A-Z of Accounting and Bookkeeping for Small Businesses in the UAE

17th May 2024

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Whether you're a startup, entrepreneur, freelancer, or small business owner in the UAE, understanding accounting and bookkeeping terms is crucial for effectively managing your business finances and ensuring your meet your tax obligations.

To help you, we've compiled this A-Z glossary of common accounting, bookkeeping and tax-related terminology, with specific UAE references, to provide you with both understanding and confidence. Let's dive in!

A-Z of Accounting and Bookkeeping Terms

A

Accountant: A qualified person who is responsible for accurately recording a company's financial transactions.

Accounting: The process of recording and maintaining accurate records of a company's financial transactions.

Accounts Payable (AP): Money owed by a business to its suppliers or creditors for goods and services received.

Accounts Receivable (AR): Money owed to a business by its customers for goods or services delivered.

Accruals:  Revenues which have been invoiced but payment is yet to be received and costs incurred but not yet paid e.g. a 12-month office lease which is paid quarterly.

Accrual accounting: Revenues and expenses are recorded when they occur regardless of whether the associated funds have been exchanged.

Audit: The process of inspecting a company's financial accounts by an external, independent organisation. Audits are usually conducted annually. The auditor will provide a set of audited financial accounts for a specified accounting period (usually the financial year) and it is these audited financial accounts that are considered the company's official accounts which may be required to be lodged with various government authorities.

B

Balance Sheet: A financial statement that provides a snapshot of a company's financial position at a specific point in time, showing assets, liabilities, and equity.

Bookkeeper: A qualified person who is responsible for the accurate recording a company's financial transactions.

Bookkeeping: The process of recording financial transactions and maintaining financial records.

C

Cash Basis Accounting: Revenues and expenses are recorded when the money involved in a transaction either enters or leaves the account..

Cash Flow: The movement of money in and out of a business, crucial for maintaining liquidity.

Chart Of Accounts: A master list of all of a company’s financial transactions, categorized by account-type, e.g. revenues, expenses, liabilities, assets and equity.

Closing the books: Exercise carried out by an accountant at the end of a financial period, when all transactions have been recorded and approved.  Accountants usually organize monthly closings and year-end closings. Once a company’s books are closed, they can be used for official financial reports, e.g. external auditing of accounts.

Corporate Tax: Tax imposed on business income. The rate for corporate tax in the UAE is 9%.

Cost of Goods Sold (COGS): The direct costs attributable to the production of goods sold by a company.

D

Deductible Tax: Tax that has been paid.

Depreciation: The allocation of the cost of a tangible asset over its useful life.

Double-Entry Accounting: A system of accounting in which every transaction affects at least two accounts, ensuring the accounting equation (Assets = Liabilities + Equity) remains balanced.

Due Tax: Tax that is calculated and imposed.

E

Equity: The owner's interest in the business, calculated as assets minus liabilities.

Excise Tax: A tax imposed on specific goods in the UAE, including tobacco, electronic smoking devices and tools and the liquids used in such items, carbonated drinks (excluding sparkling water), energy drinks and sweetened drinks. The purpose of this tax is to reduce consumption of these goods whilst raising revenues for the government that can be spent on public services.

Expense: The cost incurred in the process of generating revenue.

F

Federal Tax Authority (FTA): The authority responsible for collecting tax on behalf of the UAE government.

Financial Statements: Reports that summarize the financial performance and position of a business, including the balance sheet, income statement, and cash flow statement.

Financial Year: Following the Gregorian calendar, a 12-month period for which companies prepare their financial statements. For new companies in the UAE, the first financial year must be between six and 18 months.  Therefore, companies established before June in any year and wanting their financial periods to follow the calendar year, need their first financial year to end in December in the year of establishment. Also referred to as Fiscal Year.

Fixed Assets: Long-term tangible assets used in the operation of a business, such as machinery, buildings, and equipment.

G

General Ledger: A complete record of all financial transactions of a business, organized by accounts.

Generally Accepted Accounting Standards (GAAP): An accounting method followed by accountants for recording transactions and preparing financial statements to provide a complete overview of a company's financial health.

Gross Profit: The difference between revenue and the cost of goods sold.

H

Historical Cost: The original cost of an asset, as recorded in the accounting records.

I

Income Statement: A financial statement that shows a company's revenues and expenses over a specific period, resulting in net profit or loss.

Input Tax: Tax paid by or due from a person when goods or services are supplied to him, or when conducting an import.

Inventory: The goods a business holds for the purpose of resale.

J

Journal Entry: A record of a financial transaction in the accounting journal.

Just-in-Time Accounting (JIT): An inventory management strategy that aligns raw-material orders with production schedules.

K

Key Performance Indicators (KPIs): Metrics used to evaluate the success of a business in achieving its objectives.

Kiting: A form of check fraud that involves writing a check for more than the account balance.

L

Liabilities: Obligations or debts that a business owes to others.

Liquidity: The ability of a business to meet its short-term financial obligations.

M

Margin: The difference between the selling price of a product and its cost.

N

Net Income: The total profit of a business after all expenses have been deducted from revenues.

Notes Payable: Written promises to pay a certain amount of money at a future date.

O

Operating Expenses: The costs required to run the day-to-day operations of a business.

Output Tax: Tax charged on any supply considered as a taxable supply.

Overheads: Costs incurred for a company to operate, but which don’t contribute to the its products and services, e.g. rent, insurance, marketing etc.

Owner Equity: The owner's claim on the assets and capital of the business.

P

Payable Tax: Tax that is due for payment to the Federal Tax Authority (FTA).

Payroll: The total amount of wages and salaries paid by a business to its employees. In the UAE, mainland businesses are required to register with and pay their employee's salaries via the country's federal payroll system called the Wages Protection System (WPS).

Prepaid Expenses: Payments made in advance for goods or services to be received in the future.

Q

Quick Ratio: A measure of a company's ability to meet its short-term obligations with its most liquid assets.

R

Reconciliation: The process of ensuring that two sets of records (usually the balances of two accounts) are in agreement.

Recoverable Tax: Amounts that were paid and may be returned by the Federal Tax Authority (FTA) pursuant to the tax laws in the UAE.

Retained Earnings: The accumulated net income of a business that has not been distributed to shareholders as dividends.

Revenue: The money a business receives for the sales of its goods and services.

S

Sales Revenue: The income received from selling goods or services.

Statement of Cash Flows: A financial statement that shows the cash inflows and outflows of a business over a period.

Stocktake: The process of counting all goods that a company is holding for resale and recording the quantities.

T

Tax Evasion: Illegal means resulting in the reduction of the amount of the due tax, non-payment of tax, or an unfounded tax refund.

Tax Group: Two or more companies registered with the Federal Tax Authority (FTA) for tax purposes as a single taxable person.

Taxable Income: The portion of income subject to taxation.

Tax Registration Number (TRN): A unique number issued to a company by the Federal Tax Authority (FTA) when it applies for VAT registration. A VAT-registered company must include their TRN on any document related to tax, e.g. tax invoices, credit notes and VAT returns.

Tax Period: A specific period of time for which the payable tax shall be calculated and paid.

Tax Return: Information and accounts data specified for tax purposes which must and filed by all companies registered for tax in the UAE. Corporation tax returns are filed annually, whilst VAT returns are filed quarterly.

Trial Balance: A report that lists the balances of all general ledger accounts to ensure that debits equal credits.

U

Unearned Revenue: Money received by a business for goods or services not yet delivered.Unsecured Loan: A loan that is not backed by collateral.

V

Variable Costs: Costs that vary directly with the level of production or sales.

Value Added Tax (VAT): A tax imposed on the import and supply of goods and services at each stage of production and distribution, including the deemed supply in the UAE. The current rate of VAT in the UAE is 5%.

VAT Registration: The procedure for registering with VAT with the Federal Tax Authority (FTA). Companies must register for VAT when the value of their taxable supplies and imports exceed AED375,000 (the mandatory registration threshold) in the previous 12 months or if they anticipate exceeding the amount within the next 30 days. Companies can voluntarily register for VAT in the instance the value of their taxable supplies, imports and expenses during the previous 12 months exceeds the voluntary registration threshold of AED187,500, or they anticipate exceeding the amount within the next 30 days.

Vendor: A person or company that supplies goods or services to a business.

W

Wages Protection System (WPS): The UAE's federal payroll system, requiring all mainland companies registered with the Ministry of Human Resources and Emiratisation to pay their employees through the WPS system. The purpose of WPS is to ensure that mainland workers in the UAE are paid the correct amount, as per their labour contract, and on time. Affected companies which do not comply face penalties which will prevent them from being able to apply for new work permits. Companies exempt from WPS obligations include: Fishing boats and public taxis owned by nationals, banks, houses of worship, seamen and workers of foreign companies or their subsidiaries working in the UAE who receive their salaries outside of the country. For more detailed information about WPS, visit our sister company's blog.

Working Capital: The difference between a company's current assets and current liabilities.

Write-Off: The reduction of the value of an asset to zero due to it not being collectible or it being worthless.

X

XBRL (eXtensible Business Reporting Language): A standard for exchanging business information, particularly financial data.

Y

Yield: The income return on an investment, usually expressed as a percentage.

Year-End: The end of a business's financial year, when annual financial statements are prepared.

Z

Zero-Based Budgeting: A budgeting method where all expenses must be justified for each new period, starting from a "zero base."

Zero-Rate Tax: A tax imposed on the supply and import of specific goods and services in the UAE, including a variety of transportation and related goods and services thereof; investment precious metals; first supply of residential buildings, buildings for charities and buildings converted to residential use; crude oil and natural gas; education; preventative and basic healthcare.

We hope this A-Z glossary helps you better understand the key accounting and bookkeeping terms essential for managing your small business. Bookmark this page and use this blog post as your go-to reference tool whenever you need to check any accounting terms with easy-to-understand definitions which are specific to the UAE.

At NumberNinjas.ae, we're here to support you with all your accounting needs in Abu Dhabi, Al Ain and Dubai. Discover how simple managing your business finances can be with our monthly accounting and bookkeeping services.

Explore our next blog post, "UAE Small Business Accounting: Legal Requirements Explained". Online now!

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The NumberNinjas.ae Team