At Symmetrical Solutions, we strive to help business owners spend less time on that other stuff so that you can spend more time working on the parts of your business that you LOVE, and we’ve compiled this list of straightforward bookkeeping terms for you. This will help you easily understand the financial aspects of your business and its performance.
Accounts Payable: the amount of money owed to other businesses, such as suppliers, goods, and services. For instance, if you own a quilt shop, your accounts payable would include costs for the fabric companies you use to supply your shop.
Accounts Receivable: the flipside of accounts payable, from a bookkeeping terms perspective. AR is the amount of money owed to you from your customers for your products and services, such as unpaid invoices. Every time you send an invoice, you increase your accounts receivable amount. Every time an invoice is paid, you decrease your accounts receivable amount.
Accruals: costs you’ve incurred but have not paid yet, OR sales that you have made that have not been paid yet by your customers. Businesses sometimes operate under an accrual accounting model, which means transactions are recorded when they occur. They may also operate under a cash accounting model, in which the transaction is only recorded when payment is made.
Assets: items that could be transitioned to cash if need be. These include things like land, vehicles, machinery, etc.
Balance Sheet: the financial statement that gives an overview of your business’ performance at a given time. It includes a comparison of the company’s assets (what is owned) and liabilities (where the company owes money). Reviewing a balance sheet is a quick way to digest the overall financial health of your organization.
Cash Flow: the money flowing in and out of your business as income and expenses. You’ll want cash flow to be positive, but know that this is an area where many business owners fail to properly track!
Cost of goods sold: the cost that is used to create your products to sell to your customers. In the quilt shop example above, the fabric that’s used to create a quilt that will be sold would be included as part of the cost of goods sold.
Depreciation: the decline in value of an asset. As an asset depreciates, part of the asset’s value reclassifies into an expense. For instance, a patent is only enforced for a number of years.
Equity: the calculation of assets versus liabilities, or a comparison on what the company owns verses what money the company owes. Equities tell you what your business is worth after you pay back your liabilities.
Expenses: the costs to keep your business running. This includes things like your rent, office supplies, cost of goods sold, employee payroll – just to name a few examples! Your expenses can also be used as tax deductions.
Liabilities: anything your business owes to another party – be it your mortgage to a bank, a loan on a car, supplies, or unpaid bills.
Overhead: business costs not directly related to creation of your products or services. Insurance, rent, and administrative costs all make up your company’s overhead.
Profit/Loss: after all your expenses have been deducted, if this number is positive – you have a profit! If not, you have a loss. A profit and loss statement is a document which highlights profits and losses of a business over a particular time period.
Reconciliation: the act of recording transactions in and out of your bank accounts, and moving them to the proper categories in your accounting system.
Revenue: the money received from purchase of your product or service, or by earning interest on loans or by selling assets. Revenue is often confused with profit.
Got bookkeeping terms you don’t understand? Reach out to us — we’d love the opportunity to help you make sense of your finances!