..and Basic Accounting Definitions
Discover the meaning of bookkeeping terms, words and phrases.
This dictionary-style, alphabetical layout will help you easily find the word you need.
If you don't see the one you are looking for, contact us and we will let you know what it means, plus add it to this list.
Items of value owned by a business.
Assets are found on the balance sheet and include cash in the bank accounts, cash in petty cash box, accounts receivable, equipment, land and buildings, vehicles.
The place where
financial entries of a similar nature are recorded, for example the 'Sales' account is where business income goes, the 'Stationery' account is where all pens, paper, staplers etc go.
A list of account names is called the Chart of Accounts.
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.
The double entry method of bookkeeping is based on the accounting equation, which is:
equity = assets minus liabilities
The person who sorts and enters financial data to a bookkeeping system. People often inter-change bookkeeper and accountant to mean the same thing. Also refers to the person who does the annual financial statements and tax calculations.
Unpaid supplier invoices and bills (that is money owed by the business to other businesses) are grouped under Accounts Payable - 'AP' for short - and are found on the balance sheet as a liability. Once a bill is paid it is removed from this group.
Accounts Receivable (A/R):
Unpaid sales invoices (that is money owed to the business by customers) are grouped under Accounts Receivable - 'AR' for short - and are found on the balance sheet as an asset. Once the customer pays their invoice it is removed from this group. Also see Accounts Receivable Definition
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 balance sheet falls in line with the accounting equation.
of collating, recording and reporting on the financial transactions carried out
by a business.
A trained and qualified person who does the bookkeeping process mentioned above.
financial institution where businesses deposit their earnings and from which they pays their bills. Banks provide business advice and can advances loans to businesses for growth.
financial plan in which a business decides what it estimates it will earn in
the year ahead, what those estimated earnings will be spent on, and then
comparing/monitoring the actual figures against this plan.
These are sales invoices that have been written off because the payments are overdue and never likely to be paid. Sales invoices are only written off after some effort to retrieve the funds including going through debt collection agencies. Bad debts are expensed in the accounts.
electronic copy of the financial data. This could be either to a cd disc, usb
drive or some sort of cloud storage. Backups are vital to preventing loss of
data if the computer crashes. The last thing you want to do is spend hours re-entering all the transactions for the previous months and re-do the bank reconciliations and everything else.
Taking cash and checks/cheques to the bank to deposit into the business bank account.
Invoicing customers for goods or services they have purchased from the business.
A report which the bank produces listing in date order all the money received and all the money paid out of the bank account, ending with the balance of cash in the account.
A bookkeeping cycle is usually based from the 1st day of the month to the last day of the month, and repeats every month. Bank reconciliations are done to the end of the month, financial reports produced for the month, sales tax and payroll tax calculated for the month. The month end is ‘closed off’ and financial transactions for that month should not be changed in any way except by reversing/correcting journals and only carried out in the next month. This goes on for 12 months until the end of the financial year when all the data is sent to a chartered accountant.
Credits can be found on the right hand side of the double entry method of bookkeeping. A credit entry decreases assets and expenses, and increases income, liabilities and equity. Also, money that is owed by a business to a supplier/vendor is called credit. When you want to open an account with a supplier you would most likely fill in what is called a Credit Application. Credit is also money that is owed to a bank on a credit card.
The personal funds a business owner introduces to their business so that it can operate.
The list of
accounts set up in a bookkeeping system into which all the financial
transactions are categorized. The main categories are:
Assets, Liabilities, Equity, Income, Cost of Goods Sold and Expenses
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. These notes are completed by the business by entering the date, the name of the person/business being paid and the amount in numeric value and word value. They have to be signed by the authorized signatory of the bank account and usually expire 3 to 6 months after the date issued. It is safe to send cheques in the post, unlike cash which can be stolen.
document that provides a refund to a customer for goods returned or sold at the wrong price.
The movement of cash through the business; this report details how cash flowed into the business and what it was spent on. Estimations can also be made in a cashflow 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 their sales goals and budget.
The final balance on the bank statement or in the cashbook or ledgers at the end of any given day.
Also known as cost of sales. This is the
cost to the business of any parts or stock that are sold to customers. This
can also include the manufacturing costs of such products.
The main book in which is recorded all the funds moving in and out of the business through the bank account. The cash book always contains the following information for all of these transactions: date, amount, description of transaction, bookkeeping account as per chart of accounts and reference .
or business to whom our business owes money for purchases made.
payment is made into a bookkeeping account, and then that same payment is paid
out of the account for a reason, it is called a contra – the two figures contra
each other out i.e. they cancel each other out of the account.
Example: $200 was paid into the Sales account. The bookkeeper realised
that he should have used a different account so he pays the $200 out of
the Sales account. This is the contra.
term used to describe the allocation of a transaction amount to an account in
the chart of accounts.
a business transfers their bookkeeping records from one accounting software
program to another they are ‘converting’ their books. What they do is take the
closing balances from the old software and enter them into the new software as
opening balances. These are called conversion balances.
Chartered Practicing Accountant (CPA)
who trains and qualifies in advanced financial care of a business, particularly
specializing in collating and preparing annual financial reports, income tax
preparation and filing, and providing advanced advice on how to improve and
grow businesses in accordance with tax laws and other legal implications. CPA’s
can provide support to and work along with bookkeepers to ensure all the
financial data is being entered into the bookkeeping system correctly to make
tax preparation easier.
The method of bookkeeping in which all financial transactions are entered twice – once as a debit and once as a credit. All the debits need to equal the same as the credits. If they don’t it is called being out of balance and the error will need to be found.
balance is found on the left hand side of double entry bookkeeping. A debit entry increases assets and expenses,
and decreases income, liabilities and equity.
customer that owes your business money.
financial information found inside the bookkeeping system.
(cash or cheques) is paid into a bank account it is called a deposit.
The bit of
paper that accompanies the cash or cheques and which details what bank account
the funds should be paid into, the amount of the deposit and the date of the
assets belonging to a business decrease in worth over time due to wear and tear
and daily use – this is depreciation. The value that is used to depreciate the
assets is calculated with special rates set by the tax department. It is
usually a percentage of the cost price, less previously calculated
depreciation. Depreciation can be claimed as a business expense to reduce income
purchase that can be claimed as a business expense is called a deductible
expense because it has the effect of reducing the business profit, therefore
reducing the amount of income tax owed to the government. 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
that contains information about a product sold from one business to another,
such as a delivery docket.
of a financial transaction that describes the item or service purchased or
Funds withdrawn from a business by the business owner for their personal use.
Remember, if you cannot find the bookkeeping terms you need to know about, drop us a line.
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