Bookkeeping comes with its fair share of lingo. To take some of the mystery out of these inscrutable terms, we've compiled a handy cheat sheet to help decipher the "hidden codes" of business bookkeeping talk.
Let's start below:
Accounts Payable: On your balance sheet, this is the money owed to others.
Accounting Period: Usually this would be one year, although it may vary; financial statements are applied to this time span, and books are balanced in accordance with this timeline.
Accounts Receivable: Some of your customers owe some cash; they haven't paid for your goods or services yet. There is a balance that corresponds with this figure.
Assets: Can be used to produce value. An example would be your building (if you own it) or any equipment used to produce your goods.
Balance Sheet: Shows a company's financial status at a particular juncture. Does the value of your assets equal your equity/liabilities?
Bookkeeping: Has zero relation to the bookstore, or library! Unless, of course, a bookkeeper is doing the books for the bookstore, but that's a separate story! Basically, bookkeeping is the organisational process used to keep track of the finances of a business.
Bottom Line: How are you doing? Check....all the way down on your income statement or profit & loss report.
Cashflow: Like a river, in and out. Where did that money come from? Where did that money go? This is detailed in a cashflow report.
Depreciation: As time passes, your assets decrease in value (sorry). Bookkeepers will track this.
Drawings: Typically has nothing to do with art. If you take some funds from your business for your own personal use, you'll have to list these flights of fancy.
Equity: You mean...people trust in your business to succeed? (Isn't that sweet of them?) The money they gave to your business —ahem, invested in your business—is listed as your equity.
Expenses: In your quest to earn revenue, there have been those continual costs. (Why is everything so much money these days?) These are your expenses.
General Ledger: It sounds rather quaint, doesn't it? But it continues, to this day and age... The general ledger is the spot which contains a summary of all your accounts.
Gross Earnings: Amount you earn from sales, before those pesky expenses you need to deal with. This number is always deceptively large.
Income Statement or Profit & Loss: Usually a mirror of your feelings at any particular time: a month, a quarter, perhaps even a year. Is there a net profit, or a loss? At the top, we have your revenue earned, from which is subtracted the cost of your goods, as combined your expenses. Poof! There it is—the famous bottom line.
Interest: You'll need to pay some extra money every month if you take a loan. That's the interest. Not as interesting as it sounds.
Inventory: So you're going to sell some things; this is the name for the things you're selling!
Journals: In a bookkeeper's realm, these aren't outlets to record their deepest thoughts and desires. Rather, these are detailed records of each day's transactions, in the various accounts. For example, Accounts Receivable might get its own journal.
Liabilities: All the debts owed out. Every. Single. One. Of. Them.
Loss: Exactly what it sounds like. We're sorry (though we didn't do it.) You're a tad (or more than a tad) in the money hole for this period of time.
Net Profit: Now we're talking. Absolutely. The real deal. You've subtracted all your expenses from your gross earnings; net profit is the money that you truly earned.
Payroll: Your employees aren't working for just the pleasure of it, are they? Your business will need to account for its payroll, and report many parts of it to the government, including taxes you pay for your employees, etc.
Petty Cash: Has nothing to do with gossip. Maybe you need to make a small purchase for your business—buy a new container of coffee creamer, for example. Your bookkeeper should have some cash available for you, stored in a safe place. This cash needs to be very tightly monitored, as expenses. (Save those receipts!)
Revenue: You've sold your services or your goods. Or maybe you've even sold some assets. Or maybe you've really gone out on a limb: you've given out a loan and received some interest for it. This is all your revenue, right here.
Year-End. Your bookkeeper is suffering from lack of sleep at this time. He/she would appreciate coffee, tea, and/or pats on the back. Your bookkeeper is finalising all the accounts before handing them off to an accountant, who will calculate the tax owed. Now, aren't you glad you paid someone to do this? (Or maybe you didn't hire someone; you must be tired.)
Keeping the books accurate and up-to-date is fundamental to businesses of every size. Due to the unique nature of each business, a custom approach to the books is often what's called for. Eye on Books employs customised solutions for your needs. We have skilled bookkeepers available to visit your location, or you can come to our offices in Stirling. We understand your preferences and needs and work with you to get the job done!