Farwah Jafri | August 19 2022
Payables, receivables, depreciations, ledgers, and remittances… have you ever googled fancy terms you find on a balance sheet? Not every business owner has a background in accounting and neither is it mandatory.
As a business owner, your job is to manage, delegate, and supervise. So, you don’t have to be a finance expert to build a successful business. However, it is essential to know the common bookkeeping terms you will find in almost every financial report or sheet.
In this article, you will explore 25 bookkeeping terminologies all business owners should know. Memorize it or bookmark the piece.
Accounts Payable (AP) – You will find this term on a balance sheet tagged as a liability. It entails your business’s unpaid bills and invoices. The money you owe others and have to pay – Accounts Payable (AP).
Accounts Receivable (AR) – You will find this term on a balance sheet tagged as an asset. It is the money people owe your business. All unpaid sales invoices go into AR. The money you will receive – Accounts Receivable (AR).
Accrual Accounting – One of two common accounting methods. The other is cash-based accounting. In accrual accounting income and expenses are fed into the books the day they are incurred. They enter the sheet the day you receive an order or get a bill.
Balance Sheet – A balance sheet entails three things: business equity, business assets, and business liabilities.
Bookkeeping – The process of recording your business cash inflow and outflow is termed bookkeeping – It is the heart and soul of accounting.
Bad Debts – The written-off invoices that are more than likely to be never paid fall into bad debts. After all hope is lost, bad debts fall into business expenses.
Cash Flow – The cash flow shows where your money comes from and where your money goes. It plays a pivotal role in financial forecasting and reporting.
Charts of Accounts – They are the accounts listed in a bookkeeping system or categories on your balance sheet, like COGS, Expenses, Assets, Liabilities, etc.
COGS – COGS or Costs of Goods Sold is a term you will find on almost every balance sheet. It is the cost required to produce/manufacture goods.
Credit – A common yet often mistaken term. Credit is the money you owe a vendor, supplier, or a bank – a business liability.
Deductible – Any purchase that is considered an expense is a business deductible. Classifying deductibles helps you save taxes as some business expenses are tax-exempted.
Depreciation – Almost business asset decreases in value with time. The fall in worth is termed depreciation. They account for reducing your asset value and are considered tax-exempted expenses.
Double-Entry – A bookkeeping method in which all transactions enter the book twice, initially as a debit and then as a credit.
Equity – The total you get after reducing liabilities from assets is equity. It tells how much the business owner has invested from his personal funds.
Fiscal Year – A fiscal year is a financial year. It entails 12 months like the normal year but can begin from any month.
Gross Profits – The total left after deducting the cost of sales from the business income.
Inventory – A stock of items the business purchases or sells classified in categories and labeled aptly.
Journal – An entry made into your business account to edit or correct a previous entry. A common term used in double-entry bookkeeping.
Ledger – Every entry on a chart of accounts (discussed above) has its own separate page; a ledger page. It entails all the entries, debit or credit, made against the account. It is totaled at a month’s end for reconciliation.
Check Out: What is a general ledger in bookkeeping
Markup – A fixed number or percentage by which a business increase goods amount before reselling is termed as markup.
Payroll – A sheet with all the employees’ information managed by payroll experts to pay wages.
Petty Cash – A little money kept in a safe place for little day-to-day transactions. It is kept under the supervision of a bookkeeper and all payments are entered into a petty cash book.
Reconcile – An act of matching financial numbers with bills and receipts at the end of a week, month, or year.
Remittance – A document a customer or client gives a supplier with details of invoices paid.
Tax – There are three types of taxes a business owe the government, state or federal; income tax, payroll tax, and sales tax. The first is a deduction from the earned income, the second is deducted from employees’ wages, and the third includes taxes like GST, HST, and VAT.
Check Out: Startup R&D Tax Credit
Farwah is the Product Owner of Monily. She has an MBA from Alliance Manchester Business School, UK. She is passionate about helping businesses overcome challenges that hamper their growth, which is why she is working at Monily to facilitate entrepreneurs to efficiently manage business finances and stay focused on growth.