A Glossary Of Essential Bookkeeping Terms

Author: SD GOLD ACCOUNTING SERVICES | | Categories: Accounting Services , Bookkeeping , Tax Accountant

Blog by SD GOLD ACCOUNTING SERVICES

Every industry has its own language and terms. These words and phrases can be confusing to anyone who is not part of the daily operations of a specific sector, and the accounting business is no exception.

To help you understand the terms, acronyms, and phrases regularly used when working with an accountant, SD Gold Accounting Services has created this handy reference guide. Here you’ll find valuable information allowing you to comprehend and communicate your accounting needs effectively.

Accounts
It refers to the record of financial transactions for your business and includes income and expenses. You group various business transactions under different types of accounts (also known as journals).

You can have several accounts, such as revenue and expense accounts. These accounts go into your general ledger, which is used to create your financial statements (for example., your profit and loss statement).

Accounting Period
It’s the time it takes to complete an accounting cycle where you record and report business transactions and turn them into financial statements. The length of time for an accounting period is typically one year, which means you gather all of your transactions and reconcile them with your bank statements for that year.

Accounts Payable
Accounts payable refers to the money that you currently owe vendors or suppliers. In other words, your short-term, unpaid bills for which you’ve already been charged. You record on your balance sheet the amount that you haven’t paid yet to vendors and suppliers. Accounts payable is categorized as a liability as it’s technically considered debt.

Accounts Receivable
Accounts receivable refers to the money you haven’t received from your customers for either your product or service (think of it as unpaid invoices). Accounts receivable still counts as money your business has earned as the customer will have to pay their bill. In the traditional accounting process, you would credit your accounts receivable with the amount owed by the customer. Once the customer pays, you would debit the amount and move it to your cash accounts.

Accruals
It refers to the expenses that you’ve incurred but haven’t paid yet. Accruals can also be sales you’ve made, but the customer hasn’t paid their invoice or bill. While accruals and accounts payable are accounting entries, accruals are entries that haven’t been realized yet. If you use the accrual-basis accounting method, you’ll record both positive and negative accruals at the time of the sale. It’s the opposite of cash-basis accounting, which means you record revenue and expenses when you’ve made or received payment.

Assets
It refers to the tangible or intangible items your business owns that could be turned into cash. Assets are found on the balance sheet and include current assets like cash in the bank accounts, money in petty the cash box, accounts receivable, and non-current assets like equipment, land, and buildings, vehicles.

Balance Sheet
It’s a comparison between your assets (what you own) and your liabilities (what you owe). It helps you understand the overall financial health of your organization.

Bank Reconciliation
It’s a type of report that checks and explains the difference between the cash balance in your bank account and the balance on your bank statements (for example, your deposits, withdrawals).

Cash Flow
Cash flow refers to the money going in and out of your business (your income and expenses). Estimations can also be made in a cash flow forecast on the income and expenses for the year ahead. These figures will be based on prior earnings and costs and can help a business work out its sales goals and budget.

Chart Of Accounts
A chart of accounts is how you categorize your revenue transactions and your expense transactions. A chart of accounts helps to make sure that your transactions are correctly categorized so you can produce a profit-and-loss statement. It also helps to ensure your transactions are legitimate.

Cost Of Goods Sold (Cogs)
It’s the money that you invest in creating your product or service to sell to your customers. In other words, it’s your expense for making a sale. The cost of goods sold qualifies as an expense (traditionally the largest for your business) and is included on your profit-and-loss statement. When you subtract your cost of goods sold from your net sales, you get your gross profit.

Double-Entry Bookkeeping
It’s where you keep tabs on where your money is coming from and where your money is going. Every transaction is recorded twice — once in your debits account and again in your credits account. Debit entries (money coming into the account) are recorded on the left, credit entries (money going out) are recorded on the right.

For example, suppose you withdraw $200 from your cash account, to buy $200 worth of Office Supplies. In that case, you’ll debit your office supplies account (as you gained the value of those supplies) and credit your cash account (as money is going out).

Equities
Assets (what you own) minus your liabilities (what you owe) equals your equities. It tells you what your business is worth after you’ve paid back your liabilities. This equity might be what you have invested in your business or what others have invested. Equities typically go on your balance sheet along with your assets and liabilities.

Expenses
Expenses reflect what you spend to keep your business running. Your expenses might be your cost of goods sold, insurance, rent, office supplies, and payroll. Your expenses go on your profit-and-loss statement and can be used for tax deductions. It is essential to keep expense documents such as receipts and invoices to ensure that you can back up your claims on your tax forms.

Expense Category
An expense category is precisely what it sounds like. It organizes your expenses by different types, such as “Cost of Goods Sold” or “Office Supplies.” It makes it easier to track your business’s spending and report on your tax forms.

If you’re looking for a tax accountant and bookkeeper in Grimsby, ON, reach out to the experts at SD Gold Accounting Services. Our focus is on small businesses, and we provide clients with peace of mind by offering accurate and timely bookkeeping services. We serve clients across Grimsby, Hamilton, St Catherines, Burlington, Brantford, Niagara, Kitchener, Windsor, Mississauga, Peel Region, Brampton, Barrie, Innisfil, and the Greater Toronto area.

Please view our complete list of services here, or get in touch with us here.



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