Managing your books can be confusing enough without all the accounting terms that get thrown around! Here I explain the most common ones used and explain them to help make things easier for YOU.
Are you tired of pulling your hair out after talking to your Accountant or trying to make sense of what you should be doing with your business finances?
Here I explain some of the most common Accounting terms and how they may apply to you.
Accounts Payable/ Creditors
Accounts Payable is used to describe the amounts owed by the business to pay suppliers, or creditors.
Accounts Receivable/ Debtors
Accounts Receivable is the amounts owing by customers or clients to the business, or debtors. I frequently refer to the process of following up unpaid invoices by clients as ‘Debtor Follow Up’.
A balance sheet is normally included in a bunch of financial reports you receive from your Accountant or Bookkeeper. This is a listing of all the assets, liabilities and owner’s equity in the business at a specific date. You can also run this anytime you want in your accounting system and it will give you a quick snapshot of the balances of your income and expense accounts.
Your bank feed is the automated process in an accounting system where your bank statement is automatically imported in real time so your transactions show up in the system on a daily basis.
Bank reconciliation is performing a check of all the transactions listed in the business records of the bank account, matched against the transactions on the bank statement. Any differences are identified and rectified to ensure both records match.
The income and expenses of the business. Keeping track of your cash flow involves tracking when money comes in and goes out to ensure all expenses are able to be paid in a timely manner. You can find out more about cash flow here.
Chart of Accounts
A chart of accounts is one used all the time and it is frequently misunderstood by many. Put simply, it is a list of all the accounts you can allocate your income and expenses to. These are usually broken down into 5 main groups: Income, Expenses, Liabilities, Assets, Owners Equity.
Drawings are usually when the owner of the business takes an asset of the business. This also covers off the wages for a sole trader – their regular wages are treated as drawings from the cash of the business.
I use this one A LOT! The financial position generally refers to knowing all of what the income is, where all the expenses are, what assets and liabilities are listed. And how much investment/drawings the owner of the business has made.
Owner’s equity relates to any investment that the owner has made into the business.
Profit and Loss
The profit and Loss is a common report that accumulates all the income and expenses and will calculate what the difference is being the profit or loss of a business. Usually income – expenses = profit.
There are so many more, but these are just some of the most common ones I’m sure you’ve come across.
Get your copy of my ‘Easy Steps to Brilliant Bookkeeping’ to move on to the next step of setting yourself up for bookkeeping success.
To find out more about how you can work with me without all the jargon, then contact me and we can discuss how I can help you make sense of your bookkeeping.