Want to sort out your Assets from your Accruals? Here are some commonly used accounting terms so you can talk like an accountant!
ABN – Australian Business Number – an unique 11 digit identifier issued by the Tax Office to enable you to be identified by government, other businesses and the public.
Accrual – an adjustment made in accounting records to recognise an expense which has been incurred but is not yet payable.
Amortisation – the process whereby you claim the cost of intangible capital items over the lifetime of the asset (eg company set up costs).
Asset – an item of value which can be exchanged for cash or can be used by a business to generate income. It can be tangible (eg a computer) or intangible (eg goodwill).
BAS – business activity statement. Quarterly or monthly report to the Tax Office that business report their GST on.
Capital expenditure – the amounts spent for tangible assets that will be used for more than one year in the operations of a business.
Capital gains tax – the amount of tax paid on a capital gain (that is the ‘profit’ of selling an asset). It is not a separate tax. The gain is included in taxable income and tax calculated based on the usual tax rate of the entity making the gain. If the gain is made by an individual and the asset was held for more than 12 months, 50% of the gain is disregarded and not included in income.
Commercial hire purchase – a method of financing where the customer hires an asset from the financier and in return pays a fixed monthly repayment over a set period of time. After the end of the finance period, the asset is owned by the customer.
Company – a business structure which is an entity which is legally separate from the owners of the business (it’s shareholders). It is governed by the Corporations Act 2001.
Contractor – a personal or business that enters into a contract with another person or business for work, usually at a fixed price. They are not employees of a business and are not legally bound by an employment contract.
Creditor – a person, bank or other enterprise that has lent money or extended credit to another party.
Debtor – a person, bank or other enterprise that is owed money from another party.
Deductions – expenses incurred by taxpayers in the course of earning income and which can be applied against income to reduce the amount of tax that is paid.
Depreciation – the process whereby you claim the cost of capital items over the lifetime of the asset.
Employee – an individual who works part-time or full time under a contract of employment (which can be oral or written, and express or implied) and has recognised rights and duties.
FBT – fringe benefits tax. A Tax that your employer pays if they provide you with fringe benefits (eg entertainment, company car, paying personal expenses.
Foreign resident (for tax purposes) – someone who is visiting Australia on a temporary basis and therefore is not required to pay tax in Australia unless income has been earned in Australia.
Franking credit – amount attached to a dividend paid by a company. The shareholder is entitled to a credit for the amount of tax the company has already paid. This ensures that the income is not double taxed.
GST – Goods and services tax a tax on most goods and services since 1 July 2000.
Lease – a contractual arrangement calling for the lessee (user) to pay the lessor (owner) for the use of an asset.
Liability – an entity’s legal financial debts or obligations that arise during the course of business operations.
Luxury car tax – a tax on luxury vehicles where the GST inclusive cost of the vehicle exceeds $66,331 (2018/19 year). Luxury car tax is 33% of the amount over the threshold.
Marginal tax rate – the tax rate payable on each additional dollar of income. Because Australia has a progressive tax system, the percentage of tax payable on a dollar of income increases. For example, if your income is $80,000, for every additional dollar you earn over this amount you will pay 32.5 cents in tax. Your marginal tax rate is 32.5%.
MYOB –Commercial accounting software for small businesses to enable them to take control of their finances.
Non concessional superannuation contribution – a contribution made by an individual made from after tax income and for which you have not received a tax deduction.
Novated lease – a lease arrangement where by an employee leases a motor vehicle and the employer agrees to take on the obligations of making the lease payments. It’s a three way agreement between the employer, employee and a finance company. If the employee ceases to be employed by that employer, all obligations revert to the employee (or novated to a new employer).
Partnership – a business structure that involves two or more people who carry on a business together.
PAYG payment summary – old enough to remember a ‘group certificate’? same thing! Issued by your employer every year to show the amount of wages you have been paid, the tax that has been withheld, the value of any fringe benefits you have received and any reportable superannuation contributions made by your employer.
Payroll tax – a tax imposed on employers and calculated as a percentage of the salaries that employers pay their employees. It is a tax imposed by state and territory governments and varies depending on which state workers are based. All states have a threshold over which payroll tax is paid.
Salary packaging (or salary sacrifice) – an arrangement between you and your employer where some items and services (eg computers, cars, childcare etc) are paid straight from your pre-tax salary. This reduces your taxable income and potentially results in you paying less tax. Some items may be subject to fringe benefits tax which is paid by employers.
SMSF – Self Managed Superannuation Fund. A way of saving for retirement. The difference between an SMSF and other types of fund is that the members of the SMSF are also the trustees of the fund which means the members of the fund run it for their own benefit.
Sole trader – a business structure whereby a person trades as an individual legal entity with responsibility for all aspects of the business.
Superannuation guarantee – the 9.5% super payment your employer makes for you.
Trust – an obligation imposed on a person (a trustee) to hold property or assets (including business assets) for the benefit of others (beneficiaries).
XERO – Commercial accounting software for small businesses to enable them to take control of their finances.
What did I forget? If you have any accounting words that you hear but aren’t too sure what they mean, head over to my contact page and send me an email!