Common Accounting Questions for a New Business Owner

Starting you own business brings in a lot of new concepts and terms. Here is a quick run through some of those we regularly encounter from new business owners.

What is the difference between: Turnover, Net Profit and Gross Profit?

Turnover: the amount of money taken by a business in a particular period.
Net Profit: the actual profit after working expenses not included in the calculation of gross profit have been paid

Gross Profit: a company’s residual (left over) profit after selling a product

What is the difference between: Management Accounts and Financial Accounts?

Management Accounts: is concerned with the provisions and use of accounting information to managers within organizations, to provide them with the basis to make informed business decisions.

 Financial accounting: is the field of accountancy concerned with the preparation of financial statements for decision makers, such as stockholders, suppliers, banks, employees, government agencies, owners, and other stakeholders

What is a Balance Sheet?

A financial statement that summarizes a company's assets, liabilities and shareholders' equity at a specific point in time. These three balance sheet segments give investors an idea as to what the company owns and owes, as well as the amount invested by the shareholders.

Assets - In the context of accounting, assets are either current or fixed (non-current). Current means that the asset will be consumed within one year. Generally, this includes things like cash, accounts receivable and inventory. Fixed assets are those that are expected to keep providing benefit for more than one year, such as equipment, buildings and real estate. 

Liabilities - Recorded on the balance sheet (right side), liabilities include loans, accounts payable, mortgages, deferred revenues and accrued expenses. Liabilities are a vital aspect of a company's operations because they are used to finance operations and pay for large expansions.

What are the benefits of forming a limited company over self-employment?

A limited company can bring tax savings, as you are able to take a dividend instead of simply taking a slice of company income home, as you would have done in self-employment.   And it might even change the way clients look at you .e.g. introducing yourself as director. People may also take the company more seriously.

When do you need to register for VAT in the UK?

A business must register for VAT if its taxable turnover for any consecutive 12-month period exceeds the VAT registration threshold. The current VAT registration threshold is £81,000 but this tends to increase every year.

What is the difference between depreciation and capital allowances?

Capital allowance refers to sums of money a UK business can deduct from the overall corporate or income tax on its profits.

Tax depreciation is the depreciation that can be listed as an expense on a tax return for a given reporting period under the applicable tax laws.

Depreciation is the gradual charging to expense of a fixed asset's cost over its useful life

Who needs to submit a CT600?

The company submits the CT600 however a employee may submit the CT600 on behalf of the company.

How can DIY Accounting help?

DIY accounting offers help to small businesses by providing a simple and easy way to handle finances and also providing many ways to get humane answers to hard to find questions through email or a personal online forum. DIY accounting as a family run business also provides a personalized and friendly approach to problems and solutions.   

 

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