If you’re new to accounting or bookkeeping, learning the terminology can be overwhelming and confusing. Accounting is one of those skills that all business owners must understand to be successful. Having accurate financial records gives you a firm grasp on your company’s financial status and will help you make sound business decisions to accelerate your profit and growth.
Once you have gained an understanding of the basic principles of accounting, you’ll be on your way to success.
Basic Bookkeeping Terms to Learn and Understand:
- Accounts Receivable (AR)
- The amount of money owed by your customers after goods or services have been delivered and/or used.
- Accounts Payable (AP)
- The amount of money you owe creditors (suppliers, etc.) in return for good and/or services they have delivered.
- Fixed assets (FA)
- Long term assets that will benefit the company for longer than a year. Examples include a building, computer, vehicles, land, etc.
- Current assets (CA)
- Assets to be used within a year such as cash or inventory.
- Balance Sheet
- A financial report that summarizes a company’s assets (what it owns), liabilities (what it owes) and the owner’s equity.
- A financial asset and its value, such as cash or goods. Working capital is calculated by taking your current assets subtracted from current liabilities.
- Cash flow
- The revenue or expense expected to be generated through business activities (sales, manufacturing, etc.) over a period of time. Having a positive cash flow is essential in order for businesses to survive in the long run.
- Cost of goods sold
- The direct expense related to producing the goods sold by a company. This may include the cost of the raw materials (parts) and amount of employee labor used in production.
- An accounting entry that may either decrease assets or increase liabilities and equity on the company’s balance sheet, depending on the transaction. When using the double-entry accounting method there will be two recorded entries for every transaction: a credit and a debit.
- An accounting entry where there is either an increase in assets or a decrease in liabilities on a company’s balance sheet.
- General ledger (GL)
- A complete record of the financial transactions over the life of a company.
- Current Liabilities
- Debts that are payable within a year like payments to a wholesaler or supplier.
- Long-term Liabilities
- Debts or financial obligations that are paid over a time period longer than a year such as a bank loan, building loan, etc.
- Net income
- A company’s total earnings, also called net profit or bottom line. Net income is calculated by subtracting totally expenses from total revenues.
- Profit and Loss Statement
- A financial statement that is used to summarize a company’s performance and financial position by reviewing revenues, costs and expenses during a specific period of time; such a quarterly or annually.
- Job Costing
- tracking the costs and revenues by “job” and enabling standardized reporting of profitability by job.
As you begin to navigate accounting and bookkeeping, keep in mind the importance of up-to-date and correct information. Financial reports can give you the information needed to determine what is working for your business and if you need to make any changes.
At 360 Virtual Accounting, we work with a variety of small to medium business owners to help them with their accounting and bookkeeping. When you trust a professional to help you, you’re guaranteeing that your information is correct and you have access to all the reports you need to make sound financial decisions. Learn more by contacting us today.