Introduction to finance_terminology

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Accounting Terminology

Non-accounting people can get bamboozled by the accounting terms used. Every trade has its own jargon

and accounting is no exception. Accountants need these terms to do their job correctly. For the lay person

it can however be quite daunting. The common accounting terms are listed below, together with notes for

Cashbook Complete users in italics.

Accounting Term

Definition

Accounts Payable

Also called A/P or Creditors. Accounts payable are the bills your business

owes to suppliers. See the Bills to Pay screen in Cashbook Complete.

Accounts Receivable

Also called A/R or Debtors, accounts receivable are the amounts owed to

you by your customers. See the Invoicing section in Cashbook Complete.

Accrual Based Accounting

With the accrual method, you record income when the sale occurs, not

necessarily when you receive payment. You record an expense when you

receive goods or services, even though you may not pay for them until

later. Cashbook Complete uses Cash Based Accounting because it is

easier to learn and understand.

Assets

Things of value held by the business. Assets are balance sheet accounts.

Examples of assets are accounts receivable, furniture, fixtures and bank

accounts. See Balance Sheet Categories in the Categories Setup.

Balance Sheet

Also called a statement of financial position, it is a financial "snapshot" of

your business at a given point in time. It lists your assets, your liabilities,

and the difference between the two, which is your equity, or net

worth. Found under the Cashbook menu in Cashbook Complete.

Capital

Money invested in the business by the owners. Also called equity.

Cash Based Accounting

If you use the cash method, you record income only when you receive cash

from your customers. You record an expense only when you write the

check to the vendor. Cashbook Complete uses this method of accounting.

Chart of Accounts

The list of account titles you use to keep your accounting

records. Cashbook Complete uses a simplified version of a chart of

accounts and is called Cashbook Categories (in the Setup Wizard).

Cost of Goods Sold

(COGS) Cost of items or services sold to your customers.

Creditor

A company or individual whom you owe money to. See the Bills to Pay

screen in Cashbook Complete.

Credits

At least one component of every accounting transaction (journal entry) is

a credit. Credits increase liabilities and equity and decrease assets.

Current Assets

Assets that are in the form of cash or will generally be converted to cash

or used up within one year. Examples are accounts receivable and

inventory.

Current Liabilities

Liabilities payable within one year. Examples are accounts payable and

payroll taxes payable.

Debits

At least one component of every accounting transaction (journal entry) is

a debit. Debits increase assets and decrease liabilities and equity.

Debtor

A company or individual who owes you money. See Invoices Outstanding

in Cashbook Complete.

Depreciation

An annual write-off of a portion of the cost of fixed assets, such as vehicles

and equipment. Depreciation is listed among the expenses on the income

statement. With Cashbook Complete; this is normally done by your

accountant at the end of the year.

Double Entry Accounting

In double-entry accounting, every transaction has two entries: a debit and

a credit (called a journal entry). Debits must always equal credits. All

General Ledger based accounting programs use double entry accounting.

End of Year Rollover

With general ledger based accounting programs, the P & L categories are

zero'd and balance sheet categories are carried forward. This is a term

used in old accounting systems and not used much these days. Modern

accounting systems tend to use open ended accounting. See "End of Year"

procedure in Cashbook Complete Help.

Equity

The net worth of your company. Also called owner's equity or capital.

Equity comes from investment in the business by the owners, plus

accumulated net profits of the business that have not been paid out to the

owners.

Fixed Assets

Assets that are generally not converted to cash within one year. Examples

are equipment and vehicles.

General Ledger

A general ledger is the collection of all balance sheets, income, and

expense accounts used to keep the accounting records of a business. A

general ledger works with double entry accounting and journal entries for

each transaction. Cashbook Complete uses cash based accounting.

Income Accounts

These are the accounts you use to keep track of your sources of income.

Examples are merchandise sales, consulting revenue, and interest

income.

Income Statement

Also called a profit and loss statement or a "P&L." It lists your income,

expenses, and net profit (or loss). The net profit (or loss) is equal to your

income minus your expenses. This is found under the Cashbook menu in

Cashbook Complete.

Inventory (Stock)

Goods you hold for sale to customers. Inventory can be merchandise you

buy for resale, or it can be merchandise you manufacture or process,

selling the end product to the customer. See Products and Service in

Cashbook Complete.

Journal

The chronological, day-to-day transactions of a business are recorded in

sales, cash receipts, and cash payment journals. A general journal is used

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Accounting Terminology Non-accounting people can get bamboozled by the accounting terms used. Every trade has its own jargon and accounting is no exception. Accountants need these terms to do their job correctly. For the lay person it can however be quite daunting. The common accounting terms are listed below, together with notes for Cashbook Complete users in italics. Accounting Term Definition Accounts Payable Also called A/P or Creditors. Accounts payable are the bills your business owes to suppliers. See the Bills to Pay screen in Cashbook Complete. Accounts Receivable Also called A/R or Debtors, accounts receivable are the amounts owed to you by your customers. See the Invoicing section in Cashbook Complete. Accrual Based Accounting With the accrual method, you record income when the sale occurs, not necessarily when you receive payment. You record an expense when you receive goods or services, even though you may not pay for them until later. Cashbook Complete uses Cash Based Accounting because it is easier to learn and understand. Assets Things of value held by the business. Assets are balance sheet accounts. Examples of assets are accounts receivable, furniture, fixtures and bank accounts. See Balance Sheet Categories in the Categories Setup. Balance Sheet Also called a statement of financial position, it is a financial "snapshot" of your business at a given point in time. It lists your assets, your liabilities, and the difference between the two, which is ...
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