While many accounting terms are used globally, some key concepts have different terminology on either side of the Atlantic. Some of these difference are easy to decipher, while others are potentially confusing. This is an increasing problem as more and more companies trade in multiple countries or engage in cross-country takeovers.
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Articles of Association
These are known in the US as bylaws. They are effectively the rules of the company, with particular emphasis on how board meetings operate, voting rights of shareholders, and any restrictions on transferring share ownership.
This is known in the U.S. as net income. It is the profit that remains after paying taxes and any required payments to holders of preferred shares. In effect, this is the money that can either go to shareholders as dividends or be retained for future spending by the company.
Creditors and Debtors
These are the equivalent of the US terms payables and receivables. Creditors/payables are people or organisations the company owes money to. Debtors/receivables are people who owe money to the company.
This is known in the US as amortisation. It refers both to the concept that some assets such as machinery lose value over time, and the accounting process that takes account of this. Usually a company is allowed to claim a certain amount towards depreciation each year as a cost, which can reduce its tax liabilities.
This is known in the US as par value. It is the face value of company shares and is mainly used for calculations of what proportion of the company a particular person owns. The actual price of the shares themselves is determined by the stock market. Most U.K. companies have shares with a nominal value of £1.
Ordinary Shares/Preference Shares
These are known in the U.S. as common stock/preferred stock. A company must pay dividends to holders of preference shares before it makes any dividend payments to holders of ordinary shares. Holders of preference shares will usually get back the nominal value of their shares if the company is liquidated. In return for these advantages, preference shareholders often do not have voting rights.
This is known in the U.S. as a charge off. It is the action of reducing an asset's listed value on the company balance sheet to zero. The most common use of this is when the asset is an outstanding debt that the company does not believe will be repaid.
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