Where transactions of a similar nature are recorded. 

Examples are:

• Motor Vehicle Expenses
• Bank Fees
• Accounts Payable
• Plant & Equipment

A number or abbreviated word associated with an Account.

309 – Bank Fees
400 – Motor Vehicle Expenses

How similar Accounts are grouped together in the financial statements.

Sales
Expenses
Current Asset
Fixed Assets
Non-current Liabilities
Equity

An Accountant can fill many roles to help your business. 

The traditionally perceived Accountant prepares financial statements, tax returns, and offers advice on those topics.

You’ll also find Accountants who can perform one or more specialty services.

• Financial reporting
• Auditing
• Business structuring
• Complex tax advice 
• Advisors to improve your business’ performance
• Budgets and Forecasts
• Internal controls
• Risk management
• Bookkeeping
• Sounding board for ideas

A document which primarily shows how your business performed in the past year (Profit and Loss Account), along with the assets owned and liabilities owed at the end of the year (Balance Sheet).

Also called Financial Statements.

Amounts you owe suppliers for goods and services you’ve purchased.

Also called creditors

Amounts customers or clients owe you for goods and services you’ve sold to them.

Also called Debtors.

These are physical items you own and include motor vehicles, accounts receivable, cash, and fixed assets.

We normally divide assets into two types:

1. Current assets – those which are expected to be used or converted to cash within 12 months
2. Non-current assets (including Fixed Assets and Intangible Assets) – held for longer than 12 months (such as term deposits and share investments) and used to generate revenue for the business

If the asset costs less than $1,000 we can claim it as an immediate deduction against taxable income.

If you’ve recorded the sale as income but later find out you’re unlikely to receive (full) payment, the debtor should be written off as a Bad Debt expense in the Profit and Loss Account. We don’t want you paying tax on income you’ll never receive.

The last day of the period covered in your financial statements. For most businesses in New Zealand, this is 31 March. 

This forms part of your Annual Accounts and is a snapshot in time, listing everything your business owns and everything that your business owes to others. The Balance Sheet is almost always recorded at Balance Date.

A Bookkeeper is a person who records the business’ everyday activities. These include paying invoices, recording transactions in the accounting system, being responsible for payroll, reconciling and checking different Accounts.

You may find that a Bookkeeper is also called an Accountant, which is technically correct. However, Accountants will usually look at financial information at a higher level, rather than individual transactions.

The purchase price of a Fixed Asset less all of its Depreciation claimed to date.

Also called Carrying Value.

Your expectation of income and expenses over a specific period – usually a month or year. It’s usually set out in the same format as a Profit and Loss Account.

A Budget can sometimes be confused with a Cash Flow Forecast. The difference is that a Cash Flow Forecast looks at all expected cash transactions, not just those in the Profit and Loss Account.

The Cash Flow Forecast would include payments for fixed assets and repaying loans.

An Expense that can be deducted from your taxable income, reducing the tax to pay.

Note – Non-deductible Expenses are Business Expenses because they are incurred while running the business, but they are Non-Deductible for tax purposes.

Check out our blog What expenses can my business claim?

The net balance of business assets that belongs to the owner(s). In other words, the amount that would be left over once all business assets have been sold and liabilities paid.

Also called Equity and Owners’ Equity.

Money spent on something that will last longer than one year, such as a company vehicle, a computer or even the development of your website. 

For tax purposes, we can claim 100% of the cost immediately if it’s less than $1,000. Otherwise, it becomes a Fixed Asset and we use Depreciation to write off its cost over a number of years).

The purchase price of a Fixed Asset less all of its Depreciation claimed to date.

Also called Book Value.

An estimation of your cash transactions during the year. This will include income and expenses, but also planned asset purchases, repayments of loans, and Drawings.

A Cash Flow Forecast can sometimes be confused with a Budget. The difference is that a Cash Flow Forecast looks at all expected cash transactions, not just those in the Profit and Loss Account.

A Budget focuses only on items in the Profit and Loss Account.

A report showing all past cash transactions during the period, separated into categories – operating, financing (for example, loans), and investing activities (for example, fixed assets). 

A list of all Accounts and their Account Codes within the accounting system you use to record your transactions.

One way to carry on business activities. A Company is a legal entity in its own right and completely separate from its shareholders. 

The most common reasons for setting up a Company are to:

• Limit a Shareholder’s liability to Company Creditors in the event of legal action
• Make it easier to have multiple owners
• Project a more professional image 

Expenses relating to making a sale of your product or providing services. They are usually purchases of goods to resell, materials used in construction, subcontractors, wages for those in the sale process. These types of expenses would typically increase and decreased depending on sales – there’s usually a direct correlation.

Also called Direct Costs or Direct Expenses.

Amounts you owe suppliers for goods and services you’ve purchased.

Also called Accounts Payable.

An Asset that is expected to be turned into cash within 12 months of balance date. The most common are bank, Accounts Receivable, Inventory.

A Liability that is usually to be paid within 12 months of balance date. The most common examples are Accounts Payable, PAYE, Income Tax.

Amounts customers or clients owe you for goods and services you’ve sold.

Also called Accounts Receivable.

Depreciation is a non-cash expense and applies to Fixed Assets. There are two ways to think of this:

1. Accounting for the normal wear-and-tear of the Fixed Asset as a Business Expense each year –it reduces the value (and future selling price); and
2. Claiming the cost of the Fixed Asset over a number of years (the cost of assets less than $1,000 can be immediately claimed as a Business Expense).

If assets cost more than $1,000 will be applied based on the maximum rates from Inland Revenue.

Depreciation spreads the cost of a Fixed Asset Purchase over their useful life and is a Business Expense which reduces your tax bill. 

The rate at which the cost of a Fixed Asset can be spread over the expected useful life of the asset.

For tax purposes, Inland Revenue sets the maximum Depreciation Rates which depends on the type of Asset.

Expenses relating to making a sale of your product or providing services. They are usually purchases of goods to resell, materials used in construction, subcontractors, wages for those in the sale process. These types of expenses would typically increase and decreased depending on sales – there’s usually a direct correlation.

Also called Cost of Sales or Cost of Goods Sold.

One way to pay company profits to its shareholders.

Money or assets you physically take out of the business for personal use.

Drawings are not Business Expenses and therefore not deductible for tax purposes.

The net balance of business assets that belongs to the owner(s). In other words, the amount that would be left over once all business assets have been sold and liabilities paid.

Also called Capital and Owners’ Equity.

All costs incurred during the year which aren’t Assets or repayment of loans.

Expenses can be divided into Business Expenses (tax deductible) and Non-Deductible Expenses.

Check out our separate blog – What expenses can I claim for my business?

When a Shareholder has a Company vehicle available for personal use, the Company should get compensated – similar to a rental vehicle situation. Your accountant will make a Manual Journal to account for this (non-cash) adjustment. The company records this as Taxable Income.

Also called Motor Vehicle Reimbursement.

A document which primarily shows how your business performed in the past year (Profit and Loss Account), along with the assets owned and liabilities owed at the end of the year (Balance Sheet).

Also called Annual Accounts or Annual Report.

A twelve-month period usually from 1 April to 31 March for most New Zealand businesses.

Property, plant, equipment, motor vehicles, office furniture, and other ‘physical’ assets that cost more than $1,000.

We claim Depreciation on Fixed Assets as a Business Expense each year.

A tax on benefits that employees receive as a result of their employment. An example is the use of a company car.

Consider two employees’ salary packages. Mary has $50,000 plus the use of a company vehicle worth $15,000. Bob has a salary of $65,000 and no company vehicle. Their packages have the same value, but if there was no FBT, Mary would pay tax on $50,000 but Bob would pay tax on $65,000.

FBT rectifies this situation by requiring the employer to calculate Mary’s benefit value, file an FBT return and pay the amount owed.

Money or assets you put into your business to start it or support it.

A list of all transactions that took place during the financial period, typically showing the date, description, and amount of each transaction. The summarised form of a General Ledger is a Trial Balance.

Also called GL.

Goodwill is an Intangible Asset that has value to a business but doesn’t physically exist. Goodwill is usually tied to the reputation of the business and the business’ customer/client base.

As a rough guide, Goodwill is usually the price you pay for a business, less the value of its Assets and the amount to repay Liabilities.

A tax that’s ultimately paid by the everyday consumer.

GST-registered businesses charge 15% GST to customers and are charged GST by your suppliers. The difference between what you have charged and what you have paid is then paid to, or refunded by, Inland Revenue.

Sales less Cost of Sales. Your gross profit should be enough to cover your other expenses and pay yourself a wage.

A tax credit that a company receives for income tax it’s already paid to Inland Revenue. The Imputation Credits are passed on to shareholders when a dividend is declared.

The shareholder’s dividend income is still taxable, but the Imputation Credit can reduce the tax bill.

The net effect is that the shareholder doesn’t pay tax on the dividend income. The company has already paid the tax on this income.

The amount that your customers pay you in return for the products or services that you supply.

Also called Revenue and Sales.

One of the key pages in any Annual Report is the Income Statement. 

It’s usually for a one-year period and lists your Income and Expenses, with the final line being your Net Profit. 

Also called Profit and Loss Account and Statement of Profit and Loss.

An Asset that cannot be physically touched. The most common examples are Goodwill, trademarks, and patents.

Inland Revenue charges these penalties when tax payments are not paid on time and / or when the return is not filed or time.

These penalties can be imposed on all tax types – GST, Income Tax, FBT, PAYE, etc.

These costs are not tax deductible.

An amount owed by the business to others.

These are usually classified as Current Liabilities (payable within one year) and Non-Current Liabilities (payable after more than one year).

A transaction that doesn’t go through your bank account. It’s usually prepared by the accountant for year-end (tax) adjustments.

When a shareholder has a company vehicle available for personal use, we make a Manual Journal to account for this (non-cash) adjustment. The company records this as Taxable Income.

Also called FBT Reimbursement because it’s a benefit enjoyed by the shareholder.

The net profit is usually the last line of the Profit and Loss Account and represents Sales less all Business Expenses.

A Non-current Liability is a Liability expected to be repaid after more than 12 months. 

Examples are bank loans and asset financing arrangements.

For a business, this is considered a cost of doing business but not deductible for income tax purposes.

Examples are:

• Penalties and fines
• 50% of some business entertainment
• Certain legal expenses

The net balance of business assets that belongs to the owner(s). In other words, the amount that would be left over once all business assets have been sold and liabilities paid.

Also called Capital and Equity.

One of the key pages in any Annual Report is the Profit and Loss Account. 

It’s usually for a one-year period and lists your Income and Expenses, with the final line being your Net Profit. 

Also called Statement of Income.

When your tax bill is higher than $5,000, Inland Revenue requires that you ‘prepay’ your tax for the following year. It avoids having to pay a large lump sum at the end of the year.

Provisional Tax is usually paid over three instalments – August, January, and May.

A Tax that is deducted directly from investment income generated in New Zealand. The most common example is when RWT is deducted from your interest income being deposited into your bank account.

RWT is a deductible tax credit and reduces your Terminal Tax to pay.

RIT is the final tax amount you need to make to Inland Revenue for the Tax Year. Any Provisional Tax paid will reduce RIT.

It is calculated as:

Tax on taxable income
less refundable tax credits
less non-refundable tax credits
equals Terminal Tax

If RIT is higher than $5,000, you automatically enter the Provisional Tax regime.

If RIT is higher than $60,000, you’ll be required to pay interest as calculated by Inland Revenue.

Also called Withholding Tax.

The Net Profit from all past years added together, less Dividends paid to Shareholders.

If your Retained Earnings is negative, you may see it called Accumulated Losses.

The amount that your customers pay you in return for the products or services you supply.

Also called Income or Revenue.

The amount allocated to a Shareholder as a salary after the Company’s profit is calculated. It is considered income to the Shareholder and must be included in the individual tax return.

The Shareholder Salary is usually a non-cash transaction and is an adjustment your accountant makes when preparing your Financial Statements.

A Shareholder Salary can be allocated even if the Shareholder is an employee of the Company receiving PAYE-paid wages.

This forms part of your Annual Accounts and is a snapshot in time, listing everything your business owns and everything that your business owes to others. The Statement of Financial Position is almost always recorded at Balance Date.

Also called Balance Sheet.

One of the key pages in any Annual Report is the Statement of Income. 

It’s usually for a one-year period and lists your Income and Expenses, with the final line being your Net Profit. 

Also called Profit and Loss Account and Income Statement.

A Tax Return is a document where the taxpayer states their income, expenses, and other tax information.

A taxpayer can be a Company, Trust, and individuals.

A Tax Return must be completed and filed every year unless Inland Revenue has issued an exemption.

Taxable Income is your income from all sources (NZ and overseas) less any tax Deductions.

An example of a tax return can be found here and shows how Taxable Income is calculated.

A separate legal entity in its own right.

A Trust has trustees who are responsible for controlling the assets and profit allocations to beneficiaries. 

Trustees are not considered to own Trust Assets themselves. Each Asset is held on behalf of the beneficiaries and can be given (distributed) to them according to the Trust Deed.

The most common types of Trusts are charitable trust and family trusts.

A Trust Deed is a legal document which sets out the purpose of the Trust and how its income and assets are to be allocated to its beneficiaries. 

The Trust Deed must include the name of:

• The settlor – person(s) who sets up the Trust
• The trustees – responsible for taking care of assets and allocating its Taxable Income and Assets to beneficiaries
• Beneficiaries – people (or organisations) who are allocated Assets and Taxable Income as the trustees deem appropriate under the rules of the Trust Deed.

A deduction from Schedular Payments. Withholding Tax is paid to Inland Revenue on behalf of the contractor. The contractor uses this deductible tax credit to reduce tax on Taxable Income.

Resident Withholding Tax and PAYE are also types of Withholding Taxes.

Xero is an online accounting software platform which keeps track of your bank transactions, helps you record expenses via electronic devices, provides useful up-to-date reports, and so much more.

Very highly recommended for small and medium-sized businesses and used most by accounting firms. It’s also widely used by accountants to prepare Financial Statements.