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Glossary of Business and Tax Terms

Before you try to get your business and taxes in order, it's important to be familiar with the technical jargon you will come across in this website and in the financial world. Use this glossary of business and tax terms to assist you on your way to business literacy.

Alphabetical list of terms you might come across.

Please Note that some of these terms are from the Guarantee Trust Accounting Glossary [] and are copyrighted to KA Capital (Pty) Ltd

ACCA - Association of Chartered Certified Accountants.

Accountant - A person concerned with the maintenance and audit of business accounts and the preparation of consultant reports in tax and finance.

Accounting - The skill or practice of maintaining and auditing accounts and preparing reports on the assets, liabilities, income, expenses and financial position of a business.

Accounting conventions - An accounting procedure used informally. That is, an accounting convention has been neither endorsed nor prohibited by the standards bodies of accounting. In general, when an accounting standards body has neither endorsed nor prohibited an accounting convention, it is because it has not needed to rule on the matter, especially if the convention is new. A ruling may formalize or forbid a convention, or it may make the convention obsolete.

Accounting period - The period of time reflected in financial statements. Usually, the accounting period is either the calendar year or a quarter. For example, companies listed on the Stock Exchange must report their financial state for the accounting period since their previous report. Most private companies you will deal with will have a 12-month accounting period, often from the 1st of March of one year to the end of February the following year.

Accounting standard - An authoritative statement issued by a governing accounting body that specifies how a particular type or category of financial transaction and other accounting matter should be reflected in financial statements. For example, in South Africa, all companies listed on the Johannesburg Stock Exchange are required comply with the International Financial Reporting Standards (IFRS). These accounting standards were issued by the International Accounting Standards Board (IASB). The Accounting Standards Board is the governing accounting body in South Africa issuing accounting standards for the government and the public sector.

Account rendered - A statement of transactions made out by a creditor and presented to the debtor. After the debtor has examined the account and accepted it, an account rendered becomes an account stated.

Accounts payable - Also known as creditors: The amounts of money due or owed to a supplier by the company.

Accounts Payable Ledger - (See Creditors ledger)

Accounts receivable - Also known as debtors: The amounts of money due or owed to a business or professional by customers or clients.

Accounts Receivable Ledger - (See Debtors Ledger)

Accrual accounting - Attempts to answer questions about performance by considering all the assets and liabilities of the business after the period of operation.

Accumulate - To gather or pile up, to increase by adding regularly, to mount up or increase. The word comes from the Latin word meaning 'to pile up'.

Accumulative - (See Cumulative in this glossary). Increasing by successive addition; "the benefits are cumulative"; "the eventual accumulative effect of these substances"

Acid test ratio - Also known as the „quick ratioâ''. A ratio of current assets less inventory divided by current liabilities.

Acquisition - 1. A purchase of an asset; 2. The purchase by a company of another company or a controlling portion of another company.

Advertising - Communication to the public of information about the services or skills provided by accountancy firms with a view to procuring professional business.

Affidavit - A written statement made under oath before a Commissioner of Oaths for use as evident in a court of law or in a variety of administrative processes. A Commissioner of Oaths is a person authorized in terms of legislation to administer an oath. In South Africa, such persons include: attorneys, accountants and marriage officers. Affidavits can also be sworn before a police officer in a police station.

Age Analysis - A listing of debtors or creditors showing the number of days their payment is outstanding. This is usually broken down into those owing at less than: thirty days, sixty days, ninety days and 120 days.

AIDS: - Acquired Immune Deficiency Syndrome, a life threatening disease.

Allocation - The act of allocating (dividing or splitting) expenses or income into categories (accounts) or departments. Example: The cost of a ream of paper may be allocated to the account “Stationery.” The act of doing so would be allocation.

Amortisation - 1. To depreciate or write down the capital value of an intangible asset (such as the value of intellectual property) over a period of time in the financial statements of a company. 2. The repayment of a loan or other form of debt by regular payments.

Amount Due - Money that taxpayers must pay to the government when the total tax is greater than their total tax payments (throughout the year).

Analysis - A table or schedule of figures showing details of all the elements of the expenditure, income or any other accounting category. Example: Sales figures may be presented in an Analysis showing sales for different geographic areas and / or types or categories of product.

Annual Financial Statements - A financial document prepared by companies every year as required in terms of the Companies Act. It must contain an income statement, a balance sheet and a cash flow statement. It must also contain a record of any changes in Directors, shareholdings and equity. There is also an Auditors report and a Directors report. It is presented by the Board of Directors to the Annual General Meeting of the shareholders of the company.

Annual report - A document issued by an entity, ordinarily on an annual basis, which includes its financial statements together with the auditor’s report

Annual Turnover - The amount of goods or services sold by a company in a financial year, normally twelve months.Approved limit - An upper limit applied to a loan, credit card or an overdraft facility. This limit has been approved by the bankâ''s Credit Department.

Articles of Association - The “internal rule book” of a company and a document legally required to establish a company. It is the contract or agreement between the members (or shareholders) and the company and between the members (or shareholders) themselves. In South Africa, the Articles of Association are lodged with the Companies and Intellectual Properties Commission Office (CIPC). The document is normally drawn up by an attorney or a Company Secretary and must meet the requirements of the relevant Companies Act. It outlines some key data in terms of ownership, company governance and management. For example, it will make provision for the powers of directors, the rights of shareholders, the way in which the annual financial statements will be approved and so on.

Asset - Something, which when sold or when its value is realised in some other way (e.g. when a debt is collected), will generate an increase in cash. In companies, an asset can be cash, cash equivalents, debtors owing, order book, inventory, plant & machinery, moveable & immovable property and so on.

Asset value - The value of a company calculated by adding together all of its assets.

Associate company - In accounting and business valuation, a company partly owned, usually between a 20-50% shareholding, by another company. The shareholder exerts some management control over it or has a close trading relationship with it. In this case, the shareholder does not consolidate the associate's financial statements with their own annual financial statements. Any trade with the associate is recorded in the Income Statement .The shareholding value of the associate is reported in the balance sheet. Any dividend income from the associate will usually be reported in the Other Income section of the Income Statement. If ownership is over 50%, this creates a subsidiary. In this case, the subsidiaryâ''s financial statements are normally consolidated into the holding companyâ''s financial statements.

Association - 1. A group of people organized for a joint purpose; 2. A connection or co-operative link between people or organizations.

Association not for gain - A religious institution or other society or organisation that is not carried on for profit and has to use any property or income solely to fulfil it's objectives. An association not for gain could also qualify as a "welfare organisation" if it conducts certain activities.

Attorney - 1. A legal representative; 2. A person appointed by a written power of attorney to act on behalf of another on financial, legal, property or other matters.

Audit - A process whereby auditors come in to examine a business's accounts.

Audit Trail - A record of business transactions that can be used by an interested partyto trace an organization's activities to original documents. Audit trails are used to verify account balances.

Auditing/assurance - Auditing/assurance refer to the examination, verification and evaluation of financial or managerial processes, systems or outcomes in organisations. It includes an independent report on their credibility and operational effectiveness. Auditing also refers to the management of the auditing function.

Authorised officer of the company - A person authorized to act on behalf of the company. This may require a Directors Resolution or for the person to hold a company officer position such as Director, Company Secretary, Finance Director or Chief Executive Officer.

Back-ups - In Information Technology, a backup or the process of backing up refers to making copies of data so that these additional copies may be used to restore the original after a data loss event. The verb form is back up in two words, whereas the noun is backup. Backups have two distinct purposes. The primary purpose is to recover data as a response to data loss, be it by data deletion or corrupted data. Data loss is a very common experience of computer users. 67% of internet users have suffered serious data loss. The secondary purpose of backups is to recover data from a historical period of time. This data is stored for possible future use.

Bad debt - A debt that will not be paid and is written off (removed from the books)

Balance - (Noun) 1. Something that remains or is left. "Let me have the balance of what you owe me."; 2. Equality of debit and credit totals in an account; 3. A difference between such totals
(Verb) 1. To compute the credit and debit totals of (an account) in order to determine the difference; 2. To equalize the credit and debit totals of (an account) by making certain entries; 3. To settle or adjust (an account) by paying any money due; 4. To have the debit and credit totals equal.

Balance Sheet (Also see Annual Financial Statement (AFS)) - In financial accounting, a balance sheet or statement of financial position is a summary of the financial balances of a sole proprietorship, a business partnership or company. Assets, liabilities and ownership equity are listed at a particular point in time.

Bank deposit slips - Instructions to the bank to accept money on the person's or businessâ''s behalf and to put the money into the person's or businessâ''s bank account. It is a form filled out by the party depositing the money and is presented to the bank with the money being deposited.

Bank draft - 1. A bill of exchange where the drawee is a bank. 2. A bankerâ''s cheque. A person goes to a bank and buys a cheque from the bank. He then uses this bankerâ''s cheque to pay his creditor. This type of cheque is used, for example, when a creditor wants payment by cheque but fears that the debtorâ''s own cheque may bounce or be referred to drawer.

Bank note - Paper money issued by a reserve or central bank. In South Africa, this includes the ten rand, twenty rand, fifty rand, one hundred rand and two hundred rand bank notes issued by the South African Reserve Bank.

Bankruptcy - A condition confirmed by a court order that an individual or a company is unable to pay oneâ''s debts. This can be involuntary or voluntary bankruptcy. Involuntary bankruptcy is where the legal process is pursed by the creditors. Voluntary bankruptcy is where the legal process is pursued by the insolvent person or organization.

Bank statement - Bank statements are records compiled by a bank to show items like balance and activity within the account. It is common for most people with cheque accounts (current accounts) to receive a monthly bank statement. Those with savings accounts may get statements less often, and many only receive a quarterly record. It used to be the case that many banks only sent such records out every three months or even less frequently, but now most people depend upon viewing a monthly statement, to balance their books, like cheque and other active accounts. There are several features that most bank statements possess. These may include a beginning and ending balance. A monthly statement would probably show what the balance was at the beginning and end of the month recorded. This doesnâ''t mean it is completely accurate or accords with current balance, since most people wonâ''t receive their statements until a couple of days after the recorded period has ended. New activity in the account like deposits or withdrawals can quickly change ending balance. Most statements also will list all transactions that have occurred in the account and the date upon which they occurred. Transactions include deposits, withdrawals, ATM withdrawals, ATM purchases, cheques written on the account, electronic funds transfers (EFTs) and any monthly deductions from the account for payments to other businesses plus any bank charges or fees. Sometimes, bank statements comes with all cheques that were processed and cancelled within the month. Other banks send out copies of these cheques, and a few just send a summary of cheque purchases. Today, most businesses download statements as often as they like using internet banking facilities. Statements can even be sent to you electronically.

Bank transfer - The direct transfer of monies from one bank account to another bank account.

Barter - (verb) To barter means to exchange goods or services for other goods and services. For example, I have oranges. You have apples. You agree to give me one of
your apples for one of my oranges. This action is to barter. The word barter can also be used as a noun. A barter is the specific exchange that happened. For example, two traders are bartering. They make five exchanges. Each one is a barter. They had five barters.

Bearer - A person who presents a cheque or other financial instrument for payment. One of the English definitions for the word 'to bear' means to carry, with the derivation coming from the Latin and Greek meaning to carry. Bearer therefore mean someone who is carrying something, in this definition of the word.

BEE - An abbreviation for Black Economic Empowerment or Broad-Based Black Economic Empowerment.

Beneficiary - 1. The person who is receiving payment in a transaction. For example, when a cheque is made out for payment to Joe Smith, he is the beneficiary; 2. The entity that receives the benefits or proceeds of an estate or a trust. For example, Joe Smith dies. He leaves everything in his will to his wife, Mary Smith. Mary Smith is the beneficiary of his will.

Bill - An itemized list or statement of fees or charges. To present a statement of costs or charges to. Also known as an invoice or 'to invoice' as a verb.

Billing - The total amount of business done in a specific period, as by an accounting form, advertising agency or a law firm. Often used in the plural: billings. The total amount of fees charged for services. To bill is to charge or invoice or to bill the client.

Big Four - Traditionally, the four largest auditing firms in the world. They are: PricewaterhouseCoopers; Deloitte & Touche; Ernst & Young; and KPMG.

Bi-monthly - Every two months.

Binding contract – A legal agreement that can be enforced, if necessary, before a court of law. There are four components required for a binding legal agreement. These are: an offer of service or goods; an acceptance of the offer; a payment or agreement to a payment; and an intention to enter into a legal contract. Oral agreement, a digital signature or even confirmation emails provide sufficient evidence, in many cases, of an intention to enter into a contract.

Black Economic Empowerment - A program, supported by legislation, launched by the South African government to redress the inequalities of apartheid by giving previously disadvantaged groups (Black Africans, Coloureds, Indians and South African born Chinese) economic opportunities previously not available to them. It includes measures such as employment equity, skills development, ownership, management, socioeconomic development and preferential procurement. earlier Black Economic Empowerment initiatives focused on ownership of share in companies by Blacks. This later BEE legislation is also known as Broad-Based Black Economic Empowerment, because it spreads the initiative to more elements of empowerment and not narrowly focused on ownership.

Blue-chip - Companies whose ordinary shares are considered reliable investments. The companies tend to be large, prosperous and stable with a solid record of capital growth
and dividend payments in both good and bad times. They also have a strong long-term growth potential. The term comes from the use of casino chips in gambling - the highest value chip is

Body corporate - A special form of legal entity created in terms of the Sectional Title Act, 1986. Body corporates are exempt from the Companies Act. A body corporate is automatically created when a unit is sold in a sectional title development. It is responsible for the common property of the sectional title development and for a range of issues contributing towards the good communal governance of a sectional title development for the benefit of all the owners.

Bond - 1. A binding agreement which commits one person to make a payment to another; 2. Bonds are debt and are issued for a period of more than one year. The government,
local governments, water districts, companies and many other types of institutions sell bonds. When an investor buys bonds, he or she is lending money. The seller of the bond agrees to repay the principal amount of the loan at a specified time. Interest-bearing bonds pay interest periodically; 3. An interest-paying debt instrument with a redemption date of one year or more after its issuance. These are issued by a borrower, such as a government or a large corporation, promising the investor interest payments and a return of the capital amount borrowed at the end of the bond period; 4. A term used in common speech to describe a mortgage loan in South Africa; 5. A financial guarantee normally issued by a bank on behalf of a construction contractor which can be claimed against by the client in the event of the contractor failing to perform in clearly specified circumstances. The most common forms of financial guarantees are bid bonds (see glossary) and performance bonds (see glossary); 6. A legal agreement registered with the Deeds Office which gives legal claim to a lender over a debtorâ''s moveable or immovable property in the event of their failure to pay back a loan. These include mortgage bonds, general notarial bonds and special notarial bonds. For these bonds to become enforceable by the lender, a court order is required.

Bookkeeping - Bookkeeping is defined by Collins Concise Dictionary as: “the skill or occupation of systematically recording business transactions.” Bookkeeping, commonly referred to as keeping the books, is the process of keeping full, accurate, up-to-date business records. Proper bookkeeping can help businesses effectively manage cashflow, stay abreast of profits and losses, and develop plans for the future based on financial trends. Furthermore, accurate bookkeeping is required by SARS (The South African Revenue Service) for various tax calculation and payment purposes. Bookkeeping involves making a record of the monies received by a business as well as the monies paid out. It includes money a company owes to vendors, employees, tax authorities, contractors and any other individual or entity. In addition, accurate records of amounts owed to a company by outside individuals and organizations are also recorded in a company's books. A bookkeeper is the person who does bookkeeping. An accountant is usually referring to some who can take the financial records of a business further than a bookkeeper and can audit the company records, produce income statements and balance sheets, further than the Trial Balance, as well as a full set of Annual Financial Statements. A bookkeeper is usually some who takes the company records up to the Trial Balance stage.

Books - An organization's written accounting record.

Books of Prime Entry - (Prime means first). Books of prime entry or books of original entry are books where transactions are first recorded. These may or may not be part of
the double entry system. The main books of prime entry are: Sales journal, Purchase journal, Cashbook, Petty cash book, Main journal (Also known as General Journal: Used for certain prime entries and correcting incorrect allocations)

Book value (Net Book value) - The full purchase price of an asset less the allowable depreciation for that asset. For example, a machine is purchased at R200, 000. For illustrative purposes, we assume allowable depreciation of 20% per annum for five years. This means at the end of the first year, the machine has a book value of R160, 000. At the end of the second year, it has a book value of R120, 000 and so on until its book value is zero at the end of five years.

Bottom line - 1. An informal phrase that refers to the last line in an income statement that shows the net income or loss. It can also apply to the last line of a balance sheet showing the net asset or liability position; 2. An informal phrase requesting the final position or essence of any project, situation or current condition. “What’s the bottom line?”; 3. The main, essential point or the deciding factor.

Broad-Based Black Economic Empowerment (BEE) - See BEE earlier.

Business analysis - The analysis of a business, particularly it administrative and other systems within a business, undertaken to better understand a business. Business analysis is routinely undertaken to allow business processes to be computerized.

Business life cycle - The progression of a business or product as it moves through successive stages from origin to eventual decline. Stages of a life cycle typically include conception, rapid growth, expansion, maturity, and decline. Also called product life cycle.

Business valuation - Refers to the process by which a supportable opinion is derived about the worth of a business or individual assets or liabilities.

CA (SA) - This is the designation (a distinguishing name or title) used by qualified Chartered Accountants in South Africa. The body controlling this qualification is SAICA, The South African Institute of Chartered Accounts.

Capacity to contract - The legal competency, power or fitness to enter into and be bound by a contract. For example, a managing director would only have a “capacity to contract” to sell the
company, if he had previously been authorized to do so by the Board of Directors. The Directors in their turn would need to have consulted with the shareholders (the owners) and gained agreement for a sale. If a contract was signed without these authorizations being received, the contract may not be valid and could be contested in court.

Capital - The money needed to finance the fixed and operating assets of a company or organisation – its core means of producing exchangeable goods or services. For example, where money is used to purchase a machine with a productive life span of ten years the money used is capital.

Capital amount - Also known as the principal, it is the original amount of a loan borrowed. For example, a company borrows R1 million. The capital amount is R1 million.

Capital Gains Tax - A tax incurred when a business disposes of an asset or property.

Capital goods - Goods that are used to create or manufacture other goods and services. When used to describe a businessâ''s capital goods it refers to buildings, machinery and capital equipment. When used in a macro-economic sense, it can refer to roads, train lines, harbours and other economic infrastructure.

Capital structure - The relative proportions of shareholders capital and debt capital within a companyâ''s balance sheet. Ratios such as the debt ratio, debt service ratio and debt to equity ratio give an insight into the capital structure and its sustainability.

Cash accounting - Recognises transactions only when a cash payment or cash receipt is made.

Cashbook - A book in which a record of cash receipts and expenditures is kept. Cashbooks are now mostly a computer record of what was once kept in a book. A Cash Book is simply a record of all monies deposited into and paid out of the bank account of the business. This record allows the business to calculate the amount of money in an account in the bank at any time.

Cashflow - The measurement of cash moving into and out of a business. These cash flows in and out of a company are recorded in the cash flow statement of a company. Cash flow can come from a companyâ''s main trading activity, its investment activities or its finance activities. A key indicator for banking is the amount of cash generated from a businessâ''s main trading activity. This shows how much cash is likely to be available to finance interest and capital debt repayments.

Cash flow analysis - The examination of the cash flow statement, debtors & creditorsâ'' age analysis, cash receipts & payments and bank statements with the objective of understanding the cash position of a company. This process is key to understanding the capacity of a company to pay their creditors, service interest charges and capital repayments.

Cash flow statement - A financial statement included in the Annual Financial Statements of a company. It records the cash going into and out of a company. It is composed of three main sections or “buckets” – operations, investment and financing. Each has costs and income assigned to them. And each gives rise to a specific cash contribution for that activity. These are cash flow from operations, cash flow from investment and cash flow from financing.

Cash strapped - Having insufficient cash.

Cast - In accounting terms, "to add", as in adding a column of figures to arrive at a total. (See 'cross-casting').

CC - Abbreviation for a Close Corporation.

Cede - To give over, yield or surrender the right to something. The noun derived from "to cede" is cession. See cession.

Central Bank - See Reserve Bank

Certificate of Incorporation - The official “birth certificate” of a company. It is issued by the Registrar of Companies of CIPRO and records the name of the company, the company registration number and the quantity of share capital of the company. It is known as CIPRO form CM1. The Certificate of Incorporation is proof that a company has met the establishment criteria set by the Companies Act and that the Registrar of Companies has verified this to his satisfaction.

Certificate to Commence Business - A certificate issued to companies by CIPC. Under the Companies Act, a company cannot start trading or raise finance without a Certificate to Commence Business.

Certified Public Accountant (CPA) - An International term for the credential conferred by a state or similar governmental jurisdiction that authorised the holder to practice as a certified public accountant (Auditor) in that jurisdiction. A Chartered Accountant (SA) is the South African similar.

Cession - A handing over or surrendering a legal title of an asset to another. For example, a borrower wants to borrow R100, 000. The bank looks for security. The borrower offers a cession of title to his fully paid BMW 6 series. The bank accepts this cession as security and lends the money. If the borrower fails to pay back the loan, the bank can seize his BMW car and sell it to cover the cost of the capital amount, interest and any associated fees or charges.

Chargeable hours - Chargeable hours are public accountant-supervised hours normally chargeable to clients, excluding time spent on work of a routine clerical nature.

Charge-out rate - The rate, daily or hourly, at which the Client is charged for services provided by the accountancy firm; rate is calculated  for each member of staff within the accounting firm based upon a number of factors, including the firm’s cost of wages, benefits, and other overheads

Chart of accounts - Structure of the ledger system—basically, a map of the locations available for storage of transaction details

Chartered Accountant - CA (SA) - an accountant who has passed the professional examinations of the Institute of Chartered Accountants in South Africa (SAICA). The qualification requires a degree as stipulated by SAICA and the successful completion of a training contract and various exams and practical assignments.

Chart of accounts - The chart of accounts for a small business is a plan. It is an index of all the accounts where the company files away its financial information. The chart of accounts is a listing of all the company's account names and numbers where it records its financial transactions. You develop a chart of accounts before you can set up your general ledger. When you start a new business, you set up your chart of accounts. Small businesses don't all have the same chart of accounts. The accounts you include in the chart of accounts depends on the type of business. For example, if you have a service business, you won't have an inventory account. If you have a business that sells products, you will, however, need an inventory account.

Five Categories on the Chart of Accounts:
1. Assets
2. Liabilities
3. Owner's Equity
4. Revenue
5. Expenses

Check - This is what a cheque is known as in the USA.

Cheque - (In the USA, a cheque is called a 'check'). A cheque is a specific form of a bill of exchange. The drawer instructs his bank (the drawee on his account) to pay the beneficiary a specified amount. It can be marked “negotiable” or “not negotiable”. [The ancient Romans are believed to have used an early form of cheque known as praescriptiones in the 1st century BC. During the 3rd century AD, banks in Persia and other territories in the Persian Empire issued letters of credit known as chak.]

Cheque account - A transaction account on which a cheque book can be or has been issued.

Cheque stub/counterfoil - the usual US and Canadian word for counterfoil. The word 'stub' comes from an old English word for a tree stump. It is the part remaining behind.The stub or counterfoil is the part of a cheque, postal order, receipt, etc., detached and retained as a record of the transaction. The stub is attached to a cheque with perforations. The cheque is detached for payment, while the stub may be retained for convenience, with information concerning the cheque. The stub and cheque are both printed with the same number. [The word 'counterfoil' comes from something being a representation of something else. The one represents the other (counter) and the word 'foil' probably meaning 'leaf' or 'sheet'].

CIMA - The Chartered Institute of Management Accountants.


CIPRO - Abbreviation for Companies & Intellectual Property Registration Office. This organization registers names of companies, patents, trademarks and has other related services. This has been replaced by CIPC, The Companies and Intellectual Property Commission

CK1 - The alphanumeric code used by Companies & Intellectual Property Registration Office for the form used to submit information on the Founding Statement of a close corporation. These forms (CK 1 and 2) are often referred to as CK forms.

CK2 - The alphanumeric code used by Companies & Intellectual Property Registration Office for the form used to amend the Founding Statement of a close corporation.

Claw back provisions - Provisions in contracts that limit or reverse payments made when specific criteria are not met. They are calculated against a predetermined formula and typically relate to the purchase of fees or a practice

Clients - Those individuals, firms, entities or organisations to who services are provided by an accountant with respect to engagements of either a recurring or demand nature

Close corporation - A simple and inexpensive form of incorporation used to create many small and medium sized businesses with limited liability. The number of members in a close corporation can be from one person to ten people. Shares are not used to raise capital by a close corporation. It is a close corporation because it is a corporation that is “closely held”. This type of juristic person gives the advantages over a sole proprietor or partnership of limited liability to the owners and creating a separate legal existence for the business itself. The financial reporting requirements are less onerous than those required of a private limited company. A close corporations accounts do not have to be audited to the same standard as private limited companies. One of the effects of the new Companies Act, 2008, is the phasing out of close corporations. No new close corporations may be formed once that Act comes into operation in late 2010. Existing close corporations can elect to continue to exist until deregistered, dissolved or converted into a private company under the new Companies Act, 2008. It will be possible for businesses to continue to run their operations out of an existing close corporation indefinitely. Under the new Companies Act, 2008, small business start ups are expected to use the
private company option of incorporation. This format is expected to retain the benefits previously available through the use of a close corporation.

Close family - A parent, child, or sibling, who is not an immediate family member.

CM1 - ('CM forms')The alphanumeric code used by Companies & Intellectual Property Registration Office for the form used to issue a Certificate of Incorporation of a company.

CM22 - The alphanumeric code used by Companies & Intellectual Property Registration Office for the form used to change the registered contact details of a company – known as Notice of Registered Office and Postal Address of Company.

Coding - A code would be a system of letters or numbers used for identification or selection purposes. A code can also be a system of letters or numbers or symbols used to send messages. It can refer to a systems of laws or rules. Coding would be the action of creating or using code or a coded system, for example, account names or types.

Collateral - Assets used by a borrower as security for a loan. If the borrower defaults on the loan agreement, then the lender can seize the assets used as collateral and sell them with the intention of recovering the capital amount of the loan and any interest and related charges. See 'security' in glossary. In the above definition, the terms collateral and security are often interchanged.

Commercial Accommodation (this definition relates to VAT) - There are three types of commercial accommodation, namely: Lodging or board and lodging together with domestic goods and services in any house, flat, apartment, room, hotel, motel, inn, guesthouse residential establishment, holiday accommodation unit, chalet, tent, caravan, campsite, houseboat or similar establishment. This must be supplied regularly and systematically so that the income from the activity exceeds or is likely to exceed R 60 000 per year. This does not include the supply of a “dwelling” for letting/hiring (as this is an exempt supply in terms of section 12(c)). Lodging or board and lodging in a home for the aged, children, physically or mentally handicapped persons. Lodging or board and lodging in a hospice. If the accommodation is provided for more than 28 days, only 60% of the charge is subject to tax (including domestic goods and services included in the all-inclusive tariff).

Commission - Amounts paid or received in return for the performance of an activity or the achievement of a result. Example: A salesman may receive a commission of 10% on his turnover for the month.

Companies Act - Legislation governing the establishment and running of companies. The Companies Act, 1973, is in the process of being replaced by the Companies Act 2008. This latter Act aims to simplify a number of issues in company law. On the 1st of May 2011, the new Companies Amendment Act came into effect. This major piece of legislation affects many professions including CEO's, Directors, Stakeholders, Shareholders, Managers, Bankers, Lawyers, Closed Corporation members and many more. It is important to be aware of the changes that have been implemented in this new legislation. To give you a brief background, on 9 November 2010, the Companies Amendment Bill (B40 – 2010) was tabled in Parliament which proposed the amendment of the Companies Act, No 71 of 2008 in order to correct various legal issues as well as errors and grammar. This Bill was later approved by the Trade & Industry Portfolio committee on 10 March 2011. On the 19th of April 2011, President Jacob Zuma signed off the Companies Amendment Act of 2010 which has now brought South Africa up to speed or even beyond international trends as we were previously working from legislation passed in 1973.

Company registration number - The unique number issued by CIPRO for every close corporation and company registered in South Africa.

Company valuation - The process of estimating the value of a company. There are many different methods of valuation. This can be done on a going concern basis, a book value basis, a liquidation basis, a market value basis and so on. Each method operates from a different base and set of assumptions. The valuation process is often partially objective and partially subjective – an approximation.

Consideration - The total amount of money (including VAT) received for a sale. For barter transactions where the consideration is not in money, the consideration will be the open market value of goods or services (including VAT) received for making the taxable supply. Section 10 determines the value of supply or consideration for VAT purposes for different types of supplies. Any act or forbearance whether voluntary or not for the inducement of a supply of goods or services will constitute consideration, but it does not include any donation made as an unconditional gift to an association not for gain. Also excluded is a “deposit” which is lodged to secure a future supply of goods and held in trust until the time of the supply. Since VAT is the difference between the selling price including the VAT and the value of the taxable supply, the following formulae can be derived: VAT = Consideration – Value or Consideration = Value + VAT

Consolidated balance sheet - A single balance sheet that includes the balance sheets of subsidiary companies as well as the balance sheet of the holding company. The separate financial statements of each legal entity remain available and compiled separately. The consolidated balance sheet is in addition to these.

Consolidated financial statements - A single set of financial statements that include the financial statements of subsidiary companies as well as the financial statements of the holding company. The separate financial statements of each legal entity remain available and compiled separately. The consolidated financial statements are in addition to these.

Consolidated group accounts - Another term for consolidated financial statements.

Consolidated income statement - An income statement that includes the income statements of subsidiary companies as well as the income statement of the holding company. The separate income statement of each legal entity remains available and compiled separately. The consolidated income statement is in addition to these.

Consumables - (usually plural) goods intended to be bought and used. They are bought and sold. To consume is to use up completely.

Contingent liabilities - Debts or potential legal claims that may have to be paid in the future. The obligation to pay is still uncertain and dependent upon certain events.

Controlling shareholding - An ordinary shareholding of more than 50% (or in the US, 25%) being held by one owner.

Conveyancer - An attorney or legal firm that specializes in the transfer of property ownership (known as title deeds transfer) from one person to another.Corporate acquisition - The process of a company gaining a controlling stake in another company. This can be 50% or a significant shareholding of the company being acquired. The process is usually facilitated by a merchant bank.

Corporate governance - System by which the trustees and officers of an organisation are required to carry out their accountabilities and responsibilities for ensuring that effective management systems, including financial monitoring and control systems, have been put in place to protect assets, earning and capacity and the reputation of the entity concerned.

Corporation tax - Corporate income tax. A tax on profits and capital gains made by companies calculated before dividends are paid.

Cost of goods sold - Also known as Cost of Sales. It is the cost of producing a product for sale. It is estimated using the inventory figures recorded in the financial statements.
Cost of Goods Sold = (Opening Inventory + Inventory Purchased) – Closing Inventory. The costs included are the raw material costs, inventory costs and the production costs. The production costs are included by way of the increased value of the inventory by assembling or processing the raw material. You don't need to go outside the inventory values to source an estimated production cost.It does not include distribution costs, non-production salary costs and general overheads.

Cost of Sales - Another term for cost of goods sold. It is the cost of manufacturing a product so it is ready for sale. The concept of “manufacturing” – preparing for sale – differs in various industries. So for example, the cost of sale in a retail environment will seem different to that of a steel mill. But they are, in fact, similar. In retail, it may relate to all costs associated with getting a sourced product into their store room ready for sale. In the steel mill, it is getting the steel to a point where it can be stored in their store room ready for sale.

Covenant - 1. A written undertaking given by a borrower to a lender to comply with a certain condition of a loan. For example, the Directors agree not to pay out any dividend to shareholders until the loan is repaid in full. 2. A contract where a donor agrees to make regular payments to a charity. 3. A solemn agreement. The word covenant has strong religious connotations of an agreement with or commitment to God.

CPA - In the USA, Certified Public Accountant, like a Professional Accountant or Chartered Accountant in SA. CPA is also the Consumer Protection Act of SA. This law protects consumers from various sales practices. The purpose of the Act is to:

  •      promote and protect the economic interests of consumers;
  •      improve access to, and the quality of, information that is necessary so that consumers are able to make informed choices according to their individual wishes
         and needs;
  •      protect consumers from hazards to their well-being and safety;
  •      develop effective means of redress for consumers;
  •      promote and provide for consumer education, including education concerning the social and economic effects of consumer choices;
  •      facilitate the freedom of consumers to associate and form groups to advocate and promote their common interests;
  •      and promote consumer participation in decision-making processes concerning the marketplace and the interests of consumers.

Credit agreement - 1. Generally, an agreement to offer credit by a credit provider and an acceptance of this credit on specified terms by a borrower. 2. A regulated credit agreement in terms of section 8 of the National Credit Act. A credit agreement is defined as a credit facility, a credit transaction, a credit guarantee or any combination of all three. In terms of section 8(2), the following are excluded from the meaning of a credit agreement: insurance policies or credit advanced solely to pay for these; leases on immoveable property; and loans between a stokvel and its members. The Act also excludes some other forms of agreements from its scope. These include: personal loans between family and friends; loans made to a company by its owners and directors; and loans from government institutions. Unlawful agreements in terms of the National Credit Act are credit agreements entered into by: a minor not assisted by his legal guardians; a person declared mentally unfit prior to the agreement; an insolvent subject to a court administration order; unregistered credit providers. In addition, any credit agreement issued as a result of negative option marketing is also regarded as an unlawful agreement.

Credit bureau - A company that collects, packages and sells credit, debt and legal information on individuals, close corporations and companies. This information is then used by other companies and financial institutions to assess the creditworthiness of individuals, close corporations or companies seeking credit. Credit bureaus are now regulated in terms of the National Credit Act. “Bureau” is the French word for “office”. The plural of bureau is sometimes written bureaus or bureaux.

Credit check - A process done by a credit provider, often using the services of a credit bureau, to assess the known credit history of a credit applicant and to assess their ability to service and repay any credit extended.

Credit dept. - The department in a credit provider, such as a bank, responsible for reviewing, amending approving or rejecting all applications for credit to the bank or company. Its job is to ensure the company's lending policies are complied with.

Credit facility - Where a credit provider offers a credit mechanism to a client that is open to use as and when the client needs the facility. Examples include the credit limit on a credit card, an overdraft facility on a cheque account, or a credit limit on a store card open to use as and when the consumer wishes to use it. A credit facility is defined in these terms in section 8(3) of the National Credit Act.

Credit note - A credit note or is a commercial document issued by a seller to a buyer.The seller usually issues a Credit Note for the same or lower amount than the invoice, and then repays the money to the buyer or sets it off against a balance due from other transactions. A credit note lists the products, quantities and agreed prices for products or services the seller provided the buyer, but the buyer returned or did not receive. It may be issued in the case of damaged goods, errors or allowances. In respect of the previously issued invoice, a Credit Note will reduce or eliminate the amount the buyer has to pay.

Creditor (s) - Individuals or businesses or any other organization from which we have purchased goods or services, but have not yet paid for them. A supplier of goods to your company is a creditor when you owe them money.

Creditors Control Account - The creditors control account reflects the total amount owed to all the individual creditors. The balance of the creditors control account must equal the total of the creditors list, which represents the amounts owed by the individual creditors obtained from the individual balances in the various subsidiary ledger accounts for each creditor. This subsidiary ledger is known as the creditors ledger.

Creditors Ledger / Accounts Payable Ledger - The Accounts Payable Ledger is a record of the total amount we have bought from each supplier (on credit or 'on account'), and the amount we have paid each supplier during the month. It allows the business to calculate the amount due to each supplier at the end of the month and is completed at the end of every month.

Credit provider - 1. A person who offers credit. 2. A legal definition in terms of the National Credit Act applying to banks, micro-lenders, retailer stores offering credit, pawn brokers, and any business that offers credit, provides loans or charges interest on overdue accounts. It also covers factoring houses, debt collection agencies and others purchasing consumer debt. One of the few exceptions is stokvels. Many credit providers must be registered with the National Credit Regulator. Where they are not required to be registered, their credit agreements are still subject to the terms of the National Credit Act.

Creditworthiness - A term used to describe the condition of a person being good for credit. Whilst generally used loosely, it is composed of three attributes: the person has the cash flow from his existing source of income to pay interest and capital on a loan; there is a recorded and known history of him honouring his previous debts and payments to other creditors; and he has the necessary security that can be attached as a guarantee on any further loan.

Cross-Cast - Casting is an accounting term for adding up a column of figures. Cross Casting, also an accounting term, means adding up the totals of a number of columns, to verify they add back to the 'grand total'. In other words, cross-casting is verifying that the sum of all of the rows equals the sum of the columns. For example, assume you had a worksheet listing Sale Reps expenses by month for the year. The Rows contain names and the columns list the months of the year. If you calculate the total of all the expenses by month (columns) it must equal the total of all of the expenses by Sales Rep (rows). This is cross casting, and many errors are identified using this.

Cumulative - (Synonymous with Accumulative, same thing). Growing in quantity by successive additions or gradual steps. Produced by addition. A cumulative graph showing 10 things produced in one week, then added to the 10 produced the next week with the new graph showing 20. The new figure is 20 and is a cumulative total so far over two weeks. If 10 things are produced the next week again, the new cumulative total is 30.

Curator - Often known as a curator bonis, a Latin term meaning „benevolent guardianâ''. A person appointed as a legal guardian by the Master of the High Court to manage and take care of the property of a person who is unable to do so himself or herself forphysical or legal reasons. Examples of where a curator can be appointed are instances where mental illness, brain damage or severe physical handicap prevents a person from managing their own affairs. The duty of the curator is to preserve the estate until the recovery or death of the person incapacitated.

Currency market - See foreign exchange market.

Current account - 1. Also known as a cheque or transaction account used by account holders for day to day banking transaction. Current accounts attract little or no interest. 2. A term used to describe a section of the balance of payments of a country. The current account can be positive – the country exported more than it imported. Or it can be negative – the country imported more than it exported.

Current assets - The assets used by a company in its ordinary work (e.g. materials, finished goods, cash and monies due, and which are held for a short time only).

Current asset ratio - A ratio of current assets divided by total liabilities. Current asset ratio = Current Assets/Total Liabilities. The current assets ratio measures the ability of a company to pay its total liabilities (current and non-current) from the potential sale of its current assets. Other liquidity ratios are the cash ratio, the acid test, the current ratio, and the interval measure. Note: The current asset ratio is not the same as the current ratio. See current ratio.

Current liabilities - The debts which a company has to pay usually within the next twelve months. This figure is recorded in the balance sheet of the financial statements. It will include such items as all bills received but not paid from its creditors, interest charges, lease charges, and any capital repayments due in this period.

Current ratio - A ratio of current assets divided by current liabilities. Current ratio = Current Assets/Current Liabilities. It measures the ability of a company to pay its current liabilities from the potential sale of its current assets. Other liquidity ratios are the cash ratio, the acid test, the current asset ratio, and the interval measure.

Customer Relationship Management (CRM) - A business management system that involves all aspects of interaction an organisation has with its customer, Client or member, including all marketing, communications, sales and service-related activities.

Database - A collection of data that is shared and used by a number of different users for different purposes

Debit - Debit comes from the Latin word which means debt or 'to owe' (debere).

a. acknowledgment of a sum owing by entry on the left side of an account
b. the left side of an account
c. an entry on this side
d. the total of such entries
e. (Verb) to record (an item) as a debit in an account
f. (Verb) to charge (a person or his account) with a debt Compare credit.

Debit order - Where a third party is authorised by the account holder to draw money from the account holderâ''s account. For example, a person signs a debit order with Telkom. This authorises Telkom to draw money directly from the clientâ''s account without any further reference back to the client. Debit orders may be for fixed or variable amounts.

Debt counseling - Where a consumer seeks advice from a professional, registered debt counselor in terms of the National Credit Act, 2005.
Debt Counsellor - Individuals registered with the National Credit Regulator in terms of the National Credit Act, 2005. They assist over-indebted consumers to restructure their debt by negotiating with credit providers and, in certain instances, obtaining court orders on behalf of consumers.
Debtor - A person or commercial enterprise that owes a financial obligation. If we sell a product or service to a company on credit, that company then owes us the money billed and that company is known as a debtor in our company accounts.

Debtor - A person or commercial enterprise that owes a financial obligation. If we sell a product or service to a company on credit, that company then owes us the money billed and that company is known as a debtor in our company accounts.

Debtors book - The amount of money owed to a company by its customers and recorded in the accounts of the company.

Debtors Control Account - The Debtors Control Account reflects the total amount owed by the all the individual debtors. The balance of the debtors control account must equal the total of the debtors list, which represents the amounts owed by the individual debtors obtained from the individual balances in the various subsidiary ledger accounts for each debtor. This subsidiary ledger is known as the debtors ledger.

Debtors Ledger / Accounts Receivable Ledger - The Accounts Receivable Ledger is the book (or computer record equivalent of a book) in which we record who owes the business money, how much and for how long it has been outstanding. The record is completed at the end of each month.

Debt ratio - A ratio of total liabilities divided by total assets and expressed as a percentage.

Debt Ratio = Total Liabilities/Total Assets
This ratio gives an insight into the overall leverage of a company as measured by the book value of its assets and liabilities. A lender may choose to strip out the intangible assets and reduce the asset values from book value to realisable value.

Adjusted Debt Ratio = Total Liabilities/(Total Assets – Intangible Assets – Reduction to Realisable Value) Other leverage ratios are the debt to equity ratio and the debt service coverage ratio.

Debt to equity ratio - The ratio of total liabilities divided by ordinary shareholders equity and expressed as a percentage.
Debt/Equity Ratio = Total Liabilities x 100% / Ordinary Shareholders Equity

The ratio compares a company's total liabilities to its total ordinary shareholders' equity. This is a measurement of how much suppliers, lenders and other creditors have committed to the company versus what the shareholders have committed. A conservative lender will want to see a low debt to equity ratio with ordinary shareholders equity carrying the primary risk of the business. Other leverage ratios are the debt ratio and the debt service coverage ratio.

Deceased estate - The personal property and possessions of a person who has died, as well as any monies owed to or by them. The administration and settlement of a deceased estate is governed in terms of the Administration of Estates Act, 1965, and falls under the jurisdiction of the Master of the High Court.

Deductible expenditure - Any expenditure of a capital nature that is incurred during the tax year in order to produce income for your business, such as operational expenses, assets bought for the business and so on.

Deed - A legal document especially relating to property ownership or legal rights. (Source: Concise Oxford English Dictionary, revised 10th edition)

Deeds Office - The Deeds Office, falling under the Dept of Land Affairs, is a government registry of ownership in all immovable property and other rights in immovable property. It processes title deeds transfer for all immovable property sales in South Africa and the
attachment of any mortgage bonds on such transfers. It also registers general and special notarial bonds over assets

De facto - A Latin phrase literally meaning “of fact”. In English, it means „existing in factâ'' – whether by right or not. For example: “He has de facto occupation of the construction site although he does not appear to have a legal right to it.” being held until a future date. If an action, for example, was planned to happen now but is deferred, it is postponed until another future time.

Deferred - Delayed or postponed until a future date. A payment can be deferred by being held until a future date. If an action, for example, was planned to happen now but is deferred, it is postponed until another future time.

Deposit -

1. To place (money) in a bank or similar institution in order to earn interest or for safekeeping.
2. To give (money) in part payment or as security.
3. a. an instance of entrusting money or valuables to a bank or similar institution
3. b. the money or valuables so entrusted
4. Money given in part payment or as security, as when goods are bought on hirepurchase.
A down payment made by you on a flat held where the owner holds this amount as security.
5. A consideration, especially money, given temporarily as security against loss of or damage to something borrowed or hired.

Deposit slips - (See Bank deposit slip)

Depreciation - The progressive reduction of the estimated value of a tangible asset over the expected useful economic life of that asset.
For example, a machine has a purchase value of R1 million and an estimated economic life span of ten years. Its value can be reduced, for example, by R100, 000 per annum in the balance sheet.

Depreciation policy - The policy adopted and usually recorded in the financial statements of a company that outlines the choices being made on the depreciation of tangible assets. There are a variety of different methods of depreciation. Some are based on time – a set amount of depreciation per annum. Others are based on usage of equipment or production volumes. The depreciation policy clarifies what method is being used in the financial statements.

Director -

1. A person in charge of an activity, organization or division of an organization.
2. A member of the governing body of a company with overall responsibilities for the good governance, financial solvency and strategic direction of a company. A director is normally appointed by the shareholders or by the other directors in terms of the Articles of Association of the company.

Directors can be executive or non-executive.

An executive director is a senior member of the management team and actively involved in the day to day management of the company – such as a Finance Director.

A non-executive director is a member of the Board of Directors but not involved in the day to day management of the company. Their role is to provide strategic input and support to the executive team, help to guide it in its policies and decision making and to add value in the form of an independent and balanced perspective.

Directors have increasingly high legal responsibilities and potential personal liabilities for the effective running and operation of a company.

Direct taxes - Taxes that are imposed on persons. The term 'person' relates to individuals and to legal entities (companies, CCs, trusts, deceased estates).

Dirty money - Money derived from criminal activity. The „dirtyâ'' money then needs to be „money launderedâ'' to be used in normal business transactions.

Discount - A reduction from the full or standard amount of a price or debt. A discount offered for early settlement of a debt to a supplier, for example, would be known as a settlement discount.

Disposable income - The amount of income left to an individual or a household after taxes and other government deductions have been paid and which is then available to cover an individualâ''s or a householdâ''s costs, discretionary spending and saving. Also called take home pay.

Disposal - The sale of an asset.

Distributable reserves - A reserve fund created by a company from declared profits which can be used to maintain dividend payments to shareholders in the event of a bad financial year.

Distribution channel - A system of moving goods or services from producers to buyers and the people and organizations involved in this system. (Source: Longman Business English Dictionary)

Dividend - A share of profits paid to shareholders of a company at the end of a financial year.

Dividend payout - Another term for dividend. See dividend.

Dividend Tax - Has replaced Secondary Tax on Companies (STC). This new tax is a withholding tax of 15%, payable by the company on behalf of a shareholder. This means that the shareholder will not pay tax on the dividends at his effective tax rate; 15% will be the final tax payable on the dividend.

Direct financial interest - A financial interest:

  •     Owned directly by and under the control of an individual or entity (including those managed on a discretionary basis by others); or
  •     Beneficially owned through a collective investment vehicle, estate, trust or other intermediary over which the individual or entity has control

Directors - Those charged with the governance of an entity, regardless of their title, which may vary from jurisdiction to jurisdiction

Disclosure - The material matters relating to the form, arrangement, and content of financial statements that are “disclosed” during the presentation of financial statements in accordance with generally accepted accounting principles

Double entry bookkeeping - Reflects the double impact of any transaction on the accounting equation, such that the equation always balances

Doubtful debt - A debt that is expected to become a bad debt, but might still be collected.

Dow Jones - (Dow Jones Industrial Average) -- an indicator of stock market prices; based on the share values of 30 blue-chip stocks listed on the New York Stock Exchange; "the Dow Jones Industrial Average is the most widely used indicator of how the stock market is doing." Based on WordNet 3.0, Farlex clipart collection. © 2003-2008 Princeton University, Farlex Inc. Origins: Charles Henry Dow, born 1851, was an American journalist who co-founded theDow Jones Company with Edward Jones and Charles Bergstresser. Dow also founded The Wall Street Journal, which became one of the most respected financial publications in the world. He also invented the famous Dow Jones Industrial Average as part of his research into market movements.

Drawer - (Drawee as well). The drawer of a cheque is the person who owns the bank account and writes a cheque and who demands that his or her bank pay to some third party the indicated amount of money. The drawee is the bank, in the case of a cheque, directed to pay the stated amount to the payee on the stated on the cheque. The payee is the person or company who is stated on the cheque as the person the
money is to be paid to.

DTI - The Department of Trade and Industry of SA. The DTI mission is to:

Due diligence - The investigation of an asset, investment, or anything else to ensure that everything is as it seems. Due diligence helps a buyer or investor make sure that there are no unexpected problems with the asset or investment and that he/she does not overpay. Due diligence can be a complex and formalized process in the acquisition of a company. Even when buying a house, for example, due diligence involves time
consuming and at times expensive endeavours, like a home inspection. However, due diligence is seen as a necessary part of doing business or buying an asset.

Dwelling - Any building, premises, structure or any other place or part thereof used predominantly as a place of residence.

Earnings -

1. The net profit, also known as profit after taxes, of a company. Earnings are said to be the reason companies exist. They are often a very important determinant of the ordinary share price of a quoted company. Earnings are important to investors because they give an indication of the company's expected future dividends and its potential for growth and capital appreciation.
2. The salary of an employee.

Earnings before interest, taxes, depreciation and amortization - Abbreviation EBITDA. The total of net operating income (operating income less operating expenses) and non-operating income.

                      EBITDA = (Operating Income – Operating Expenses) + Non-operating Income

A measure of a company's net operating profit plus its non-operating income that excludes the costs of interest, income tax expenses and asset write offs. This is the total net income available to service debt, replace depreciating capital costs and pay taxes. EBITDA is used in a number of accounting ratios and commonly used instead of operating profit. EBITDA is sometimes assumed to have the same meaning as operating
profit. This is only true if the firm has no non-operating income. 

Earnings per share - Abbreviation EPS. The net profit of a company less preferred dividend payments divided by the number of ordinary shares issued. It is and expressed as a percentage of the market price of one share.

Earnings per share = (Net Income – Preferred Dividends) x 100% Number of Ordinary Shares Issued This measures the net profit (earnings) per ordinary share. Earnings per share allow a ranking of listed companies by their ability to create net profits in relation to the cost of their current share price. Earnings per share do not have anything to do with dividend payment. The declaration and distribution of dividend is a separate decision and exercise. See dividend policy, dividend payout ratio and dividend yield ratio. Other ratios related to market value include price per earnings ratio, book value per share, dividend yield and dividend payment.

Economies of scale - The price, cost and other competitive advantages received from increasing production, distribution network and/or sales with the resulting ability to spread fixed costs over a larger number of units produced, distributed and sold.

ECSAFA - The Eastern, Central and Southern African Federation of Accountants. The Eastern Central and Southern African Federation of Accountants (ECSAFA) is a regional body whose objects, amongst others, are to co-ordinate development of the accountancy profession and the promotion of internationally recognized standards of professional competence and conduct within the region. The mission of the organization is to build and promote the accountancy profession in the Eastern, Central and Southern regions of Africa in order that it is, and is perceived by accountants, businesses, financiers and governments, to be an important factor in the economic development of the region.

eFiling - SARS eFiling allows taxpayers to submit tax returns and payments electronically (via the internet). Currently, only VAT 201 returns, PAYE / SDL / UIF (EMP 201) and provisional tax returns (IRP 6) are accommodated. For more information visit the SARS eFiling website at

EFT (Electronic funds transfer) - Electronic Funds Transfer (EFT) is a system of transferring money from one bank account directly to another without any paper money changing hands. One of the most widely-used EFT programs is where salaries and wages (payroll) is deposited straight into an employee's bank account. EFT also refers to any transfer of funds initiated through an electronic terminal, including credit card, an ATM, point-of-sale (POS) transactions (at a supermarket, for example). It is used for both credit transfers, such as payroll payments, and for debit transfers, such as mortgage payments. The growing popularity of EFT for online bill payment is paving the way for a paperless world where cheques, stamps, envelopes, and paper bills are obsolete. The benefits of EFT include reduced administrative costs, increased efficiency, simplified bookkeeping,and greater security. However, the number of companies who send and receive bills
through the Internet is still relatively small.

NB: EFT payments can also be looked upon as money coming into the business as payment of the business invoice, or as money going out from the business as payment to a supplier the business owes money to.

Employee - Any person (other than a company) who receives remuneration or to whom any remuneration accrues. This includes services rendered by a person to or on behalf of a labour broker.

Employer - Any person who pays or is liable to pay an amount by way of recompense to another person.

Endorsing a cheque - The beneficiary on the face of a cheque signs at the back of a cheque to specify that another is now the beneficiary. It is an instruction to the bank to pay the second person the amount stated on the cheque. By his signature, the first beneficiary is accepting responsibility for the bank so doing.

Endowment policy - This is a life insurance contract designed to pay a lump sum after a specified term (on its 'maturity') or on earlier death. Typical maturities are ten, fifteen or twenty years up to a certain age limit. Some policies also pay out in the case of critical illness. (See life insurance policy).

Engagement - An agreement, whether written or otherwise, between an accountant and a Client relating to the provision of services. Consultations with a prospective Client prior to such agreement are not part of an engagement

Engagement letter - An engagement letter defines the legal relationship (or engagement) between a professional firm (for example a law firm, an investment banking firm, a consulting company or an advisory or accountancy firm) and its client(s). This letter states the terms and conditions of the engagement, mainly addressing the scope of the engagement and the terms of compensation for the firm.

Enterprise - Broadly includes any business activity carried on regularly in or partly in the Republic, whether or not for profit, in the course of which goods are sold or services are rendered. of South Africa. (This definition relates to VAT)
Any business activity in the broadest sense.

It includes an activity carried on:

  • continuously or regularly
  • by any person
  • in or partly in the Republic
  • in the course of which goods or services are supplied for a consideration, i.e.
  • some form of payment
  • whether or not for profit

Special inclusions: Public authorities-certain government departments and provincial authorities, Local authorities-municipalities, Welfare  organisations, Share block companies.

Examples: Ordinary businesses-manufacturers, traders, auctioneers, landlords, contractors, etc.; Trades and professions-builders, electricians,
plumbers, doctors, lawyers, accountants; Non profit organizationssporting/ social clubs, charitable organizations, etc.

The following activities are not “enterprise” activities and will therefore not attract VAT:

Services rendered by an employee to his employer e.g. salary/wage/remuneration earners. This must, however, be distinguished from a private independent contractor who is not excluded.

Supplies by a branch or main business permanently located outside South Africa (must be separately identifiable and maintain its own system of accounting).

Private or recreational pursuits or hobbies (unless carried on like a business).

Private occasional transactions, e.g. occasional sale of domestic/household goods, personal effects or private motor vehicle.

Supplies by persons who are not vendors.

Entertainment - (This definition relates to VAT) The term “entertainment” means the provision of any food, beverages, accommodation, entertainment, amusement, recreation or hospitality of any kind by a vendor whether directly or indirectly to anyone in connection with an enterprise carried on by him.

Examples of entertainment include the following:

  • Staff refreshments such as tea, coffee and other beverages and snacks and other ingredients purchased in order to provide meals to staff, clients and business associates;
  • Catering services acquired for staff canteens and dining rooms including own equipment, furniture and utensils used in kitchens, canteens and staff dining rooms;
  • Christmas lunches and parties, including the hire of venues;
  • Golf days for customers and clients;
  • Beverages, meals and other hospitality and entertainment supplied to customers and clients at product launches and other promotional events;
  • Entertainment of customers and clients in restaurants, theatres and night clubs; and
  • Capital goods such as hospitality boxes, holiday houses, yachts and private aircraft used for entertainment.

The above list is not exhaustive. Expenses relating to expenses incurred for entertainment as a general rule may not be claimed as input tax. There are, however, a few exceptions to the rule.

Entry - A single record made on a journal or computer record of one transaction or event. Example: One sale would be recorded as an entry in the sales journal.

Equity - 1. The interest of ordinary shareholders in a company. In accounting this would be the difference between assets and liabilities. The value of the business as expressed by the difference between its assets and its liabilities at any one point in time. This“difference” is known as shareholderâ''s funds or equity. It represents the ownersâ'' investment into the business. 2. The market value of a debtor's property in excess of all debts to which it is liable. For example, if you own a house worth R 250,000 and you have a bond outstanding on that property of R 200,000, then your equity in that property is R 50,000. The word 'equity' comes from the Latin word meaning 'equal'.

Equity capital - The total face value of all the ordinary shares issued by a company to its shareholders.

Equity market - Also known as a stock market. The primary and secondary markets associated with the trade in shares of public limited companies. The JSE is the principal equity market in South Africa (Source: Wuite, 2009).

Equity trading - Trading on an equity stock market exchange in ordinary shares in the secondary market for ordinary shares. It increasingly also includes derivative and futures trading.

Estate - 1. A person's money and property at the time of their death. 2. The money and property of a company or individual when they are declared insolvent. 3. A large area of land with a large house on it. 4. A residential, industrial, office or commercial development. 5. Agricultural land used to grow a variety of commodities or crops such as rubber, coffee, tea and so on.

Euro - (sign: €; code: EUR) The official currency of the European Union (EU). In early 2010, it is in use in sixteen of the twenty seven Member States of the EU. The sixteen states, known collectively as the eurozone, are: Austria, Belgium, Cyprus, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Malta, the Netherlands, Portugal, Slovakia, Slovenia and Spain. The currency is also used in a further five European countries, with and without formal agreements, and is consequently used daily by some 327 million Europeans. The euro is the second largest reserve currency as well as the second most traded currency in the world after the U.S. dollar.

Environmental matters - Initiatives to prevent, abate, or remedy damage to the environment, or to deal with conservation of renewable and non-renewable resources (such initiatives may be required by environmental laws and regulations or by contract, or they may be undertaken voluntarily)

Exclusive of VAT (Compare Inclusive) - If a price is quoted as 'VAT exclusive', that means the VAT portion of the cost of the item is excluded, and needs to be added. If an item costs you R 500.00 and is exclusive of VAT, that means the price is R 500.00 and the VAT of 14% is still to be added. Once it is added, the price you finally pay is R 500.00 plus R 70.00 (14% of 500), which totals R 570.00.

Inclusive of VAT would mean that the VAT portion of the price you will pay is already included in the price quoted. In this case the item would be quoted as R 570.00 which has R 70.00 already added into the price.

Exchange control regulations - See foreign exchange controls.

Exchange rate - The price of one currency in terms of another. An exchange rate is normally expressed in terms of how many units of the local currency are required to purchase the foreign currency. For example, ZAR7.5/US$1, where ZAR is a South African Rand, US$ is a United States dollar and the 7.5/1 indicates the ratio. The exchange rate is quoted in terms of “buy” and “sell” with the difference indicating the profit or commission being charged. There are also different rates quoted for cheques, cash and bank transfers as each of these categories has a different handling cost for the bank or exchange broker. Better rates can be achieved for large transactions. Each currency has a unique three letter alphabetical code and a supporting three digit numerical code. The latter numerical code is simpler for use in computer programming – crucial to interbank payment systems. These identifiers are set out in a standard created by the International Standards Organisation. For example, the alphabetical codes for the Rand, US dollar, Euro, Yen and the Pound Sterling are respectively: ZAR, USD, EUR, JPY and GBP.

Executor - A person appointed in a will or through a court order to carry out the terms of a will or administer an intestate deceased estate. This appointment may need to be confirmed by the Master of the High Court. In the event of a person dying without a will (known as intestate), the executor is appointed on representation to the Master of the High Court. The appointment of executors and the administration of deceased estates are governed by the Administration of Estates Act, 1965.

Exempt supply - A supply on which no VAT may be charged (or claimed) even if the supplier is registered for VAT. Exempt supplies include financial services (interest, life insurance, medical aids and others), renting a dwelling to use as a private home and educational services (primary and secondary schools, etc).

Expenditure - This is the action of spending money or using time and resources. It can also be a noun: expense or expenditure. Our expenditure was R 100.00. To expend is to use or spend. You can expend energy by doing exercise, for example.

Expense - The value paid out on items or services that are relatively quickly used or consumed or rendered obsolete by the passing of time. Example: Printer cartridges that are soon emptied and replaced, or paper or petrol for vehicles.

Expenses - Expenditures of money in order to earn revenues

External audit - An audit performed by an external auditor.

Fair value - The amount for which an asset could be exchanged or a liability settled, between knowledgeable, willing parties in an arm’s-length transaction

Fiscal year - Fiscal year is a period of 12 consecutive months without regard to the calendar year. The fiscal year is designated by the calendar year in which it ends. The SA government's fiscal year begins 1 March and ends 28 February. The fiscal year carries the date of the calendar year in which it ends and is referred to as FY.

FAIS - Abbreviation for the Financial Advisory and Intermediary Services Act, 2002.

Fasset - The Seta for Finance, Accounting, Management Consulting and Other financial Services.

The Objectives of Fasset:

  • To develop the competence of employees and potential employees:
  • Improving the quality of life of employees, their prospects of work and labour mobility
  • Improving productivity in the workplace and the competitiveness of employers
  • Promoting self-employment in situations where the sector is experiencing job shrinkage.
    • To increase the levels of investment in education and training and to optimise the return on this investment
    • To position this sector as the "sector of career choice" for prospective learners and entrants into the labour market
    • To encourage employers and employees to adopt a culture of life long learningthrough:
  • Using the workplace as an active learning environment
  • Providing employees with the opportunities to acquire new skills
  • Providing opportunities for new entrants and potential entrants into the sector labour market and enhancing access to opportunities to gain work experience.
    • To support the objectives of the Employment Equity Act of 1998
    • To enhance access to learning opportunities and to facilitate the recognition of prior learning
    • To ensure the quality of education and training in the sector
    • To expand the provision of education and training in this sector through sound partnerships with public and private sector service providers
    • To encourage greater cooperation between the public and private sectors
    • To co-operate with the South African Qualifications Authority and other Setas, in support of the objectives of the Act

Fees - The amounts charged to clients for serviced delivered.

FICA - Abbreviation for the Financial Intelligence Centre Act, 2001.

FICA Requirements - The basic requirements of FICA are to positively identify the natural or juristic person opening a bank or other financial service account and to confirm their physical address. Any suspected criminal and money laundering activity detected needs to be reported to the Financial Intelligence Centre established under the Act.

FIFO (compare LIFO) - First-in First-Out (FIFO). This is a system of recording stock values and movements.

FIFO and LIFO Methods are accounting techniques used in managing inventory and financial matters involving the amount of money a company has tied up within inventory of produced goods, raw materials, parts, components, or feed stocks.
FIFO stands for first-in, first-out, meaning that the oldest inventory items are recorded as sold first but do not necessarily mean that the exact newest physical object has been tracked and sold; this is just an inventory technique. For example, an item may come into stock costing R 10. Later you purchase more stock and the next item comes in at R12. FIFO would means if there are now 2 items in stock, one at R 10 and one at R 12, the first in (R 10) item is consider to be sold, if one of the items is sold.

LIFO stands for last-in, first-out, meaning that the most recently produced items are recorded as sold first. Since the 1970s, U.S. companies have tended to use LIFO, which reduces their income taxes in times of inflation. Per the example above, the last item (R12) is considered sold if one of the two items is now sold.

Finance - Noun: 1. The system of money and credit, especially with respect to government revenues and expenditures 2. Funds or the provision of funds 3. Funds; financial condition - Verb: 1. To provide or obtain funds, capital, or credit 2. To manage or secure financial resources [from Old French, from finer to end, settle by payment] Collins English Dictionary – Complete and Unabridged © HarperCollins Publishers 1991, 1994, 1998, 2000, 2003

Finance charges - The cost of borrowing. Interest levied on leases or other finance schemes.

Financial analysis - The process of analyzing the financial state of a company or a person.

Financial gearing - The ratio of debt to equity in a business, project or any form of financial transaction. The use of borrowed money in a business must be justified by achieving higher rates of return on investment than those charged by the bank's interest and related charges.Different businesses tend to have different ratios. Speculative house building might have a ratio of 5:1 where 5 is borrowed money and 1 is the money put forward by the developer. A small hairdressing business might have a ratio of 0.5:1 where 0.5 is the money borrowed form a bank and 1 is the money invested from the owner.

Financials - Another term for Annual Financial Statements.

Financial statement analysis - Method used by interested parties such as investors, creditors and management to evaluate the past, current, and projected conditions and performance of the firm based on the annual financial statement and related financial information from the company itself and from its industry.

Ratio analysis is the most common form of financial statement analysis. It provides relative measures of the firm's conditions and performance. Using the financial ratios, a financial analyst makes two types of comparisons: trend analysis using the company's own financial statements and industry comparisons. After completing the financial statement analysis, the financial analyst may consult withmanagement to understand the business context of the ratios and so on.

Fine-print - Also known as, "small print". The portion of a contract (or other legal or financial document) that contains conditions, qualifications or restrictions in small type or obscure language.

Fiscal policy - A government'ss policy regarding taxation and public spending. It relates to the government's decisions to increase or decrease taxation and/or public spending. The origin of the word is the Latin word, fiscus, meaning basket and relating to the public treasury or the emperor's purse.

Fixed assets - Assets of longer than average durability and with the ability to retain or even increase in their value. Example: Property (real estate), buildings, factory machinery.

Fixed assets register - (Information supplied by Pastel) South African Company Law requires that businesses keep a register of their fixed assets as part of their accounting records. However, managing your company's fixed assets can be tedious and timeconsuming.

Fixed assets are physical items such as desks, computers, cars, machinery, and so on, which you acquire to run your business. As you use assets, they depreciate or become obsolete. You can legally expense depreciation in your accounts and for tax purposes.

Managing your fixed assets includes the following tasks:

  • Tracking each asset's value, both from a tax and an accounting point of view
  • Depreciating assets correctly using an appropriate depreciation rate and method
  • Updating the replacement values of your fixed assets for insurance purposes.
  • Accurately recording any sale, disposal or loss of assets
  • Maintaining an accurate Fixed Assets Register which records information such as date of purchase, date of disposal, purchase price, accumulated depreciation, net book value, profit or loss on the sale of the asset.

Foreign exchange - The system by which one currency is converted into another, enabling international transactions to take place and for people to travel from one country to another.

Forex - Abbreviation for Foreign Exchange.

Formal sector (formal economy) and informal sector or economy - The formal economy is the one regulated by laws and the government and where the production from this sector is counted in the production statistics of a country. The informal sector is, simply put, the economic activity that is neither taxed nor monitored by a government, and is not included in that government's Gross National Product (GNP), as opposed to a formal economy. A street vendor is part of the informal economy whilst Pick 'n Pay is part of the formal economy.

Founding Statement - A document required to establish a close corporation in South Africa. CIPRO provides a form, known as a CK1. In this, the following information must be completed: the full legal name of the company; the principal business of the corporation; the postal and physical address of the company; the full name, ID number, date of birth and residential address of each founding member of the corporation; the financial contribution made to the corporation by each member; details of the accounting officer; and the date of the corporation's financial year end.

FTSE - FTSE 100 Index - A market-weighted index of the 100 leading companies traded in Great Britain on the London Stock Exchange. The Financial Times calculates several other indexes, although financial commentators typically refer to the FTSE 100 when they say "Footsie." The full name is Financial Times-Stock Exchange 100 Share Index.

Financial interest - An interest in equity or other security, debenture, loan or other debt instrument of an entity, including rights and obligations to acquire such an interest and derivatives directly related to such interest

Financial planning - Financial planning is the process of providing comprehensive assistance and support to meet a Client’s financial needs and goals in rapidly changing regulatory environments

Financial statements - The presentation of financial data, including accompanying notes derived from accounting records and intended to communicate an entity’s economic resources or obligations at a point in time, or the changes therein for a period of time, in accordance with a comprehensive basis of accounting

Firewall - A combination of hardware and software that protects a WAN, LAN or PC from unauthorised access through the internet and from the introduction of unauthorised or harmful software, data or other material in electronic form

Firm - A sole practitioner, partnership, corporation or other entity of professional accountants; An entity that controls such parties through ownership, management or other means; or An entity controlled by such parties through ownership, management or other means

Forecast - Prospective financial information prepared on the basis of assumptions as to future events that management expects to take place and the actions management expects to take as of the date the information is prepared (best-estimate assumptions)

Fraud - An intentional act by one or more individuals among management, those charged with governance, employees, or third parties, involving the use of deception to obtain an unjust or illegal advantage. Two types of intentional misstatement are relevant to the auditor: those resulting from fraudulent financial reporting and from misappropriation of assets (See also Fraudulent financial reporting and Misappropriation of assets)

Fraudulent financial reporting - Intentional preparation of misleading financial statements—such as distorted records, falsified transactions or misused accounting principles.

GAAP - Generally Accepted Accounting Principles (GAAP) is the standard framework of guidelines for financial accounting. It includes the standards, conventions, and rules accountants follow in recording and summarizing transactions, and in the preparation of financial statements. (Wikipedia).

Garnishee order - Also known as an emolument order (i.e. a salary order). A court order issued to a third party ( the debtorâ''s employer) following a successful court application by a creditor seeking payment for a debt owed by an employee via direct salary deductions. The employer is obliged to administer the garnishee order and pay a stated amount in the court order off the employeeâ''s salary. For example, Mrs. Jones opens an account with a large department store. The terms and conditions of the credit agreement include a provision for a garnishee order in the
event of non-payment. She runs up a large, unpaid bill. She works as a nurse in a local hospital. Based on the signed terms and conditions, the department store successfully gets a court order, requiring the hospital to pay an amount from her salary to them directly. The garnishee order is served on the hospital. The hospital is required to comply with the garnishee order and make payment until the debt is settled in full.

GDP - Abbreviation for Gross Domestic Product.

GDS - Abbreviation for Gross Domestic Savings.

Gearing ratios - Also known as leverage ratios. See leverage ratios.

General Journal (Also known as Main Journal) - A journal used to make corrections to entries made in a set of books that was done incorrectly.

General Ledger - A journal where all the bookkeeping entries for a business are recorded using the double-entry bookkeeping system. The general ledger is the main accounting record for your business if you use double-entry bookkeeping. When you hear the phrase "keeping the books," it refers to maintaining the general ledger. The general ledger accounts are built based on the Chart of Accounts for your business which shows the main accounts that will be shown in your financial statements. The Chart of Accounts can consist literally of hundreds of accounts depending on the size and complexity of the business. The general ledger consists of these accounts such as each current asset, the fixed assets, each current liability, the long-term liabilities, the owner's equity accounts, sales revenue, each expense account, gains, and losses. The general ledger is built through transferring journal entries of a company's financial transactions from its accounting journals (sales journal, purchase journal, cash receipts journal, petty cash journal, for example) to the general ledger. Each financial transaction has a source document, such as an invoice and a journal entry. The journal entry may be in the general journal or in any number of special journals called accounting journals as above. These special journals are the 'books of prime entry' of a business. The information
moves into the General ledger that gives you an overall -picture of all financial transactions and records of a business.

Going concern value - The estimated value of a company based on it continuing to trade. The going concern value is calculated based on the tangible and intangible asset
values and future income projections. If a company was to be liquidated, its estimated value would fall dramatically as the intangible assets and future income projection value would fall away. In addition, the asset values would drop from book value to realisable value in a forced sale situation. The going concern value is often significantly higher than a company''s voluntary or forced liquidation value.

Goods - The term “goods” includes the following -

  • Corporeal (tangible) movable things, goods in the ordinary sense (including any real right in those things);
  • Fixed property, land and buildings (including any real right in the property, e.g. servitudes, mineral rights, notarial leases, etc);
  • Sectional title units (including timeshare);
  • Shares in a share block company;
  • Postage stamps; and
  • Second-hand goods.
  • The term “goods” excludes the following -
  • Money, i.e. notes, coins, cheques, bills of exchange, etc (except when sold as a collector's item);
  • Value cards, revenue stamps, etc. which are used to pay taxes (except when sold as a collector's item); and Any right under a mortgage bond.

Goodwill - An intangible asset value assigned to the reputation of a business. It can include such things as the trading reputation, any patents, trade name value and other factors.

Governance - The role of persons entrusted with the supervision, control and direction of an entity. They ordinarily are accountable for ensuring that the entity achieves its objectives, financial reporting, and reporting to interested parties. Includes management only when it performs such functions

Government business enterprises - Businesses that operate within the public sector ordinarily to meet a political or social interest objective. They are ordinarily required to operate commercially, that is, to make profits or to recoup, through user charges, a substantial proportion of their operating costs.

Gross asset value - The total financial value of all the moveable and immovable property a company owns.

Gross domestic expenditure - The value of expenditure on goods and services in a country in a specified period. (Source: Wuite)

Gross domestic product - The value of all final goods produced in a country in a single year. In South Africa, Statistics South Africa (the governmentâ''s statistical office) is responsible for compiling the production side of the national accounts. The SARB is responsible for
compiling the expenditure side of the national accounts, as well as income and savings and the balance of payments. The GDP statistics are issued quarterly and annually. The GDP estimates are based on the system of measurement of national accounts published by the United Nations in co-operation with other international organizations.

Gross domestic savings - A measure based on Gross Domestic Product minus Gross Domestic Expenditure. The difference is a measure of the amount of surplus saved or loss in a country in any one year. Data on gross domestic savings and investment are estimated by the SARB as part of the Balance of Payments estimates. The significance of low gross domestic savings is the loss of locally available capital for re-investment in South Africa and Africa. This creates an increasing reliance on foreign capital for investment purposes. Africa is estimated to lose hundreds of billions of dollars in domestic revenues annually through capital flight, tax evasion, the repatriation of profits by transnational corporations and high debt repayments. At the same time, the continent'ss large informal sector holds considerable financial resources that are not deposited in savings accounts and do not pass through other formal financial channels. Sub-Saharan Africa has the lowest savings rate in the developing world. While figures vary from country to country, gross domestic savings in the region averaged about 18 per cent of gross domestic product (GDP) in 2005, compared with 26 per cent in South Asia and nearly 43 per cent in East Asia and Pacific countries, according to World Bank estimates. South Africa accounts for almost 40 per cent of sub-Saharan Africaâ''s total GDP. In 2006 the country'ss gross domestic savings rate declined to 13 per cent, from 26.7 per cent in the early 1980s. The low levels of gross domestic savings leads to a loss of locally available resources for re-investment in South Africa – a major problem for sustained economic development.

Gross income - Total income before taking any exemptions, deductions or allowances into account. This includes income other than cash, such as an asset given or service rendered in exchange for the sale of goods.

Gross margin - See Gross profit margin.

Gross profit = Net sales – Cost of goods sold

Gross profit margin - A ratio of gross profit divided by net sales and expressed as a percentage.

Gross profit margin = (Net Sales – Cost of Goods Sold) x 100% / Net Sales
= Gross Profit x 100% / Net Sales

For example, if a company receives R250, 000 in sales and its cost of goods sold were R150, 000, the gross profit margin would be:

Gross profit margin = (R250, 000 – R150, 000) x 100% / R250, 000
= R100, 000 x 100% / R250, 000
= 40%

Forty percent gross profit margin means that for every rand generated in sales, the company has 40 cents left over to cover its basic operating expenses and any remaining profit.

GRV (Goods Received Voucher) - A goods received voucher (or note) is simply a confirmation given by a recipient that they have received goods delivered to them. There is no legal requirement to have one. Senders or couriers like them because they have some evidence that the recipient has received the goods. It can happen that you order, for example, 100 of an item and the GRV shows 90 were received. The Accountant or Bookkeeper needs to know that this is the case so that the invoice from the supplier eventually reflects what actually did happen. The bookkeeping records needs to be perfect.

GST - A system of sales tax previously used in SA called General Sales Tax. It was replaced by the current system of VAT.

Guarantee - 1. A promise given with a high degree of commitment or certainty. 2. A commercial undertaking from a manufacturer to a consumer that a product or service will be of a specified quality for a stated time period. 3. A guarantee issued by a bank or other financial company backed by a financial sum of money in the event of a contractual breach. Examples of these types of guarantees are bid bonds and performance bonds. 4. A financially binding undertaking to be responsible for anotherâ''s promise to a thirdparty.For example, a parent may choose to stand guarantor their childâ''s student loan with a bank. 5. To underwrite through an insurance policy or other means a certain level of protection. 6. Monies or other assets held as a security to ensure another party honours their financial, legal, property, commercial or other undertakings. 7. A person who stands guarantor can be called a guarantee. 8. An adjective used to describe a promise given in respect of a financial instrument. For example: “The return was a guaranteed return of inflation plus 2%.”

Guarantor - A person or organization that gives or acts as a guarantee.

Guardianship - Legal responsibility for someone, such as an infant or minor, who is unable to manage their own affairs. This area of law in South Africa is covered in terms of the Guardianship Act, 1996.

Headline Earnings - Is the amount of how much money a company is really making. Headline earnings strips out certain things that have'nt got to do with the company's trading performance. The profit or loss from selling of an asset or a subsidiary will be excluded, as well as impairments on assets. The headine earnings number is also used to calculate a company's price earnings ratio.

Hedge - To protect an investment or other financial transaction against loss by putting in place balancing or compensating contracts or transactions. A “hedge” is put there to limit or confine oneâ''s exposure to loss. For example, a small contractor wins a major fixed price construction contract from a municipality. He then goes to his building supplier to confirm in writing that the building materials supplier will deliver at or below the building material prices the contractor quoted in his tender submission. By getting this written agreement from the building materials supplier, one variable (building material prices) that could lead to him losing money on this construction contract has been “hedged”.

Hedge fund - Investment funds that seek to deliver high speculative returns to investors through aggressive derivative trading. The funds often use high levels of gearing tomaximize gains. There have been some spectacular hedge fund losses and collapses as well as gains.

High Court - A senior court in South Africa that hears serious criminal charges and any
civil matter with a value of over R100, 000. The High Court also usually hears any matter
involving a personâ''s status (for example, adoption, insolvency). They hear any appeals
or reviews from lower courts (magistratesâ'' courts) which fall in their geographical
jurisdiction. There are thirteen High Courts in South Africa.

HIV - Human immune-deficiency VirusGross profit - The net sales or sales revenue of a company less the cost of goods sold.

Holding company - 1. A company which owns 50% or more of the shares in another company or companies.
2. A company which exists only or mainly to own shares in associated or subsidiary companies. (Source: Dictionary of Accounting, 4th Edition)

IAS - International Accounting Standards. An older set of standards stating how particular types of transactions and other events should be reflected in financial statements. In the past, international accounting standards (IAS) were issued by the Board of the International Accounting Standards Committee (IASC). Since 2001, the new set of standards has been known as the international financial reporting standards (IFRS) and has been issued by the International Accounting Standards Board (IASB).

IASC- International Accounting Standards Committee. See IAS above.

ICB - The Certified Institute of Bookkeepers.

Identity theft - A crime in which a fraudster obtains key pieces of personal information (such as ID number, cell phone SIM card, Social Security or driver's license numbers) in order to impersonate someone else. The information can be used to obtain credit, goods or services in the name of the victim, or to provide the thief with false credentials. In addition to running up debt, an imposter might provide false identification to police, creating a criminal record or leaving outstanding arrest warrants for the person whose identity has been stolen.

IFAC - The International Federation of Accountants. IFAC is the global organization for the accountancy profession and is committed to protecting the public interest by developing high-quality international standards, promoting strong ethical values, encouraging quality practice, and supporting the development of all sectors of the profession around the world.

IFRS - International Financial Reporting Standards are standards and interpretations adopted by the International Accounting Standards Board (IASB). Many of the standards forming part of IFRS are known by the older name of International Accounting Standards (IAS). IAS were issued between 1973 and 2001 by the board of the International Accounting Standards Committee (IASC). In April 2001 the IASB adopted all IAS standards and continued their development, calling the new standards IFRS.

Immovable property - Land, buildings, bridges and other property attached to the land
that is “immovable”.

Impairment - An unexpected or sudden decline in the estimated value of an asset, such as a factory, investment, property or a vehicle leading to a revaluation. This revaluation could be the result, for example, of physical damage, obsolescence, market collapses, or legal changes.
An asset is considered to be value-impaired when its book value exceeds the future net cash flows expected to be received from its use. An impairment write-down reduces an overstated book value to fair value. This drop in value, the impairment, is written off the balance sheet and posted as an expense in the income statement. This is recorded as a special non-recurring charge.

Import duties - A tax imposed on goods imported into a country.

Immediate family - A spouse or domestic partner, child, child of a domestic partner, sibling, sibling of a domestic partner, brother-in-law, sister-in-law, parent, parent of a spouse or a domestic partner

IIA - The Institute of Internal Auditors.

Inc. - Abbreviation for Incorporated and, in South Africa, appearing at the end of certain professional service companies names. See Incorporated.

Inclusive of VAT (Compare Exclusive) - If a price is quoted as 'VAT exclusive', that means the VAT portion of the cost of the item is excluded, and needs to be added. If an item costs you R 500.00 and is exclusive of VAT, that means the price is R 500.00 and the VAT of 14% is still to be added. Once it is added, the price you finally pay is R 500.00 plus R 70.00 (14% of 500), which totals R 570.00 Inclusive of VAT would mean that the VAT portion of the price you will pay is already included in the price quoted. In this case the item would be quoted as R 570.00 which
has R 70.00 already added into the price.

Income Tax - A tax imposed on all taxpayers; calculated on the taxable income of both natural and legal persons.

Income & expenditure declaration - A signed declaration made by an applicant for credit outlining their income and expenditure. This is then used by a bank or other credit provider as a basis on which to assess the ability of the consumer to afford the loan. Since the National Credit Act came into effect, this is an important safeguard for a bank to avoid allegations of “reckless lending.”

Income statement - Also referred to as the Profit & Loss Statement. A statement that records the income and expenditure made by a company within a specified period oftime. The income statement in the Annual Financial Statements gives the profit or loss of the company for that period.
It displays the income recognized for a specific period, and the cost and expenses charged against this income, including asset write-offs (such as depreciation, amortization and impairment) and taxes.

Income tax - 1. The tax on a natural personâ''s income – both earned and investment income.
2. The tax on the annual profits and capital gains of a corporation. Also known as corporate or corporation tax. Income tax is the South African governmentâ''s main source of income and is imposed by the Income Tax Act, 1962.

Incorporated - 1. A company structure in South Africa used for professional service companies such as law, engineering or accounting firms. In these cases, the Directors in their personal capacity and the company are jointly and severally liable for all debts and liabilities of the company incurred during their term of office. These companies are identified by the word "Incorporated" or "Inc." after the name of the company. They are also known as section 53(b) companies – the section of the Companies Act under which they are formed.
2. More generally, constituted as a legal corporation. Incorporated entities share basic attributes: an exclusive name, continued and independent existence from its shareholders or members, paid-in capital and limited liability. Incorporation - The process of forming a company, close corporation or other form of legally recognized corporation.

Index - 1. An indicator or measure of something.
2. A structured grouping of securities, such as share market prices, on a stock exchange to give a performance measure of movement up or down. For example, the JSE All Share Index (JSE ALSI) measures the collective movement of all shares in the JSEâ''s main board.

Indirect taxes - Taxes that are levied on transactions, e.g. the tax levied on the selling price of goods, which in South Africa is Value Added Tax (VAT).

Indirect financial interest - A financial interest beneficially owned through a collective investment vehicle, estate, trust, or other intermediary over which the individual or entity has no control

Indivisible - Unable to be divided or separated.

Industry standards - Benchmarks for financial or nonfinancial information that provide important contextual data for any financial analysis

Inflation - A general increase in prices normally expressed as the annual rate of increase in the consumer price index. Inflation leads to a reduction in the purchasing power of a currency. The consumer price index is one way of measuring this erosion in value. It is based on
the increase in price of a basket of products and services that are considered typical for a medium sized family. Inflation is generally a monetary phenomenon. It is created by too much money in circulation relative to the goods and service being produced in the economy. For this
reason, the monetary policy of central banks is aimed at controlling inflation by the manipulation of the money supply in a country or economic area.

Initial public offer - (IPO) Sometimes called a flotation, the process of launching a public company for the first time. IPOs have also been used to sell BEE share offerings tot eh public. The shares are purchased by institutional investors or, in the case of BEE share offerings, by the public. After the initial public offer, the shares are traded on an exchange. An IPO can also be used to change the status of a mutual company to a
public company.

Input Tax - VAT paid by a vendor on goods or services supplied by the vendor. Conversely, Output Tax is VAT charged by a vendor for goods or services supplied.

Insolvent - 1. The inability to pay one's debts as they fall due. Business insolvency is defined in two different ways: cash flow insolvency where a
company is unable to pay debts as they fall due; and balance sheet insolvency where the company has a net negative worth (liabilities exceed assets). In either case, a company may still be able to trade its way through to a positive position. Trading, whilst knowingly insolvent, may carry personal liabilities for the owner or executive management of such a company.
2. A person who has been declared insolvent or bankrupt by a court. Instrument - A general term used for shares, debt securities, derivatives and many other financial products (Source: Wuite (2009)).

Internal control - The process designed and affected by those charged with governance, management and other personnel to provide reasonable assurance about the achievement of the entity’s objectives with regard to reliability of financial reporting, effectiveness and efficiency of operations and compliance with applicable laws and regulations

IT controls - Policies and procedures that relate to many applications and support the effective functioning of application controls by helping to ensure the continued proper operation of information systems. Includes controls over data centre and network operations; system software acquisition, change and maintenance; access security; and application system acquisition, development, and maintenance.

IT environment - Policies and procedures that the entity implements and the IT infrastructure (hardware, operating systems, etc.) and application software that it uses to support business operations and achieve business strategies

Johannesburg Stock Exchange - South Africaâ''s and Africaâ''s main financial stock and securities exchange. A wide variety of shares, derivatives and debt securities are traded on the JSE daily. The daily trading volume is normally between R10 billion to R18 billion.

Joint estate - 1. In South Africa, the estate of a husband and wife when they are married in community of property.
2. Property owned by two or more people at the same time, under the same title, with the same interest, and with the same right of possession.

Joint liability - When two or more persons are both responsible for a debt, claim or judgment. In certain legal jurisdictions this has a different meaning to joint and several liability. In such countries, a court may decide that one party is 20% liable and another is 80% liable. They are then responsible for their respective share of the liabilities being claimed – not the full amount. In South Africa, joint liability can be assumed to mean “joint and several” liability.

Joint and several liability - A liability undertaken by two or more people each having liability for the whole. For example, three people start a business. The business closes after three years with large debts. They have signed various contracts on a joint and several basis. A creditor
finds out that one has received a large inheritance. The creditor pursues this person through the courts and gets judgment for the full amount owed against this person receiving inheritance. The creditor gets paid in full from this one person. It is now his problem how he recovers the two thirds from his two former partners.

Joint venture - A business activity in which two or more companies have invested together. This may be based on a contractual agreement or it may result in a separate legal entity being created.

Journal - One of several books in which transactions are initially recorded to facilitate subsequent entry in the General Ledger. A journal is the book in which the transactions are entered the first time they are processed. The company usually has a few journals each showing specialized transactions such as a record of sales or purchases, for example. Some of the more common special journals are the sales journal, the cash receipts journals, and the cash disbursements journal. The number and types of special journals a company keeps is determined by the
individual company. If the company uses a computerized accounting system, the different special journals are generated as you enter your financial transactions into the computer.

JSE - Abbreviation for Johannesburg Stock Exchange and now the legal and official name for the exchange.

Juristic person - Also known as an artificial or legal person. A legal entity recognized by law as having rights, obligations and abilities to act similar to those of a natural person. A juristic person can own property, enter into contracts, hire people and open bank accounts. Historically, the juristic person was created to allow for limited liability of owners in the form of shareholders. This legal creation led to the massive expansion of trading activity of early corporations such as the Dutch East India Company. Prior to the creation of the juristic person, the only two forms of business entities were the sole proprietor and partnerships. In both cases, the owners were fully and personally liable for the debts and losses of the business.

Key performance indicator (KPI) - Benchmark measurement based on objectives, targets and defined industry standards

Knowledge management - The process of connecting people to people and people to information to create competitive advantage

L/C - Abbreviation for letter of credit.

Lease - A legal agreement where an owner of immovable property or moveable property grants another the use of this property for a period of time in return for a financial or other benefit.

Ledger - The storage device that separates the transactions into their different categories and stores them in locations called accounts

Legal tender - Money that must be accepted for payment of a debt in a country. Legislation defines the legal tender in that country. It can be limited legal tender or unlimited legal tender. Limited legal tender applies, for example, to the quantity of coins that must be accepted to settle a debt. Unlimited tender normally applies to the bank notes where there is no limit on the quantity that can be accepted in settlement of debts of any amount.

Lessee and lessor - Lessee: A person to whom a lease is granted; a tenant under a lease. Lessor: A person who grants a lease of property.
Collins English Dictionary – Complete and Unabridged © HarperCollins Publishers 1991, 1994, 1998, 2000, 2003

Letter of credit - Also known as documentary credit. A letter from one bank to another bank authorizing the payment of a stated amount to a named person or organization in specified conditions.For example, a South African company is purchasing a large piece of machinery in
Germany. The manufacturer of the machinery requires payment in Euros when the machinery is loaded on board ship for export. The South African companyâ''s bank issues a letter of credit to a German bank for the payment in Euros to the manufacturer. The condition of payment in the letter of credit is his presentation of documents proving delivery on board the stated ship or shipping company. In this way, the German  manufacturer knows he will get paid and the South African company knows its machinery will only be paid when it is on board ship for export.
The German bank will scrutinize the documents submitted by the German manufacturer as proof of delivery on board ship. If these are as stated in the letter of credit, the German bank will pay out the amount in Euros and recover this from the South African bank. The South African bank will, in turn, recover the money from the company.

Liability - 1. A legal responsibility.
2. A financial obligation owed.
3. A person or thing which will cause embarrassment or a disadvantage (Source: Oxford Concise English Dictionary revised 10th Edition)
4. In accounting, something which when paid or when its value is realised in some other way (e.g. when a bill is paid), will reduce or take away cash. In companies, a liability will normally be creditors owed, loan accounts owed to the r, capital amounts and interest owed to credit lenders and so on.

Liabilities - The debts of the business, representing a present obligation to dispose of economic benefits to another entity or person

Listed entity - An entity whose shares, stock or debt are quoted or listed on a recognised stock exchange, or are marketed under the regulations of a recognised stock exchange or other equivalent body

Life insurance policy - Insurance that pays out an amount on the death of a person. If there is an endowment policy with the basic life cover, an amount will be paid out when they reach a certain age or the policy is held for a stated number of years.

LIFO - (see FIFO)

Limited liability - This is a legal company structure protecting shareholders in a company by restricting their liabilities to the face value of their shares. The limited liability company (public or proprietary) is the basic commercial structure developed historically to allow individuals to carry on a business without exposing all their personal assets to the risk of a business failing, resulting in personal bankruptcy. (Source: The Language of Money, Edna Carew)

Liquid assets - Assets that are cash or that can be converted into cash quickly.

Liquidation - The process of winding up or dissolving a company or close corporation. Liquidation can be voluntary or compulsory. A voluntary liquidation is where a company or closed corporation is wound up under the direction and control of the company or close corporation. A compulsory liquidation is a liquidation instigated by creditors of the company or close corporation and enforced by a court order. In South Africa, this court order is issued by the Master of the High Court. The property of the company is sequestrated (taken legal possession of by the court) and a liquidator is appointed to administer the estate and pay creditors from the assets of the estate. Liquidation can be solvent or insolvent. A solvent liquidation is where the assets outweigh the liabilities of the company and all the creditors get paid in full. Any remaining surplus assets are then distributed to the members, shareholders or as specified in the Articles of Association or Memorandum of Association. In an insolvent liquidation, creditors will not receive full payment.

Liquidator - Also known as an insolvency practitioner. A person appointed by the shareholders, unsecured creditors, or a court order to manage the winding up of a firm by selling off its assets. On appointment, the liquidator assumes control of the business, collects and auctions off
its free assets (i.e. assets not attached as security) in a reasonably short time, pays the unsecured creditors from the proceeds of the sale, and (if any money is left) distributes it among the shareholders in proportion to their shareholdings. The Companies Act, 2008, has given the legislative basis to create a formal national list of insolvency practitioners. To gain entry to this list, it is expected that an insolvency practitioner will need to be a natural person qualified as an attorney, advocate or a registered chartered accountant. The list is expected to cover all forms of practitioners appointed by the Master of the High Court including trustees, curator bonis and liquidators.

Liquidity - 1. A measure or estimation of the ease or time required to turn an asset into cash.
2. The ability of a company to meet its debts.
3. A measure of the frequency and volume of trade in a specific share or other negotiable instrument. For example a small, marginal company may have few active buyers or sellers. A company like Standard Bank has many. The liquidity of Standard Bankâ''s shares is high. The liquidity of the small marginal company would be low. A share with low liquidity may be on the market for quite some time awaiting a buyer.

Liquidity ratio - 1. Another term for the cash ratio. See cash ratio.
2. Ratios that give a measure of the ability of a company to pay its debts as they become due and their potential ability to turn assets into cash to service debt. The liquidity ratios are: cash ratio, acid or quick test, interval ratio, current ratio and current asset ratio. Liquidity ratios are, by definition, also solvency ratios. The primary definition of solvency is the „ability to pay debts as they become dueâ''. Solvency requires liquidity to the degree necessary to pay oneâ''s bills as they become due.

Listing - the granting of permission by a stock exchange for a company to list its shares on that stock exchange. (Source: Wuite) Loan account - A recording of the amount of monies owed to or by an owner, member, shareholder or related company. This is recorded in the balance sheet of a company or close corporation.

Loan certificate - This means some evidence that the balances showing loans in the company records is accurate. This evidence can be in the form of a certificate signed by the business owner or accounting official.

Local area network (LAN) - A communications network that serves users within a confined geographical area. LANs were developed to facilitate the exchange and sharing of resources within an organisation, including data, software, storage, printers and telecommunications equipment. They allow for decentralised computing. The basic components of a LAN are transmission media and software, user terminals and shared peripherals.

Long-term - A relatively long period of time. The actual time frame that applies to the phrase depends on the particular market, sector, instrument and country. In South Africa, the term generally means a period longer than one year.

Main Journal (Also known as General Journal) - A journal used to make corrections to entries made in a set of books that was done incorrectly.

Management - Comprises officers and others who also perform senior managerial functions. Management includes those charged with governance only in those instances when they perform such functions

Management accounts - Financial information prepared by and for management to assist in making daily management decisions. The information will include monthly and quarterly financial statements, with a supporting detailed breakdown and often comparing actual financial performance against budget projections.

Management letter - A letter from an accountant or an auditor indicating areas of improvement in controls in the client's business.

Managerial employee - An employee who acts in a managerial capacity within the structure of the firm, including providing oversight, in the provision of services to clients

Market capitalization - The value of a stock exchange quoted company assessed by multiplying the number of shares issued by the current market price.This valuation is open to share price fluctuation and is not related directly to its underlying assets. It is the value assigned to the company by market sentiment.

Market value - 1. The value of an asset if it were to be sold on the open market as its current market price.
2. The price of a share or security quoted on an exchange.
3. The value of a company quoted on a stock exchange calculated by the quoted price of the share on the exchange multiplied by the number of shares issued. Market Value of a Listed Company = Share price x Number of Issued Ordinary Shares
Mark-up - The difference between the selling price and the cost price of a product or
service. This can be expressed as an amount or more usually as a percentage based on
the cost price.

Percentage mark up = (Selling price – Cost price) x 100% / Cost price

Mark up and profit margin are not the same. See profit margin. Matching Principle - In order to comply with the generally accepted accounting
principles (GAAP), companies must determine the exact time when revenue and expenses occur. This is the basis of the GAAP Matching Principle, which recognizes exactly when the revenue and expenses are incurred and allows companies to gain an accurate analysis of current accounts at any point during the accounting period. The principle is part of the accrual basis of accounting. Maturity value - The value of an investment when it reaches its end or final date and when any outstanding capital amount usually gets paid back.

Member - A member of a professional body that has adopted the Code of Ethics for Professional Accountants issued by IESBA as applicable to their membership, as defined by that professional body.

Member of a close corporation - The owner of a close corporation. There can be up to ten members of a close corporation. It is equivalent to a shareholder in a private or public company.

Memorandum of Association - This is a founding document of a company and its purpose is to regulate the external affairs of the company. The Articles of Association are aimed at regulating the internal affairs of a company. The memorandum records: the legal name of the company; the names of its shareholders and the number of shares held by each; the location of its registered office; the companyâ''s objectives; the amount of authorized share capital; the liability of the members as limited or by guarantee; and what type of contracts the company can enter into – such as authority to open a bank account and so on.Its provisions can be amended by the members or shareholders by following the procedures laid out in the Memorandum for such circumstances. It must be submitted to CIPRO prior to the issue of a Certificate of Incorporation. Any
changes to the Memorandum of Association must be submitted and kept up to date at CIPRO. It is a public document and can be inspected by any member of the public through CIPRO.

Merchant bank - Also known as an investment bank. It is a type of bank with a specialised range of services for corporate clients and large investors. It advises on stock market listings and other primary market issues going to the capital markets to raise new capital. It can advise on mergers & acquisitions. A merchant bank makes most of its income from fee based revenue and has little of no credit lending activities. It will often arrange large syndicated facilities through other banks and take a fee.
The second stream of income for a merchant bank is its own profit or loss from its own
investment and trading on the money, capital and foreign exchange markets.

Merger - The combination of two or more companies. This can be done by one company purchasing all the shares of the other company thereby owning all the assets and liabilities of that company. The company can then decide how to proceed with the assets and liabilities of their acquisition. Or it can be done by creating a new legal entity and the former shareholders of both companies being offered a swap of their old shares for new shares in a given ratio. The two companiesâ'' assets and liabilities are then transferred and pooled into the new legal entity.

Minor - A person under the age of full legal responsibility. In South Africa, the legally accepted adult age is eighteen years. A person below this age is defined as a child. Minority holding - A small or minor shareholding in a company that does not have substantial control or influence.

Minutes - Minutes, also known as protocols, are the instant written record of a meeting or hearing. They often give an overview of the structure of the meeting, starting with a list of those present, a statement of the various issues before the participants, and each of their responses to these issues. They are often created at the moment of the hearing by a secretary or court recorder at the meeting, who may record the meeting, and then prepare the minutes and issue them to the participants afterwards. Alternatively, the meeting may be audio-recorded or a group's appointed or informally assigned Secretary may take notes, with minutes prepared later. However it is often important for the minutes to be brief and concentrate on material issues rather than being a verbatim (word for word) report, so the minute-taker should have sufficient understanding of the subject matter to achieve this. The minutes of certain entities, such as a board ofdirectors, must be kept and are important legal documents. This is true for various labour hearings.

Misappropriation of assets - Intentional, illegal use of the property or funds of another person for one’s own use, particularly by a public official or a person who has a fiduciary duty

Mission - A formal document that states the aims of an organisation or organisation

Monetary policy - The central bank policy that influences the money supply levels within the economy. The inflation target range, the bank rate, the amount of bank notes and coins put into circulation by the Reserve Bank and the levels of minimum bank reserves are the key factors used to regulate money supply.

Money market - Market in which money is borrowed and lent for periods of less than one year by corporates, banks and large public and private institutions.

Monopoly - The exclusive possession or control of the supply of or trade in a commodity, good or service. (Source: Oxford Concise English Dictionary, Revised 10th Edition) Note: The general legal and commercial definition of a monopoly is where a company supplies 20% or more of the volume of a market. This is regarded as having a substantial commercial effect on the market.

Mortgage - 1. A financial loan granted by a mortgage lender for the purchase of a residential, commercial or industrial building, agricultural land or other form of immovable property. The financial loan is supported by the security of a mortgage bond on the property being purchased.
A mortgage, in the sense of a financial loan, can also be granted for the purchase of other goods such as capital equipment.
2. The legal agreement, also called a deed or bond, specifying the terms and conditions under which the lender may make claim to the immovable property. There may be more than one mortgage legal agreement attached to an immovable property.
3. A pledge of immovable property to a creditor as security for performance of an obligation or repayment of a debt. For example: “I needed a loan for my business. I mortgaged my home to the bank for this business loan.” There may be more than one mortgage financial loan associated with an immovable property.
4. The claim of a financial lender upon a mortgaged property. For example: “ABC Bank has a mortgage on that property. You will need to sell to settle that claim.” The word origin is “mort”, Latin for „deathâ'' and “gage”, German for „pledgeâ''.

Mortgage bond - A legal agreement giving a mortgage lender legal claim over an immoveable property in the event of the borrower being in default of a mortgage agreement. The mortgage lender attaches a bond on the property as security in the event of default by the borrower on the financial loan made to him. The mortgage bond is registered in the Deeds Office and attached to the title deeds of the property. Where a  mortgage bond is attached to immovable property, the mortgage lender retains the title deeds in their possession. For the mortgage lender to exercise their rights in terms of the registered bond, a court order must be sought and received.

Motor car - (This definition relates to VAT). “Motor car” is a defined term which includes vehicles which have 3 or more wheels, are normally used on public roads and which are constructed or adapted mainly or wholly for carrying passengers. Examples of passenger vehicles on which input tax cannot be claimed include ordinary motor cars, sport utility vehicles, double-cab bakkies (Light Delivery Vehicles), micro buses, combis, etc. which are capable of carrying passengers.

The following vehicles do not qualify as a “motor car” as defined:

  • Vehicles capable of  accommodating more than 16 persons (e.g. a bus);
  • Specialised vehicles such as graders, tractors, mobile cranes, earthmoving vehicles, etc. (seats only 1 person); o Ambulances and caravans; Vehicles with an unladen (not-loaded) mass of 3500 kg or more;
  • Single cab bakkies (Light Delivery Vehicles) /trucks/lorries;
  • Game viewing vehicles; and
  • Hearses.

As a general rule input tax may not be claimed on the purchase of a motor car, irrespective of the mode of acquisition or whether or not it is used for taxable supplies.

Movable property - Property that is not immovable. A car, truck or a TV plasma screen are examples of moveable property.

Narration - Descriptive text explaining the reason(s) for an entry in a general or main journal. To narrate is to 'tell a story'. A narration is therefore 'a story told', from the Latin word 'narrare' meaning the same thing as narrate.

NASDAQ - 1. Abbreviation for National Association of Securities Dealers Automated Quotation System2. A large US stock exchange owned by the National Association of Securities Dealers. This exchangeâ''s index is reported daily on a world wide basis and is closely watched as
an indicator for global technology stocks.

National Credit Act - Legislation with far reaching implications for the banking sector and all other credit providers. Approved in 2005, it aims to regulate the credit lending industry and to protect the rights of consumers in the credit market in South Africa. It regulates all credit providers, debt counselors and credit bureaux. It specifies how a range of credit lending practices must be conducted. And it establishes the National
Credit Regulator.

National Treasury - A division of the Ministry of Finance of South Africa. It is responsible for coordinating macroeconomic policy and promoting the national fiscal policy framework. Its role is defined in the Constitution of the Republic of South Africa and within the Public Finance Act. It co-ordinates the preparation of the Governmentâ''s annual national budget and control over its implementation. This is effectively a pivotal
division of the civil service working with SARB, SARS and all government departments on fiscal and financial issues.

Natural person - A human being. In a legal sense, it is used to distinguish between a natural person and a juristic person – the various forms of company incorporation. Different legislation or common law interpretation may define a natural person slightly more broadly. For example, the National Credit Act defines a trust with two natural persons as trustees as a “natural person” for the purposes of that Act.

NCA - Abbreviation for National Credit Act.

Negligence - 1. A failure to take proper care of something.
2. In law, a breach of a duty of care from which damage resulted. (Source: Concise Oxford English Dictionary, Revised 10th Edition)
To prove negligence in a court of law, you must first show there was a duty of care. Next, you must show there has been a failure of that duty. Last, you must show the damage was caused by that failure of duty. For example, a passenger falls out of a train. The door lock was broken and when he leaned against it, it opened and he fell out. He now needs to find the person who owed him a duty of care to ensure the door lock was not broken. The ticket collector, for example, may owe him a duty of care. Did the ticket collector know about the broken door lock? Should he have known about the door lock? Was he negligent about allowing the train to be put in service with the door lock broken? And so on. It may turn out that the lock was broken minutes before by some youth. The train company may have had train security in place to reduce vandalism. And therefore the ticket collector and the train company may be found by the court to have fully exercised their duty of care and there is therefore no negligence on their part for the damage incurred. The passenger then has no legal recourse for compensation for his injuries based on negligence.

Negotiable - Legally transferable in title from one party to another. Negotiability, would refer the degree that the item is in fact negotiable. Sometimes this can be more difficult to do.

Net Book Value - See Book value.

Net profit - Also known as profit after tax and net income. The profit of a company for a specified time period after all costs and taxes have been deducted. The net profit figure is recorded at the bottom of the Income Statement and hence is often referred to as the “bottom line”.

Net profit margin - A ratio calculated as net profit divided by net sales and expressed as a percentage. Net profit margin = Net profit x100% / Net sales The net profit and net sales figures are recorded in the Income Statement. The net profit margin is a measure of the percentage of every rand of sales a company actually keeps in profit.

Net profit percentage - Another term for net profit margin. See net profit margin.

Net sales - Also known as Sales Revenue. Gross sales revenue less returns, discounts, allowances and any sales tax.
Net Sales = Gross Sales – Returns – Discounts – Allowances – Sales Tax These various deductions are done by the companyâ''s accountant during the compilation of the income statement. The final figure in the income section of the income statement
is called either net sales or sales revenue.

Net worth - The value of a company or individual after all liabilities have been deducted from their asset value. In a company, this would also be the shareholderâ''s equity or net assets.

New listing - 1. A company seeking to list on a stock exchange for the first time by way of an initial public offer. 2. A security that has recently been added to a stock exchange's trading list. The security may have been moved from the over-the-counter market or
from a different exchange.

New York Stock Exchange - (NYSE) The largest stock exchange market in the world and physically located on Wall Street, New York. The market capitalization of its listed companies was US$ 28.5 trillion as of May 2008. (Source: Wikipedia)

NGO - Abbreviation for Non Governmental Organisation

NHBRC - Abbreviation for the National Home Builders Registration Council.

Nominal value - Also known as face value or par value. 1. A value that is stated but which may not relate to its realizable value.
2. The value printed or stated on a bank note, a coin, ordinary share, securities and so on.

Non-chargeable time - Time spent by staff or partners of an accounting firm, which cannot be charged to a client.

Noncompliance - Refers to acts of omission or commission by the entity being audited, either intentional or unintentional, that are contrary to the prevailing laws or regulations

Non-current asset - An asset with an economic life span of longer than one year.

Non-distributable reserves - Non-distributable reserves are those funds which cannot be distributed to shareholders in the form of dividends.
These funds consist of the original share capital of the company, any funds raised through the sale of newly issued shares or funds released due the revaluation of assets. Distributable reserves are those reserves built from the declaration of profit and that are
distributable to shareholders in the form of dividends.

Non Governmental Organisation - A private sector, voluntary (and usually non-profit and non-sectarian) organization that contributes to, or participates in, cooperation projects, education, training or other humanitarian, progressive, or watchdog activities.

Non-liquid assets - Assets that cannot be turned into cash or a cash equivalent in a short or medium period of time. A building, for example, is a non-liquid asset. It takes time to put it on the market, find a buyer, to confirm a financial ability to pay, to transfer
the title deeds and then finalize payment.

Notarial bond - A bond over assets which has been attested to in front a notary. This bond, acting as a security, is then registered with the Deeds Office. There are two types of notarial bonds. See general notarial bond and special notarial bond.

Notary or Notary Public - Plural is Notaries Public and abbreviated is NP. A person legally empowered to witness and certify the validity of documents and to take affidavits and depositions (testimony recorded for use in court at a later date).The American Heritage® Dictionary of the English Language, Fourth Edition copyright ©2000 by Houghton Mifflin Company. Updated in 2009. Published by Houghton Mifflin Company. All rights reserved.

Off-balance sheet - An asset, debt, contingent liability or financing activity not on a companyâ''s balance sheet. The formal accounting distinction between on and off-balance sheet items can be quite detailed and will depend to some degree on management judgments. In general terms,
an item should appear on the company's balance sheet if it is an asset or liability that the company owns or is legally responsible for.
Uncertain assets or liabilities must also meet tests of being probable, measurable and meaningful. For example, a company that is being sued for damages would not include the potential legal liability on its balance sheet until a legal judgment against it is likely and the amount of the judgment can be estimated. If the amount at risk is small, it may not appear on the company's accounts until a judgment is rendered.
The levels of off balance sheet activity can be very substantial – particularly in the finance sector. Securitisation of assets leads to allowable off balance sheet finance. Assets under management or brokerage services are other categories of off balance sheet activity as the financial institution has no direct claim or liability for the assets. The fiduciary duty of care for brokerage or asset management services may only be carried on the balance sheet through an insurance policy. See off balance sheet finance, nonconsolidated subsidiary, special purpose vehicle and ring fence. (Source: Wikipedia)

Off-balance sheet finance - Finance that does not appear on the balance sheet of a company and permissible in terms of generally accepted accounting principles and tax laws. Off balance sheet finance has a number of important implications in banking. First, a client may wish to structure loans and credit facilities as off balance sheet finance. An operating or rental lease is a common example of an asset finance option
that provides an off balance sheet finance solution for some clients. The client may be motivated to keep debt ratios low for investor confidence or to avoid breaching debt covenants with other financial lenders. These ratios are generated from the balance sheet of the companyâ''s financial statements. If new debt does not appear in the balance sheet, it will not affect the ratios. It is important to know why a client is pursuing off balance sheet financing and understand it sufficiently to assess whether it poses a risk to bank lending. Some major corporate collapses have had their origins in overly complex off balance sheet activities and financing arrangements. Second, when evaluating the debt burden of a potential and current client, off balance sheet financing may or may not be noted in the Annual Financial Statements. You may not know the full levels of debt being carried by a client. With a corporate client, there may also be one or more off balance sheet subsidiaries with substantial liabilities that may not be immediately visible. Without reliable data on existing off balance sheet activities and financing, your evaluation of a client for lending purposes may well be seriously flawed. Third, banks themselves have made extensive use of off balance sheet financing to
maximize their ability to remain within the capital reserve requirements of central banks, maximize their ability to lend and to participate in other lucrative financial activities. The securitization of mortgage loans and their onward sale to institutional investors has been one major root factor behind the recent crisis in global financial markets. This is an off balance sheet finance technique and has contributed to the collapse of some of the former leading US investment banking firms.

Ombudsman - A person who investigates complaints and mediates fair settlements, especially between aggrieved parties such as consumers or students and an institution or organization.

Operating costs - Another term for operating expenses.

Operating expenses - The expenses incurred from the normal day-to-day trading activities of a company in its delivery of goods or services.
Operating expenses include the cost of goods sold, selling expenses, general & administrative expenses, depreciation and amortization expenses and other general expenses. Operating expenses do not include expenses from other activities of the company such
as financing or investment activities.

Operating Income - The income arising from a firm's primary business operations. It is calculated by deducting the operating expenses from net sales.
Operating Income = Net Sales – Operating Expenses

It is a measure of how much profit was generated by the day to day operations of the business. It is valuable to identify this as this is normally the „motorâ'' of a business. The operating income generated is then available to pay the other costs of running a business such as interest charges, capital repayments due, taxes and so on. It will not include income from the sale of non-current assets, investment income and
other income arising from activities other than the companyâ''s primary trading activities.

Operating profit - Another term for operating income.

Operating profit margin - A ratio of operating income (net sales less operating expenses) to net sales expressed as a percentage.
Operating profit margin = (Net Sales – Operating Expenses) x 100% / Net sales

Operating profit margin ratio analysis measures a companyâ''s operating efficiency – how effective a company is at controlling the costs and expenses associated with their normal business operations.

Operational risk - Risk that deficiencies in information systems or internal controls will result in unexpected loss. This risk is associated with human error, system failures and inadequate procedures and controls

Opportunity cost - The cost of not doing one thing by choosing to do another. For example, you choose to buy a new car. The interest you could have earned by putting your money in a savings account is an example of the opportunity cost of purchasing the car.

Ordinary share - A unit of the share capital of a company. Ordinary shares entitle their holder, the shareholder, to dividend payments when these are declared and paid out by the Board of Directors of the company. Ordinary shareholders are also able to attend the Annual General Meeting of the company and speak at these. Although the ordinary shareholders own the company, they have no liability, through their share ownership, for
the debts of the company beyond the face value of the ordinary shares they hold. Equally, if the company is wound up, they have no claim, through their share ownership, over the assets of the company until all other debtors have been paid.

Organogram - An organisational chart (often called organisation chart, org chart, organigram(me), or organogram(me)) is a diagram that shows the structure of an organisation and the relationships and relative ranks of its parts and positions/jobs. The term is also used for similar diagrams, for example ones showing the different elements of a field of knowledge or a group of languages.

Output tax - The VAT amount that is added to sales invoices. The Value Added Tax charged by a vendor on the sale of standard-rated goods or services.

Overdraft - A loan facility on a bank account allowing the balance to go into debit up to a pre-defined limit normally for a short period.
An overdraft is meant to move from a credit into a debit and back into a credit on an ongoing basis – this is known as „revolvingâ'' the overdraft facility. Overdrafts are “on demand” facilities meaning a bank can request immediate repayment at any time.

Owners’ equity - Technically, the term ownerâ''s equity applies in the case of a sole proprietor. The correct term for a company is shareholders capital or shareholders equity. Generally, the total assets of a company less its total liabilities.

Owners Equity = Total Assets – Total Liabilities

This is recorded in the balance sheet and is normally presented on a „going concernâ'' basis. In principle, this is the estimated value of the company to shareholders if it was to be sold as a going concern with book value valuations applying to its assets and liabilities. For lending purposes, a credit provider is likely to strip out the intangible assets and revalue the remaining assets from book value to realisable value. This revised ownerâ''s equity figure is then a more realistic estimation of actual worth in the business in the event of loan default and liquidation of the borrower. Bankers Adjusted Owners Equity = Total Assets – Total Liabilities – Intangible Assets – Reduction to Realisable Value

Parastatal - owned or controlled wholly or partly by the government (a parastatal electricity supply company, for example).

Partner - Any individual with authority to bind the firm with respect to the performance of an engagement

Partnership - 1. Generally, a relationship of two or more entities conducting business for mutual benefit.
2. A form of unincorporated business organization. Each partner is jointly and severally responsible for the debts of the partnership. This form of doing business predates the incorporation concept of limited liability. For example, two brothers start a business together. They do not form a closecorporation or a private limited company. They are partners.
3. A form of incorporated business in South Africa known as a section 53(b) company with specific provisions allowing certain professions where professional skill and judgment as the basic service – such as law, engineering and accounting – to be incorporated.

Par value - 1. The face value printed on a share or security as distinct from its market value.
2. It can also be used to describe the recognized value of one currency compared to another. Payee - A person receiving payment through any form of money transfer method, such as a cheque. Copyright © 2004, Campbell R. Harvey. All Rights Reserved. PAYE - Abbreviation for Pay As You Earn. Tax applied to the taxable employment income of employees, deducted monthly by their employers and paid over to SARS.

PAYE - Pay As You Earn; a rate of tax deducted from the salary/wages of any person who earns more than R60 000 per annum.

Person - A person includes a sole proprietor, partnership, close corporation, company, associations not for gain, the estate of any deceased or insolvent person and any trust fund.

Personnel - Partners and staff

Petty Cash - A small cash fund kept on a firm's premises for the payment of minor
incidental expenses.

Collins English Dictionary – Complete and Unabridged © HarperCollins Publishers 1991, 1994, 1998, 2000, 2003

Petty Cash Book (Journal) - In almost all businesses, it is found necessary to keep small sums of ready money with the cashier or petty cashier for the purpose of meeting small expenses such as postage, basic supplies, stationery and office supplies etc. The sum of money on hand is generally termed 'petty cash' and the journal or book in which the petty cash expenditures are recorded is termed the 'petty cash book'. [The word
'petty' means 'of lesser importance']

PIN - Abbreviation for Personal Identification Number.

Plc - Abbreviation for public limited company.

Plus VAT - This means that the VAT still has to be added. It is the same as saying the price is 'Exclusive of VAT'. It is better to use the term "VAT Excluded' than to say 'Plus VAT' because 'Plus VAT' can be confusing. See 'Exclusive of VAT' in this glossary.

Portlet - Integrative component embedded into a portal page, delivering information from other business systems

Post-dated cheque - A cheque that has been signed but dated for payment at a laterdate. For example, Joe Smith needs ten bags of cement. He has a good relationship with his local building materials supplier. They agree he can take the cement and write a cheque dated for next Monday. Joe Smith is confident there will be money in his account then to cover the cheque. The supplier agrees to lodge the cheque with his bank next week.

Posting - the activity of recording business transactions. An entry or the action of creating an entry into the books of a business.

Power of attorney - 1. A written document authorizing one person to act for and on behalf of the other in specified legal or financial matters.

Practice sale - The sale of the entire practice to a new purchaser

Practitioner - A professional accountant

Profession - A profession is an occupation that typically requires a bachelor’s degree from a university, and in most cases a period of postgraduate study. Professions are normally self-regulating, with members adhering to a code of ethics and discipline

Professional accountant - An individual who has met the academic, professional and practical experience criteria established by a recognised professional accounting body for the awarding of that body’s professional credential. Further, this person continues to meet all the criteria for remaining a member in good standing in that body.

Professional conduct - Professional conduct is anchored in ethics, the explicit reflection on moral beliefs and practices. All professionals are guided by codes of conduct embodying the ethical principles that govern their performance and behaviour

Professional services - Services requiring accountancy or related skills performed by a professional accountant including accounting, auditing, taxation, management consulting and financial management services

Professional standards - IAASB engagement standards, as defined in the IAASB’s “Preface to the International Standards on Quality Control, Auditing, Assurance and Related Services,” and relevant ethical requirements, which ordinarily comprise Parts A and B of the Code of Ethics for Professional Accountants issued by IESBA, and relevant national ethical requirements.

Progressive sell down - The practitioner progressively sells off percentages of their equity in their firm over time

Preference shares - Also known as preferred shares. These are shares issued by a company to raise additional capital finance. They are an equity method of raising long term finance at a lower cost and with some significant advantages over increasing a companyâ''s bank or institutional interest based borrowing. They are regarded as an intermediate step between ordinary shares and debt. The holder of preference shares is promised a fixed dividend on preference shares for a stipulated or infinite period. They are “preferred” because they receive preference in the payment of dividends and in any liquidation over ordinary shares. Preference shares normally do not have voting rights at AGMs.
The advantage to a company issuing preference shares is their payment comes from dividend declaration. If no dividend is declared, there is no payment to the preference shareholder.

Preferred creditor - Also known as a preferential creditor. A creditor who has obtained the right to be paid before others in the event of a business being declared insolvent. (Source: Longmans Business English Dictionary, new edition)

Prepayment - 1. A payment made or received in advance for receipt of goods or services.

These are recorded as current assets (in the case of a prepaid expense) or as current liabilities (in the case of a payment received in advance of product or service delivery) in a companyâ''s accounts.
2. A payment of a capital amount of a loan prior to it being due. For example, if a person pays back the capital amount of their mortgage early, this
would be a prepayment.

Pre-sales - A term used in speculative residential and commercial development. It is where a buyer offers to make a purchase „off planâ'' – from the drawings or plan of the estate and the unit. The degree of pre-sales must be 60% or higher to attract bank financing of a speculative
development. From a bank lending perspective, a pre-sale is one where a deposit has been made by a prospective customer, this deposit is being held in a fiduciary fund and there is proof of a mortgage loan approval for this proposed purchase.

Pre-trade costs - Costs such as advertising and marketing promotion, insurance, accounting and legal fees, rent, telephone, licenses and permits, market research and feasibility studies. This excludes capital costs, such as the purchase of buildings and motor vehicles.

Price to earnings ratio - Abbreviation P/E ratio. A ratio of the market share price to the earnings (net profit) per share.

Price to Earnings ratio = Market Price per Ordinary Share / Earnings per Share

It is a measure of the price paid for a share relative to the annual net income or profit earned by a company per share. It is a financial ratio used for market valuation purposes. A high P/E ratio means that investors are paying more for each unit of net profit, so the stock is more expensive compared to one with lower P/E ratio. P/E ratios are a way of assessing how the stock market is ranking and comparing the earnings of companies and investors willingness to pay for this earnings potential. Earnings are net profit. This measure has nothing to do with dividends. The declaration of a dividend is a separate process and not directly related to P/E ratios. See dividend, dividend policy, dividend pay out ratio and dividend yield.

Prime lending rate - Another term for prime rate.

Prime rate - The interest rate charged by commercial banks to their most creditworthy customers (usually the most prominent and stable business customers). The rate is almost always the same or very similar amongst major banks. The prime rates tend to follow changes in the underlying bank rate or repo rate set by the Central or Reserve Bank.

Principal - 1. The capital amount of a loan.
2. The amount originally invested in a security or other investment.
3. The amount the issuer of security will pay the holder when the security matures. Sometimes it is also called the face value, par value or redemption value.
4. The person on whose behalf an agent or broker is acting. The derivation of the word “principal” is from a Latin word, princeps, meaning first,
original or chief.

Private limited company - A company whose shares cannot be offered to the public for purchase and whose owners (no more than 50 shareholders) benefit from limited liability. Also known as a proprietary limited company. Proceeds - 1. Profit or return derived from a commercial transaction or investment.
2. The result, especially the revenue or total sum, accruing (being gained from) from some undertaking or course of action, as in commerce Collins English Dictionary – Complete and Unabridged © HarperCollins Publishers 1991, 1994, 1998, 2000, 2003

Professional clearance letter - A client may wish to change from one accountant to another. When this happens, the incoming accountant has a professional obligation to ascertain whether there are any professional reasons why the new appointment should not be accepted and this necessitates direct communication with the existing accountant. This is done by writing a professional clearance letter requesting clearance
to go ahead and to then receive all files and documents that allow you to service your new client.

Profit - Money gained from the sale of goods or services after the costs are deducted.

Profit after tax - Another term for net profit. See net profit.

Profit margin - As a general concept, the percentage of the selling price of a good or service that is in addition to the total cost of producing and delivering the good or service.
Profit margin = Selling Price x 100% / Total Cost
As a general concept, a profit margin can be applied to a wide range of circumstances. The profit margin ratios generally used in financial analysis are, gross profit margin, operating profit margin, net profit margin as well as return on total assets and return on equity. See profit ratios.

Profit ratios - In financial and ratio analysis, there are three ratios used in assessing profit margin. These are gross profit margin, operating profit margin and net profit margin as well as return on total assets and return on equity. These, in sequence, give you an insight into how the basic potential profit of a company is absorbed by the business itself at each stage of the business process. The gross profit margin gives you the basic production cost of a company. The gross profit margin gets eroded by the operating expenses to give the operating profit margin. The operating profit margin is eroded by the interest charges, capital repayments and taxes. The net profit margin is a summation of the percentage of profit remaining. The return on total assets gives you an overall efficiency measure and the return on equity relates this to the owners or shareholders equity. This sequence of profit margin ratios allows you to see the efficiencies and inefficiencies of a company in its passage from gross profit, to operating profit and finally to net profit and then the return ratios. Profit margin ratios are useful when comparing companies in similar industries. Higher profit margin ratios indicate more profitable companies that have better control over costs compared to their competitors.

Promissory note - A signed document containing a written promise to pay a stated amount to a specified person or the bearer at a specified date or on demand. (Source: Oxford Concise English Dictionary, revised 10th edition) Many documents acknowledging debt are promissory notes. A bank note is a promissory note. The promissory note format is used by money and capital market issuers to create negotiable securities that are accepted by investors. Commercial paper is an example of a promissory note used in the money markets. Depending on the specifics of each case, a promissory note can be negotiable, nonnegotiable or a bearer document.

Property, plant & equipment - The assets of a company used in the generation of profit. It includes land, buildings, vehicles, machinery and other assets used in the main operational activity of a company and with a useful economic life of longer than one
year. It is recorded in the non-current asset section of the balance sheet.

Proprietary - 1. Relating to or characteristic of an owner or ownership.
2. A product marketed under a registered trade name.

Proprietary limited company - Another term for private limited company. The ownership is limited to a certain number of owners and is not open to everyone.

Proprietor - 1. The owner of a business.
2. The holder of property.

2. The authority granted by a written document. Provision - Provision means a charge against profit for future contingencies (A
possibility that must be prepared for). A provision is made in the accounting records for the estimated “known” liability. For example, you can provide for a future tax bill or for bad debts that you predict will occur.

Provisional Tax - A person must register as a provisional taxpayer if he derives income which is not a salary or wages (such as profits from a business), is director of a private company or is a member of a close corporation. Provisional tax is usually paid twice per financial year.

Pty Ltd - Abbreviation for proprietary limited company

Public entity - An entity whose securities are publicly traded, either on a stock exchange or on the over-the-counter market.

Public limited company - A company whose shares can be offered for purchase to the public, whose shares are quoted on a stock exchange and whose owners (the shareholders) benefit from limited liability.

Purchase journal - The Purchases Journal is a record of all purchases for the month, in date order, with the supplierâ''s name and rand value of each purchase.

Purchases - Goods bought from suppliers.

Purchasing power - The amount of goods and services that can be bought for a given amount of money. This can be comparative – showing how much, for example, a Big Mac costs in various countries. Or it can be measured over time. For example, how much you could buy for R1, 000 in 1970 and for R1, 000 in 2010. Purchasing power is a method of quantifying the effect of inflation and of comparing the costs of living in various countries. Currency devaluations against other currencies and inflation are the two primary factors in eroding purchasing power. Another factor is the rising cost of increasingly scarce basic resources inherent in most production processes, such as oil.

Qualified report (by auditors of a company) - If an auditing firm conducts an audit of the financial status of a company and finds no problems and a 'clean bill of health', the auditor's report is termed an unqualified report. If they find issues that require further attention or that may reflect further problems, the report notes these issues and the report is therefore termed 'a qualified report'. For example. if expenditure was found not backed-up by proper documentation this may result in a note in the report and a consequent 'qualified report'.

Quantity surveyor - A professional who calculates the amount and cost of materials needed in construction work. A bank will require a quantity surveyorâ''s report as a condition of any construction or property development loans. Their regular reports during the construction phase will also
be used to monitor actual costs to budgeted costs and to authorize payments for release to a contractor.

Quick Ratio - Another term for acid test ratio. See acid test ratio.

Quoted company - A company whose ordinary shares are quoted on a stock exchange.

Rand - The rand is the currency of South Africa. Its symbol is R. It is written as a normal word without capitals but the symbol is a capital R. It is written as rand. It takes its name from the Witwatersrand (White-waters-ridge in English), the ridge (rand in Afrikaans) upon which Johannesburg is built and where most of South Africa's gold deposits were originally found. The rand is subdivided into 100 cents, symbol "c". The code for the rand used as an international standard is ZAR. This is used internationally when referring to the South African rand, for example when listing currency exchanges. The ZAR code comes from the Dutch words 'Zuid-Afrikaanse rand'. (South African Rand). This is also
the source of the South African internet name ".za" from the Dutch 'Zuid Afrika', meaning "South Africa". Rate of inflation - The increase in inflation usually measured as an annual percentage. The normally reported rate of inflation is the rate of increase in the Consumer Price Index. However, other more specific rates of inflation – for example construction cost inflation – are also compiled and used within industry.

Rate of Return - The profit an asset provides quoted as a percentage of the purchase price of the asset. The basic rate of return is arrived at by using the following formula:

Return = (Profit/Purchase Price) x 100

For example, you invest R120, 000. You receive R20, 000 profit plus your capital amount is returned, the rate of return would be as follows:
Return = (R20, 000/R120, 000) x100 = 16%

The rate of return is very important in assessing the relative merits of various investments. When a rate of return is quoted, it is important to know exactly how it has been calculated and how does it compare to other quoted rates. There is pre-tax, after tax, annualized rates, with fees included or excluded, and a variety of other options on how to present the rate of return. The industry standard aimed at allowing some degree of transparency and comparability for investors (and debtors) is the Annual Percentage Rate – known as the APR – and the Annual Percentage

Yield – known as APY. APR is the annual rate of return earned on an investment over a year without any compounding. Letâ''s say you put R10, 000 in an investment account with a 5% APR. No interest is compounded back into the investment account. The bank pays the interest
directly into your current account. Over the course of a year, the account would pay interest of R500. APY is the annual rate of return earned on an investment over a year with compounding. Letâ''s say the 5% APR is compounded monthly and not removed from the investment account. At the end of the year, your account would have R10, 511.62 in it. Your APY would be 5.1162% compared the APR measurement of 5%. The difference between these two ways of presenting the rate of return can be important where credit card debt, installment debt and other forms of debt are not paid off monthly by consumers and the compounding of debt begins to have an effect.

Ratio - A relationship between two quantities, normally expressed as the quotient (the number that results from the division of one number by another) of one divided by the other. For example, if a box contains six red marbles and four blue marbles, the ratio of red marbles to blue marbles is 6 to 4, also written 6:4. A ratio can also be expressed as a decimal or percentage. The American Heritage® Science Dictionary Copyright © 2005 by Houghton Mifflin Company. Published by Houghton Mifflin Company All rights reserved.

Ratio analysis - The study of financial ratios derived from the Annual Financial Statements of a company. The ratios analysed cover profitability, liquidity & solvency, inventory & related turnover and market value. Creditors (and investors who buy debt securities, such as corporate bonds) are interested in liquidity and solvency – the company's short and long term ability to service its debts. Investors who buy ordinary shares are primarily interested in a company's profitability, market value and the prospects for earning a return on their investment by receiving dividends and/or increasing the market value of their stock holdings. Financial analysts, who frequently specialize in following certain industries, routinely
assess the profitability, liquidity, solvency and market value of companies in order to make recommendations about the purchase or sale of securities, such as shares.

Realisable value - The highest expected price of a sellable item. The net realizable value is the releasable value less the cost of bringing it to the point of sale. You may need to deduct the cost of repairs, delivery and so on). For example, a house is worth R2 million – its realisable value. But the agent fees, transfer costs and any outstanding mortgage payments then need to be deducted to arrive at its net realisable value.

Rebate - An amount deducted from a taken off the tax after your tax rate has been worked out. There are rebates for various kinds of businesses, types of taxes, business activities and so on. It's important to find out if your business qualifies for any rebates, as this can decrease the amount of tax you have to pay to the Receiver.

Receipts - Receipts are documentary proof that an amount of money has been received by the business. Also, a written acknowledgment by a receiver of money, goods, etc., that payment or delivery has been made.

Reconciliation - The word reconcile means to make (two apparently conflicting things) compatible or consistent with each other. It comes from the Latin word, 'conciliare', to make friendly. Reconciliation involves identifying the differences, if any, that exist between two separate independent records or documents that should be the same. The purpose of reconciliation is to correct errors where they exist. Reconciliation can be done on bank statements, debtors and creditors accounts, for example. This term, reconciliation, is often referred to as 'recon'.  Bank reconciliation is the process of comparing the bank's records of the company's transactions to the company's own records of the same transactions. Reconciliation helps avoid, or at least remedy, such problems as fraud and bank errors. One can take an account such as a creditor that you use to purchase supplies, and before paying that supplier's next invoice, you can perform a reconciliation of that creditors account to be sure your information of payments made so far, is accurate. Likewise, a debtors account can be reconciled.

Recovery rates - The rate at which an individual is allowed to charge the client per hour, for work done for a client.

Redemption value - The value of a security or investment when it is cashed in. For example, an endowment policy may have a redemption value.

Refer to drawer - A phrase used by banks when there are insufficient funds in an account to meet the payment of a cheque drawn on that account. The cheque is being referred to the account holder – the drawer.

Registrar of Financial Service Providers - The Financial Services Board is the appointed registrar for FSPs in terms of the Financial Advisory and Intermediary Services Act, 2002.

Remit - 1. Refrain from calling on a debt.
2. Send money in payment. (Source: Concise Oxford English Dictionary Revised 10th Edition)

Remittance - 1. The sending of money to someone at a distance. 2. The sum of money sent. It comes from the English word 'remit' meaning to send money. The word in turn comes from the Latin word meaning to send

Rent - 1. Payment, usually of an amount fixed by contract, made by a tenant at specified intervals in return for the right to occupy or use the property of another.
2. A similar payment made for the use of a facility, equipment, or service provided by another (for example, you can rent a car for a few days, or a telephone for a period or a smart suit for a day).

Remuneration - Money paid to an employee, including a salary or wages, leave pay, travel allowances, overtime pay, bonuses, gratuities, commissions, pensions, annuities, any amounts paid for services rendered or variation of office, retirement lump sums and any fringe benefits.

Repo rate - Also known as the bank rate. See bank rate. The “repo” rate is short for repurchase agreement rate. A Reserve Bank agrees to lend a commercial bank an amount based on the commercial bank depositing securities with the Reserve Bank. These securities are discounted –
reduced in price below their market value – by the Reserve Bank. This motivates the borrowing bank to repurchase these securities at a later date left as security – hence the name repurchase agreement or repo rate.

Representation letter - Written confirmation from management to the auditor or professional accountant about the fairness of various financial statement elements. The purpose of the letter is to emphasize that the financial statements are management's representations, and thus management has the primary responsibility for their accuracy.

Reserve Bank - The monetary authority and major regulatory bank in a country. Its functions include issuing the currency of a country, influencing money supply and supervising money market operations, managing foreign currency and gold reserves, acting as a bank of last resort to commercial banks and acting as the bank to its government. With only two exceptions world wide (the Federal Reserve and the South African
Reserve Bank), Reserve Banks are state owned and controlled but with guarantees of independence to manage within stated public policy on monetary and inflationary targets.

Reserve currency - Major international currencies, such as the US dollar, Euro and the Yen that are held Reserve Banks to support public confidence in the value of a countryâ''s local currency. The reserves will not match the local currency value in circulation but needs to be
sufficient to bolster confidence in the local Reserve Bank and its local currency. For example, the value of the gross gold and other foreign reserves of the SARB were equivalent to US$ 39,7 billion at the end of December 2009.

Residual value - This is remaining value of an asset after it has been fully depreciated. For example, an asset has been depreciated for 5 years and now has a book value of zero. At a time after this 5 year period, the asset may still have some value. This is the residual value.

Residential bond - A mortgage loan offered on a residential property. Residential mortgages tend to be up to twenty year terms in South Africa,

Retained income - After tax profit that has been made and then kept by a company for its development. It has not been distributed to the owners or shareholders.

Retention - Monies held back by a construction client to ensure a contractor complete sa list of items requiring attention (snags), reported to the contractor during the first three months after completion of a construction project.

Retirement annuity - A form of insurance or investment which pays a fixed sum of money paid to someone annually after retirement and typically for the rest of their life. A person saves for their retirement. These monies are tax efficient savings. When they retire, these funds can then use these funds to purchase a retirement annuity from an insurance company. Sometimes a lump sum can also be released from these savings.
Return - The profit or revenue on a transaction or activity.

Return on Assets - A ratio of net profit divided by total assets and expressed as a percentage

Return on Assets = Net profit x 100% / Total assets

This measures the effectiveness of a company or a management team in using its total asset base at book value to generate a profit. Comparisons in the same industry and similar companies help give investors a ranking of efficiency.

Return on Equity - A ratio of net income to ownerâ''s equity and expressed as a percentage.

Return on Equity = Net Income x 100% / Owners Equity

It measures the percentage of profit a company has been able to generate from the resources provided by its owners or shareholders.
Return on equity and return on assets are two measures of the profitability of a company based on its equity base and asset base. They complement the other profit ratios – net profit margin, gross profit margin and operating profit margin.

Revenue - Incoming funds from trading activities or the supply of services to clients. Also, income can refer to all invoiced goods and services but possibly not yet received as revenue or money.

Ring-fence - 1. to assign (money, a grant, fund, etc.) to one particular purpose, so as to restrict its use (to ring-fence a financial allowance). 2. to oblige (a person or organization) to use money for a particular purpose (to ring-fence a local authority) Risk management - The systematic identification and reduction of risk related to a companyâ''s activities that aims to reduce potential financial and other losses.

SAFEX - Abbreviation for South African Futures Exchange, a division of the JSE.

SAICA - The South African Institute of Chartered Accountants. SAICA is a professional body in the accountancy profession in SA and controls the designation, CA (SA), that used by Chartered Accountants, in South Africa.

SAIPA - The South African Institute of Professional Accountants. SAIPA is a professional accountancy body in SA. Qualified SAIPA members are known as Professional Accountants.

Salary/Salaries - Set sums of money paid at regular intervals to employees who render their time and services to the business for its profit. A regular compensation that an employee receives for working at a company. A salary is set by agreement between the employee and the employer and is not dependent on the number of hours worked. That is, the employee does not make more for working more than the standard number of hours per week and does not make less for working less than that. Overtime or commissions, when they apply, are paid over and above the salary amount. A salary is a form of periodic payment from an employer to an employee, which may be specified in an employment contract. It is contrasted with wages, where workers are paid per hour or per week or per job, rather than a steady amount paid each month as in

Sales journal - The Sales journal is a record of all sales made by the business during the month. The Sales journal will differentiate between cash and credit sales; it will identify the VAT portion of sales and will split sales into various sales categories. It is a book of first entry for sales invoices issued to customers for goods supplied or services rendered. Entries from this journal are posted to individual customer accounts,
their totals are posted to the ledger as a debit to accounts receivable and as a credit to sales. Separate columns may exist to classify sales by category (e.g., product line).

Sales tax - A tax levied in sales. In South Africa, this is VAT.

SARB - Abbreviation for South African Reserve Bank.

SARS - Abbreviation for South African Revenue Service.

SDL - Abbreviation for Skills Development Levy. A deduction of 1% of most salaries is collected by employers and transferred to SARS who then pays it into the National Skills Fund administered by the Dept of Labour. These funds can then be claimed back, in certain circumstances, by companies training staff or used to support industry training via the Sectoral Education and Training Authorities. Second-hand goods - Second-hand goods are goods (including fixed property) that have been previously owned and used. The term excludes animals, gold coins and
certain “old order” mining rights.

Section 53(b) Company - Certain professional persons, such as attorneys andaccountants, are statutorily prevented from forming private limited companies. A special form of company, known as a section 53(b) company, is created for these businesses. The Directors in their personal capacity and the company are jointly and severally liable for all debts and liabilities of the company incurred during their term of office. These companies are identified by the word "Incorporated" or "Inc." after the name of the company

Section 21 Association - A not-for-profit form of company used by many charities, religious, educational and other social related groups. It is a Section 21 company because it is registered in terms of section 21 of the Companies Act. The company may not pursue profit and the Memorandum of Association must contain a clause that at the dissolution of the company, all remaining assets of the company must be transferred to another concern with a similar objective. No dividends, bonuses or other payments may be paid to its members except for the reasonable remuneration in good faith to its employees

Security - 1. A signed legal document that gives the bank access to specific assets of the client. In the event of default by the client, the bank can arrange for the sale of these assets to recoup any losses the bank may have incurred. See 'collateral' in glossary.
2. The asset on which the above signed legal document is based.
3. A generic term for tradable investments that confer a right to interest income, dividend payments, ownership or other benefits arising from equity shares, bonds, options, warrants and other debt instruments. Sequestrate - To take, by court order, property, goods or other assets away from someone who has not paid their debts or has broken some other law. Services -

  • The term “services” is very broad. It includes the following:
  • The granting, assignment, cession, surrender of any right;
  • The making available of any facility or advantage; and
  • Certain acts which are deemed to be services in terms of section 8.The term excludes:
  • A supply of “goods” ;
  • Money; and
  • Any stamp, form or card which falls into the definition of “goods”.
  • Examples: Commercial services: electricians, plumbers, builders. Professional services: doctors, accountants, lawyers, advertising agencies. Intellectual property rights: patents,
  • trademarks, copyrights, know-how, restraint of trade. In addition, any cover under an insurance contract is a service.

Seta - Sector Education and Training Authority. In terms of the Skills Development Act, Setas have been created to cover all sectors in South Africa, including government. The members of a Seta include employers, trade unions, professional bodies, government departments and bargaining councils, where relevant, from each industrial sector. There are Setas for Retail and Wholesale, Agriculture, Banking, Insurance, Manufacturing and so on throughout the economy. There are 23 Setas at present. The Setas have the job of planning and implementing strategies that develop skills in their respective sectors.

Several liability - Liability that is separate, individual and not linked. For example, a group of banks agree to lend a large corporation R500 million. The syndicated loan contract will be drafted on a several liability basis. Each bank is responsible to the client only for their portion of the loan and not the total or for any failure of the other banks to honour their agreement. The derivation of several is the Latin word “separ” meaning separate, different.

Share - Also known as stock, it is a unit of ownership of a company. They carry rights to the receipt of dividends when these are declared by the Board of Directors of the company. There are two main categories of shares: ordinary shares and preference shares.

Share block company - A company established in terms of the Share Blocks Control Act, 1980. Prior to the inception of the sectional title form of development, developers went the share block route. A share block company was registered as the owner of the land and buildings, and each flat was allocated a number of shares (known as a "share block") in the company which entitled the owner to the exclusive use and occupation of the flat. There are still many Share Block flats in the Durban and coastal region. This form of company has been largely superseded by the sectional title form of development. For all intents and purposes, the setting up of new share block developments is a thing of the past. The main issues are now converting an existing share block scheme into sectional title and the pros & cons of purchasing into an existing share block scheme. (Source: Sectional Title versus Share Block, Meumann White Attorneys, 20th Nov 2008)

Share capital - The face value of a share (that amount printed on the original share certificate) multiplied by the total number of shares issued.
There are various types of share capital. The first is the authorized share capital. This represents the amount of shares and their face value authorized for issue in the articles of association of the company. Not all authorized share capital needs to be issued. Or it can be issued in stages and in different ways such as employee incentives and so on. Second, there is the issued or subscribed share capital. This is the amount of shares actually issued for sale and purchased. Where the full face vale price has been paid for a share on issue, this is then called fully paid share capital. If there has been partial payment or phased payment of the face value, the amount actually paid to date is the called-up share capital.

Share certificate - A document or an electronic record that provides evidence of shares in a company. It states the number of shares purchased, the face value of the shares, the type of shares (ordinary or preference) and the serial numbers of the shares. A share certificate is not  negotiable – it must be traded on a registered stock exchange and the change in ownership recorded there. An increasing number of stock exchanges world wide have moved from paper share certificates to an electronic record of a share. On these exchanges, paper share
certificate now need to be converted to electronic shares before they can be traded on these exchanges.

Shareholder - Also known as an equity holder. The holder of a share in a company that grants part ownership of the company. Shareholders capital - Another term for shareholders equity and ownersâ'' equity. See ownersâ'' equity.

Shareholders equity - Another term for shareholders capital and ownersâ'' equity. See ownersâ'' equity.

Shareholding - A quantity of shares in a company owned by one person or a company. Shell corporation -
1. Formed as a front for an illegal business.
2. Non-trading company formed as a vehicle to raise funds before starting operations, attempting a takeover, or moving towards listing on a stock exchange.

Short-term insurance - Insurance providing coverage of a risk for one year or less. For example, a house hold insurance policy is short and is renewed annually. Life insurance is long term because a policy is taken out on a risk over a longer time period.

Simple interest - The interest earned on a loan or a deposit where there is no compounding of interest. The formula for such interest is:
Interest = Capital Amount x Interest rate x Number of Days/365 days per annum For example, the simple interest earned on R100, 000 in thirty days at 6.5% would be: Interest = R100, 000 x 0.065 x 30 days/365 = R534.25

SITE - Standard Income Tax on Employees is deducted by the employer from an employee's salary (usually at the end of every month). All employees are liable for this tax. Where an employee's net remuneration is R60 000 or less, PAYE does not have to be deducted.

Small agreement - A term defined in the National Credit Act as a credit agreement with a capital amount of R15, 000 or less.

Sole proprietor - Also known as a sole trader, it is the simplest form of a business entity. A person starts trading and there is no legal distinction between this natural person and his business. All profits and all losses, after taxation, accrue to the owner. All assets of the business are owned by the proprietor and all debts of the business are their personal debts and they must pay them from their personal resources. The owner has unlimited liability. A sole proprietor may use a trade name – for example Jens Smut Trading As “Instant Plumbing Solutions” – and open a business bank account in this trading name. It is a "sole" proprietorship in the sense that the owner has no partners – he is the sole
owner or trader.

Sole trader - Another term for sole proprietor.

Solvency - Solvency is a condition and as such there are varying degrees of the condition. Each of the following definitions is a different way of viewing and assessing the degree of solvency.
1. The state of being able to pay all debts on due date. (Source: Dictionary of Accounting, 4th Edition) This is the general and most common definition of solvency. Can an individual or a company pay their bills when they become due? If so, they are solvent and they have liquidity. The ratios that give differing measures of this condition are the net cash position, cash ratio, the acid test ratio and the current ratio. All these measures are showing not only solvency but also liquidity – the availability of cash to pay current, due debts.
2. The state of having sufficient current and non-current assets as a going concern and at book value to pay all current and non-current liabilities.
This is the accountantâ''s definition as it applies to the recorded degree of solvency on the last, or „bottom lineâ'' of the balance sheet in the Annual Financial Statements. Solvency in this case is measured as: Owners Equity = (Current Assets + Non Current Assets) – (Current Liabilities + Non Current Liabilities). In this definition, liquidity is not considered. The company could be solvent but not have liquidity.
3. The state of having sufficient current and long term assets in voluntary or involuntary liquidation and at a realisable value to pay all short and long term liabilities. In this case, the credit assessor or liquidator strips out any intangible assets that cannot be sold and revises the book value of any assets to a realisable value achievable in the market at that time. The owners equity calculation is then done with these removed. In this definition, liquidity is being catered for by stripping out the non sellable intangible assets and reducing book value down to realisable value.

Solvency ratio - A ratio or series of ratios that seeks to measure the ability of a company to meet its debt obligations. See liquidity ratios.

Source documents - These are the documents created by an organization that is trading, or buying and selling goods or services. These documents could be sales invoices, supplier invoices, bank statements or receipts and so on. These source documents are recorded in the books of the company to create financial records for that company.

South African Futures Exchange - (SAFEX) A division of the JSE and an exchange that creates a market for equity derivatives and agricultural futures. South African Reserve Bank - The Reserve Bank of the Republic of South Africa. See Reserve Bank.

South African Revenue Service - (SARS) The tax collection and customs service of the South African government. SARS is established by legislation to collect revenue and ensure compliance with tax laws including customs. SARS is an administratively autonomous organ of the state. The South African tax regime is set by the National Treasury but its collection and administration is managed by SARS. Its main functions are to: collect and administer all national taxes, duties and levies; collect revenue that may be imposed under any other legislation, as agreed on between SARS and an organ of state or institution entitled to the revenue; provide protection against the illegal importation and exportation of goods; facilitate trade; and advise the Minister of Finance on all revenue matters. SARS performs several important roles in international and local trade. It does this by: enforcing customs and related trade laws; collecting duties and taxes; ensuring the social welfare of citizens by controlling the import and export of prohibited and restricted goods; and ensuring timeous clearance of goods through South African borders.

Specialized Reports and Analysis - In the Accounting Process Chart under the heading Reports, one can create reports of a company's financial position once all company transactions have been recorded in the books of the company. These reports can be standard Income Statement or Balance Sheet reports or can be specialized reports required by companies. One company may request a report on an expense and asks the bookkeeper to produce a report of this expense for review. (For example, a review or analysis of the telephone bill). Another company may require an analysis of a set of expenses related to one specific activity of the company. For example, if the company has one set of books for its activities but these activities are actually a composite of the activities of 4 branches in four cities, a specialized report may be
required of the bookkeeper or accountant, to just review one branch's activities. Stale cheque - A cheque which has not been paid because its date is too old. An example of this would be where a cheque is presented for payment six months after the date appearing on the cheque. There may be different time limits applicable and clients should verify these with their banks. (Source, Banking Code of Practice SA)

Standards - (See Accounting standards)

Standard rate (of VAT) - In South Africa VAT is charged at 14% of the sales value of  the item. VAT at 14% is added to the price to give a total price including VAT. At the moment 14% is the VAT rate charged and is known as the standard rate. Some items are zero-rated, meaning no VAT is charged, for example on some essential food.. Statistics South Africa - The official collector and publisher of government statistics in
South Africa.

Statutory - A statute is a law. Statutory means having to do with a statute or law. If a form to be submitted each month is a statutory form, it means there is law that says this is what must be done.

STC - Secondary Tax on Companies (phased out and replaced with Dividends Tax - see definition of Dividends Tax).

STI: - Sexually Transmitted Infection

Stock broking firm - A company which acts as an agent for their clients to buy and sell listed securities on a stock exchange. They also offer investment advice to their clients. They earn a commission based on their purchase and sale of stock for clients. A stock broking firm needs to be a member of a stock exchange.

Stock certificate (Inventory certificate) - Certificate signed by client indicating the stock figure as at a date. A written and signed document attesting to the inventory a business or organization has on hand.

Stock exchange - 1. A market in which securities are bought and sold.
2. The organization that creates the market place for securities. For example, the JSE is both a market place and an organization which creates this market place. As an organization, an exchange creates a market place for buyers, sellers and brokers. And it seeks to maintain volumes of trading to ensure liquidity for both buyers and sellers. And its own income is generated by the volume and value of trading on its electronic systems and through its clearing facilities. In an exchange, the products purchased and sold are standardised contracts with set specifications regarding content, size, expiry dates, tick movement and so on.

Stock market - Another term for stock exchange.

Stokvel - A rotating savings and credit association, in South Africa, in which members contribute regularly. A stokvel is a 'voluntary group' of people, or club, where individual members choose to belong. The group is formed on the basis of trust between members, friendship and a
strong sense of mutual responsibility. The members of the stokvel group agree upon the group's purpose, its rules and its outcomes.
There are various categories of stockvels – such as savings clubs, burial societies, investment syndicates and insurance clubs.

Stop order - Also known as a standing order. An instruction from a client to a bank authorising the bank to debit an amount from their account regularly in favour of a third party. This is a different method of payment than a direct debit. In the latter case, the authorisation is given by the client to a third party to debit an amount regularly from their account. A stop order is a method of payment where the client has more control over
and can more easily stop payment by an instruction to their bank. In the case of the direct debit, the third party may still be able to debit funds off the account after three months or more of an instruction to cancel the payment. Banking Code of Practice SA definition: An instruction given to your bank to pay funds to a nominated third party, at a fixed amount on a regular basis. The bank acts on your instructions and the third party is not given authority to debit your account as is the case with a debit order.

Stop payment - An instruction to a bank to cancel a payment on a direct debit, cheque, credit card or other method of payment. Normally a bank will charge an administration fee for this service.

Succession - The action or process of passing on or inheriting an office or title. Used in business to describe the process of planning and making provision for the internal development or external sourcing of future senior executives, managing director or owner.

Sundry - Various, assorted allocations or categories of items which due to their insignificance are considered as a group. The word means various and miscellaneous and comes from the Old English word for separate. Sundry income is a company's income that comes from sources other than its operations or investments. Common examples of sundry income include royalties and income from foreign exchange. Sundry income is outside the control of the company. It is also called miscellaneous income. Farlex Financial Dictionary. © 2009 Farlex, Inc. All Rights Reserved Sundry expenses are miscellaneous small or infrequent costs that are not assigned to individual ledger accounts but are classified as a group.

Supply - This means to offer services and goods for sale. Supplies would be those things that were supplied. In an office, supplies can be stationery or paper and related items. In a factory supplies could be anything used to assist in manufacturing. For example, if cars are being made, the raw material would be the basic car parts needed to build the car and supplies would be things such as cleaning material, or things used up in making the vehicle, but are not part of the vehicle itself.

Supreme Court - Officially named as the Supreme Court of Appeal of South Africa. Its role is defined in the South African Constitution of 1996 as the highest court of appeal on all matters except Constitutional matters. The Supreme Court of Appeal may make an order concerning the constitutional validity of an Act of Parliament, a provincial Act or any conduct of the President, but an order of constitutional invalidity has no force unless it is confirmed by the Constitutional Court.

Surety (Suretyship) - 1. A signed legal document promising that the signatory will step in and meet the obligations of a borrower in the event of a borrower defaulting on a credit agreement. For example, a student gets a student loan. His parents sign a surety to the effect that if he fails to pay the student loan, then the bank may seek payment from them. The document signed by his parents is a surety. [Banking Code of Practice SA definition: An undertaking given by a person called the surety, to pay the debts of another person (known as the principal debtor),if that person
fails to pay].
2. The person signing a surety document.
3. An asset in the form of a financial guarantee, bond or other collateral that is offered by a borrower, construction contractor, exporter, importer or other person as a guarantee that that person will fulfil his contractual and financial obligations to the beneficiary of the
4. A bank, insurance company or other institution that issues a financial guarantee on behalf of a contractor. Surrender value - Also known as cash surrender value. The amount of money that an insurance company with pay a policy holder who chooses to terminate a policy before its maturity date. (Source: Dictionary of Accounting, 4th Edition)

Tacit contract - A tacit contract is a contract that comes into existence due to the operation of the law rather than through the agreement of the parties to the contract. (Tacit means "understood or implied without being stated openly". It comes from the Latin word meaning silent).

Tariff - 1. Any list of charges for goods and services.
2. A tax or customs duty levied on imported or exported goods. Tariffs can be a flat rate or as a percentage of the stated value.
Tax clearance certificate - A certificate issued by SARS indicating that an individualâ''s or companyâ''s tax affairs are up to date and in order. An original tax clearance certificate is standardly required for a number of application, registration, renewal and tendering processes of government and related bodies.

Taxable income - The amount you will be taxed on once exempt income and allowable deductions have been deducted from your gross income.

Tax invoice - The tax referred to here is VAT. A Tax Invoice must specify certain information and is given to us by the supplier from whom we have purchased goods. The words „Tax Invoiceâ'' must appear prominently on this invoice. A company registered as a VAT vendor will invoice clients for services and charge VAT as a component of the invoice totals. In this company's books this is 'Output tax'. The purchases made by this company will include a portion of VAT on the suppliers invoice. This is 'Input tax'. SARS allows this company to claim input tax payments but to do so the company must receive 'Tax Invoices' from its suppliers who are registered for VAT. This invoice (supplier's bill) has to be presented following the rules of what a Tax Invoice must consist of. For example:

  • The words “TAX INVOICE” in a prominent place
  • Name, address and VAT registration number of the supplier
  • Name, address and where the recipient is a vendor the recipientâ''s VAT registration number
  • Serial number and date of issue
  • Accurate description of goods and/or services (indicating where applicable that the goods are second-hand goods);
  • Quantity or volume of goods or services supplied Price & VAT

The consideration and the VAT charged must be reflected on the tax invoice in one of the following approved formats:
Method 1 : All individual amounts reflected Price (excl. VAT) R 500.00
VAT @ 14% R 70
Total including VAT R 570.00

Method 2 : Total consideration and the rate of VAT charged
The total consideration R 570.00
VAT included @ 14%

TB - Tuberculosis

Telegraphic transfer - Also known as a telex transfer. An electronic means of transferring money overseas. A transfer fee is levied for this service.

Terms and conditions - The stipulated and agreed contractual provisions written into an agreement for payment, contractual breach, liability, dispute resolution, legal recourse, collection of debt, exclusions and foreseeable special circumstances.

Terms of trade - 1. The conditions under which companies agree to buy from and sell to each other. These will appear in any contractual agreement entered into between two companies.
2. The conditions under which countries agree to buy from and sell to each other. These are contained in international trade agreements and in the export and import regulations of a country. (Source: Longman Business English Dictionary)

Testamentary - Relating to a will. The word is derived from the Latin “testatus” meaning testified, witnessed.

Timesheets - (Time sheet) These were originally developed for an employer to determine payroll but timesheets are not just for payroll any more. Timesheets may record the start and end time of tasks, or just the duration. It may contain a detailed breakdown of tasks accomplished throughout the project or program. This information may be used for payroll, client billing, and increasingly for project costing, estimation,
tracking and management.

Title - When used in a legal sense, it means a right or claim to ownership of property.

Title deed - A legal document registered with the Deeds Office constituting evidence of legal ownership of land and property.

Transaction - 1. An agreement between a buyer and a seller to exchange an asset for payment. 2. In accounting, any event or condition recorded in the various books of accounts.

Treasury bill - A short dated (twelve months or less), negotiable government debt security yielding no interest. On issue, they are purchased by investors at below face value. On maturity, the holder of the security receives the face value of the security from the issuing government.
A Treasury bill is used by Reserve or Central Banks to meet short term government borrowing requirements and to influence the money supply. By selling them, the Reserve Bank, reduces the level of money in circulation. By repurchasing them, they increase the money in circulation.

Treasury Dept - In a commercial bank, the primary functions of a treasury dept is to manage the bankâ''s asset and liabilities so that it remains within the capital adequacy ratios set by the Reserve Bank. It is also responsible for the money market operations of the bank, setting investment rates for depositors and sourcing insurance for the bankâ''s own, for example, property, director and credit risks.

Treasury note - A medium term, negotiable debt security issued by a government with a maturity of more than one year and less than ten years. They offer the purchasing investor interest payments as well as a capital repayment on maturity.

Treasury bond - A long term, negotiable debt security issued by a government with a maturity of more than ten years. They offer the purchasing investor interest payments as well as a capital repayment on maturity. These long term bonds and their interest yields are important as a key benchmark for corporate and other long term bonds. For example, if a South African government Treasury bond is offering a seven percent return over ten years, South African companies will be expected by institutional investors in the market to offer more than seven percent.

Trend analysis - 1. The concept of collecting information and attempting to spot a trend or pattern in the information. Trend analysis is used in a wide range of fields particularly those with a lot of complex and rapidly changing data such as biological systems, stock markets and so on.
2. A comparative analysis of a company's financial ratios over time. A firm's present financial ratios are compared with its past ratios to determine whether the company's financial condition is improving or deteriorating over time. The analysis may also compare the  companyâ''s financial ratios with those of similar firms or with industry averages or norms to determine how the company is doing relative to its competitors. Industry average ratios are usually available from a number of sources.
3. A method used by some stock market traders and investors to gain an insight into stock market trends and attempting to make better buy and sell decisions based on price trends and patterns.

Trial balance - A statement of all the debit and credit balances in the ledger of a doubleentry system, drawn up to test their equality. Collins English Dictionary – Complete and Unabridged © HarperCollins Publishers 1991, 1994, 1998, 2000, 2003 The trial balance is an accounting listing that shows the beginning and ending balances for all accounts included in the set of books. This worksheet format makes it possible to
evaluate whether or not the total debits for the period cited are in balance with the total number of credits generated for the same period. When a true trial balance exists, the total credits and total debits will be equal. Using a trial balance to qualify the current status of accounting is helpful in several different ways. One of the most important things that preparing a trial balance achieves is identifying quickly and easily when the debits and credits are not equal. By running a trial balance on a regular basis, this makes it possible to quickly identify a specific accounting period where an imbalance took place and correct it quickly.

Trust - A legal entity created by contract with the basic intention to bestow (give as a gift or as a right) assets for the benefit of others. These assets are then transferred from the current owner to the trust and the responsibility for their management in the interests of the beneficiaries is undertaken by trustees. A trust is not like a company. It is not governed by the Companies Act and is not a legal entity created and recognized under statute. It is a creature of contract and common law – law created by court judgments. An example of a trust would be as follows: A grandfather decides he wants to set up a trust for his grandchildren. He bestows two large rental properties to the trust in his will. His will appoints the parents and his lawyer as the trustees. His will sets out his wishes on how the benefits should be managed. The trustees then  manage and control the rental income and the properties for the benefit of his grandchildren. The trustees and benefactor receive none of the benefits flowing from the trust. Another typical case for a trust is where a wealthy person wants to leave his assets, for example, to assist food relief in Africa. A trust could be used to achieve this objective. In South Africa, trusts are being used primarily as means of asset protection and to
reduce death duties. For example, a businessman fears he will go bankrupt. Every major property purchase he makes is done via a trust. The property is not in his name and if he is married out of community of property, his wife and children can be the beneficiaries. His creditors then have no access to these assets. On his death, there is no death duty as these are not his assets and are in a legal entity that has a separate independent identity. The legal and practical separation of benefactor, trustees, beneficiaries and the benefits flowing from the trust are increasingly important issues in the establishment and management of trusts. The original purpose of this form of legal entity (to bestow a benefit to another in moral and contractual trust) needs to be inherent in their intent,  stablishment and management.

Trust account - 1. An account in a financial institution such as a bank that is established under a trust agreement and administered by a trustee for the benefit of another person.
2. An account held by certain professionals, such as estate agents or attorneys, used to hold client monies for safe keeping while a transaction is being processed. These are known as fiduciary trust accounts.

Trustee - A person appointed to a trust to protect the assets and income of the trust on behalf of the trustâ''s beneficiaries.

Turnover - 1. The monetary value of the goods and services sold by a company normally stated for a single financial year. Also known as net sales or sales revenue.
2. A measurement of the level of inventory used and restocked during a specified period – inventory turnover.
3. A measurement of the time taken by debtors to pay for goods and services received – accounts receivable turnover.
4. A measurement of the efficiency with which the working capital is being used by a firm – working capital turnover.
5. A measurement of the efficiency with which the capital is being used by a firm – capital turnover.
6. A measurement of the volume of shares traded on a stock exchange (or in a portfolio) in a given period – share turnover.
7. A measurement of the quantity of people joining and leaving employment in a company – staff turnover. Generally, turnover is a measure of the speed at which items are used and replaced.

UIF - Abbreviation for Unemployment Insurance Fund. A UIF deduction of 1% of all salaries is collected by employers, paid over to SARS who then deposits it into the Unemployment Insurance Fund maintained by the Dept of Labour for the payment of unemployment benefits.
Unlisted company - A company whose shares are not quoted on a stock exchange.

Unemployment Insurance Fund - UIF provides benefits for people who are out of work or unable to work because a chronic illness or pregnancy. Contributions to UIF are compulsory and are made by employers, employees and the government.

Unpaid cheque - This is a cheque, which, after being deposited into the account of the person to whom it is payable, is unpaid for whatever reason and subsequently returned to the account holder by the bank. This leaves the person to whom the cheque is payable without the money in their account. A replacement cheque needs to be obtained by the owner of the account (the „payeeâ'').

Unsecured - Not supported by any asset held as security.

VAT - Abbreviation for Value Added Tax. A tax levied at each stage of production according to the value added and charged to the consumer on final purchase. The administration of VAT is a major bookkeeping activity in most companies in order to manage their VAT payments. The VAT paid on raw materials can be claimed back by a company from the amount it then charges to the next supplier in the production chain. For example, Solid Foundations pays R114, 000 for steel rods. R14, 000 of this is VAT. Solid Foundations then lays the steel into foundations. They charge R224, 000 to the contractor. R24, 000 is VAT. Solid Foundation can now claim the R14, 000 VAT previously paid on the steel. Its added value in the production process was R100, 000 and hence its eventual liability is R14, 000 VAT. The government is always receiving 14% of the increase in value at each stage. VAT is 14% in South Africa. There is a limited range of goods and services which are either exempt, or which are subject to VAT at the zero rate (for example, exports are VAT rated at 0%).

VAT Owed - A business calculates how much VAT it has charged its clients on its sales invoices. This is compared to the amount of VAT paid by the business when paying supplier invoices. The VAT charged and collected is added up. The amounts of VAT paid out are deducted. The difference is VAT owed by the business to SARS. VB Bank - A fictitious or made up name for a bank. VB refers to Virtual Bank.

Vendor - A company or organization registered as a VAT payer. (VAT vendor) This includes any person who is registered or is required to be registered for VAT. Therefore any person making taxable supplies in excess of the threshold amount (presently R1 million: those who's turnover is less than this per year do not have to register as VAT Vendors) prescribed in the law covering VAT is a vendor, whether they have actually registered with SARS or not.

Venture capitalist - Providers of capital, usually seed capital, to non-listed companies. This helps develop new companies, new products, prepare for a listing on a stock exchange, make new acquisitions or other high risk undertakings. In return for their financial and other support, venture capitalists look for high levels of return and a large stake in ownership or percentage of any share capital issued.

Very small business - A business with a turn-over of up to R1 million per year.

Virtual Office - The Virtual Office is a simulated office environment for trainee accountants where real accounting work is done, in an academy, as if the attendees were actually at work doing the books of real companies. Virtual means simulated or 'just like the real thing but not the real thing'. Simulate means to make in imitation of, or to act as a substitute for. Imitate would be a similar word. Simulate comes from the Latin word meaning to copy. The name Virtual Office represents a program that has been created by Guarantee Trust and has various skills development modules to make accountant trainees work-ready by using accounting simulation in our academies.

Voucher - The term voucher is also a synonym for receipt and is often used to refer to receipts used as evidence of, for example, the declaration that a service has been performed or that an expenditure has been made. It can also refer to a certificate or bond which is worth a certain monetary value and which may be spent only for specific reasons or on specific goods. Examples include (but are not limited to) a travel voucher, clothing voucher or food voucher, for example.

Wages - A salary is a form of periodic payment from an employer to an employee, which may be specified in an employment contract. It is contrasted with wages, where workers are paid per hour or per week or per job, rather than a steady amount paid each month as in salaries.

Waive - To put aside or not insist upon a right, claim or benefit in law, in property or in commercial rights.

Watermark - A faint recognizable image or pattern inserted into paper during its manufacturing process. This image or pattern is visible when viewed against light. Watermarks are often used as security features of banknotes, passports, postage stamps, and other documents to increase the difficulty of successful counterfeiting.

WCA - Workman's Compensation Act.

Weighted average - A weighted average multiplies each data point by an arbitrary 'weight' and divides by the sum of the weights. Your everyday garden variety average, or arithmetic mean, is actually a special case of a weighted average, except all the weights are equal to
1.Selection of weights are largely arbitrary but generally based on sound reasoning (e.g. relative population sizes). As another example, let's say you have 5 reviewers of a product giving their overall satisfaction rating. The scores are 9, 7, 6, 7, 3. However you have a very high regard for Reviewer 1 so you assign her a weight of 15 (and the others remain at weight=1). The average score is (9+7+6+7+3)/5=6.4
The weighted average score is ([15 times 9]+7+6+7+3)/(15+4)=8.3 The weighted average is much closer to Review 1's opinion due to your weighting decision. This logic or system can be applied to the valuation of stock sometimes.

Will - A legal document containing instructions for the distribution of oneâ''s money and property after death. Window dressing (to window dress) - A means of improving appearances or creating a falsely favourable impression. Another definition would be a showy misrepresentation intended to conceal something unpleasant.

Working capital - 1. A general term used to describe the money used by a business to carry on day-to-day production and trading whilst awaiting payment from its debtors.
2. The total value of cash, inventory and debtors used by a company in its day to day operations.
3. The net current assets of a company recorded in its balance sheet.

Yield - 1. The income generated per annum by an asset expressed as a percentage of the assets purchase price or market price. 2. For bonds and money market instruments, the coupon rate divided by the market price. A coupon is the stated interest payment per annum on a bond. The coupon rate is the stated interest rate divided by the face value of the bond. Coupon rate = Annual Interest Rate Face Value of Bond
Bond Yield = Coupon Rate Market Price of Bond
3. For shares and other securities, the annual dividends divided by the purchase price. A yield may not reflect the full return of an investment asset as it does not factor in any increased capital value in the underlying asset.

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