Bookkeeping Terms and Basic Accounting Definitions

This saves you time as you do not have to go into the details of knowing the laws yourself. There are many bookkeeping terms which you may be unfamiliar with, here we list most of the terms that are used. Some have links included so that you can research the subject further. Individuals who are successful bookkeeping professionals are highly organized, can balance ledgers accurately, have an eye for detail and are excellent communicators. This comprehensive guide has equipped you with a solid understanding of key concepts and terminologies in the accounting field.

• That documentation may be a receipt, an invoice, a purchase order, or some similar type of financial record showing that the transaction took place.
• A bill of lading is a document that lists the goods being shipped to your business and serves as a contract to help ensure that the correct goods are delivered.
• A bookkeeper ensures that he maintains tax ready financial statements and trial balance.
• If you’re ready to take bookkeeping off your plate and delegate this task to someone else, it can be hard to know where to look.

Often, office management tasks like customer billing, paying vendors and payroll are considered to be bookkeeping tasks. Although accounts receivable, accounts payable and payroll do impact your books, some of these tasks can be managed by a person in your company other than your bookkeeper. Others, like payroll, can be outsourced to independent companies that specialize in the task. Single-entry bookkeeping helps you keep up with all transactions line by line. The problem is that accounting errors are easier to make because there’s no matching system in place.

Gross income

An audit is the examination of an organization’s financial statements to make sure that they are an accurate and fair representation of the company’s transactions. Business transactions can be recorded by hand in a journal or an Excel spreadsheet. To make things easier, many companies opt to use bookkeeping software to keep track of their financial history. Without accrual accounting, your statements would only reflect transactions that have been paid for, which would give an inaccurate picture of your business.

• Capital is the money that is available to fund a company’s day-to-day operations and its future growth.
• If your company is larger and more complex, you need to set up a double-entry bookkeeping system.
• The financial transactions are all recorded, but they have to be summarized at the end of specific time periods.
• A general ledger is a record of a company’s transactions over a period of time that documents changes to revenue, expenses, equity, liabilities, and assets.
• It involves determining the timing and amount of revenue recognition based on generally accepted accounting principles (GAAP) or applicable accounting standards.

Liquidation is the process of ending or closing a business and distributing its assets. A cash receipts journal is a journal that is used to record the receipt of cash from other businesses or individuals. A budget serves as a financial plan that projects an estimate of future expenses and revenue. We provide third-party links as a convenience and for informational purposes only. Intuit does not endorse or approve these products and services, or the opinions of these corporations or organizations or individuals.

Free Bookkeeping Courses to Understand Business Accounts

Debits are accounting entries that function to increase assets or decrease liabilities. They are the functional opposite of credits and are positioned to the left side in accounting documents. Credits are accounting entries that increase liabilities or decrease assets. They are the functional opposite of debits and are positioned to the right side in accounting documents.

Revenues and expenses recognized by a company but not yet recorded in their accounts are known as accruals (ACCR). By definition, accruals occur before an exchange of money resolves the transaction. Effective bookkeeping requires an understanding of the firm’s basic accounts. These accounts and their sub-accounts make up the company’s chart of accounts. Assets, liabilities, and equity make up the accounts that compose the company’s balance sheet. Companies also have to set up their computerized accounting systems when they set up bookkeeping for their businesses.

Accounts Payable

Checks/Cheques that have not been deposited to the bank are said to be unpresented. This term is used most often on bank reconciliations to aid in the reconciling of the cash book with the bank account. The money or value of money involved in all business transactions within the business or at the bank.

When it comes to bookkeeping, it’s important to keep up with employee pay/deductions throughout the year so you can report to the government come tax season. Assets (aka what you own) minus your liabilities (aka what you owe) equals your equities. It basically 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. With Neat, you always have an accurate view of your monthly cash flow.

How A Bookkeeping Service Benefits Your Business?

A loss occurs when the gross profit of a business is less than the expenses the business has to pay to keep the business running. Equity is the net assets of a business – or in other words – Assets minus Liabilities equals Equity. A non deductible
purchase is one that cannot be used to reduce the profit and tax such as when
the owner uses business funds to buy something for personal use. Special pre-printed slips of paper in book format produced by the bank. These are used by a business to pay their bills in place of cash or instead of internet banking.

Companies may also face higher tax rates as their sales and profits rise. By comparison, fixed costs remain the same regardless of production output or sales volume. Overhead (O/H) costs describe expenses necessary to sustain business operations that do not directly contribute to a company’s products or services. Examples include rent, marketing and advertising costs, insurance, and administrative costs. Accountants also distinguish between current and long-term liabilities. Current liabilities are liabilities due within one year of a financial statement’s date.

Investors are often paid in cash, but may also be issued stock, real property, or liquidation proceeds. In most cases, dividends follow a regular monthly, quarterly, or annual payment schedule. The accounting equation means that everything the business owns (assets) is balanced against claims against the business (liabilities and equity). Owners of the business have claims against the remaining assets (equity).

Fixed assets

If you’re looking to convert from manual bookkeeping to digital, consider a staggered approach. Overhauling all at once can be overwhelming and discouraging, so it’s best to take it slow and make meaningful and intentional shifts. Many or all of the products featured here are from our partners who compensate us. This influences which products we write about and where and how the product appears on a page. We believe everyone should be able to make financial decisions with confidence. Assets refers to the items — tangible or intangible — that your business owns and that could be turned into cash.

A general ledger is a record of a company’s transactions over a period of time that documents changes to revenue, expenses, equity, liabilities, and assets. An adjusting journal entry is an entry that occurs in the company’s general ledger at the end of an accounting period to account for unrecognized income or expenses for that period. Accrual accounting Bookkeeping terms is a financial accounting method where a company records revenue when goods or services are delivered or earned and expenses as they are incurred. A trial balance is a statement that tells you if your debit and credits are accurate before you create your financial statements. An accounting period is the time it takes to complete an accounting cycle.

When retained earnings (RE) are positive, they increase the organization’s equity. That equity may then be reinvested back into the business to fuel its future growth. To obtain CPA licensure, a candidate must meet eligibility criteria and pass a demanding four-part standardized exam.

A balance sheet report shows the business owners and managers how much equity is in the business, how many assets the business owns, and what the business owes in liabilities. The process of sorting and entering financial data into a bookkeeping system. Also refers to the finalizing of end of year accounts, producing financial statements and calculating tax payable by a certified practicing accountant. Bookkeeping is the ongoing recording and organization of the daily financial transactions of a business and is part of a business’s overall accounting processes.