higher risk” tax payers.