Running a business means wearing many hats — and one of them is understanding the basics of accounting.
Whether you’re a start-up founder or managing an established SME, having a clear grasp of accounting terms helps you make smarter financial decisions and communicate more effectively with your accountant.
Key Terms
Asset – Anything your business owns that has value — such as cash, equipment, or property.
Liability – What your business owes — including loans, outstanding invoices, or taxes.
Equity – The value remaining after subtracting liabilities from assets.
Revenue (or Income) – The total amount your business earns from selling products or services.
Expense – The costs your business incurs to operate — rent, software, salaries, etc.
Profit (or Net Income) – What’s left after deducting expenses from revenue.
Cash Flow – The movement of money in and out of your business — a vital measure of financial health.
Explanation: Understanding the Foundations of Business Finance
Accounting starts with the fundamentals — the words that explain how money moves through your organisation.
Knowing the difference between assets and liabilities helps you see your true financial position, while tracking revenue and expenses highlights your profitability and sustainability.
Most importantly, understanding cash flow ensures you’ll never be caught short when bills or payroll are due.
Many SMEs fail not from lack of sales but from poor visibility. By mastering these core terms, you gain control over your finances and your growth.
At Sadler & Frost, we believe clarity is power — and we help founders turn these definitions into real-world understanding.
- Financial Reporting & Statements
Financial reports are the pulse of your business. They reveal not only what has happened, but also where you’re heading.
Key Terms
Balance Sheet – A snapshot of your financial position at a specific moment — showing assets, liabilities, and equity.
Profit and Loss Account (P&L) – Shows how much your business has earned and spent over a period.
Cash Flow Statement – Tracks all cash movements from operations, investments, and financing.
Chart of Accounts – A structured list of all financial accounts used by your organisation.
Explanation: Why Financial Reports Matter More Than You Think
Each report offers a unique perspective: the Balance Sheet captures what you own and owe, the P&L reveals performance, and the Cash Flow Statement explains liquidity. Together, they tell the story behind your numbers.
For UK companies, these aren’t optional. They underpin Corporation Tax filings, Companies House submissions, and investor relations. Regularly reviewing them helps you identify trends, adjust spending, and spot issues before they escalate.
At Sadler & Frost, we use cloud-based tools like Xero to generate real-time reports you can trust — giving you the insight to make confident, data-driven decisions.
- Taxes and Compliance (UK Focus)
Taxes can be intimidating, but they’re easier to manage when you know the basics.
Key Terms
VAT (Value Added Tax) – A tax on most goods and services in the UK. Registration is required once your turnover exceeds the HMRC threshold.
PAYE (Pay As You Earn) – The system through which employers collect Income Tax and National Insurance from employees’ wages.
Corporation Tax – A tax paid on company profits, usually due nine months and one day after the end of your accounting period.
Self Assessment – How individuals, including directors and sole traders, report personal income to HMRC.
Explanation: Understanding UK Tax and Compliance
From VAT registration to Corporation Tax returns, compliance keeps your business credible and penalty-free.
If your turnover surpasses the VAT threshold, you must register — but voluntary registration can also be beneficial, particularly for B2B operations reclaiming input tax.
Through PAYE, employers act as HMRC intermediaries, ensuring taxes and National Insurance are deducted correctly. Accurate payroll records prevent costly errors and HMRC penalties.
Corporation Tax applies to all limited companies; planning ahead avoids last-minute stress.
Finally, Self Assessment covers directors’ and freelancers’ personal income, ensuring full transparency between business and personal earnings.
At Sadler & Frost, we simplify UK tax rules for start-ups and SMEs — helping you stay compliant, avoid fines, and focus on growth instead of paperwork.
Accounting isn’t just about numbers — it’s the language of your business.
Understanding these three foundations — basic terms, financial reports, and tax compliance — empowers you to make clearer, smarter decisions.
At Sadler & Frost, we help UK businesses translate accounting into progress.
