A Glossary Of Essential Accounting And Bookkeeping Terms
Every industry has its own language and terms. These words and phrases can be confusing to anyone who is not part of a specific industry's daily operations, and the bookkeeping business is no exception.
So, to help you understand the terms, acronyms, and phrases regularly used when liaising with a bookkeeper, Infinite Accounting Solutions has created this handy reference guide. Here you'll find valuable information allowing you to comprehend and communicate your bookkeeping needs effectively.
Accounts receivable (AR): It refers to the amount of money owed by customers or clients to a business after goods or services get delivered.
Accounts payable (AP): The amount of money a company owes creditors (suppliers) in return for goods or services they have delivered.
Current assets (CA): Are short-term assets that will get converted to cash within one year. Typically, this could be cash, inventory, or accounts receivable.
Fixed assets (FA): Are long-term assets and will likely benefit a company for more than one year, such as real estate, land, or machinery.
Balance sheet (BS): A financial report that summarizes a company's assets (what it owns), liabilities (what it owes), an owner's equity, or shareholder equity at a given time.
Capital (CAP): It refers to a financial asset or the value of a financial asset, such as cash or goods. Working capital gets calculated by taking your current assets subtracted from current liabilities—basically the money or assets an organization can put to work.
Cost of goods sold (COGS): The direct expenses related to producing the goods sold by a business. The formula for calculating this will depend on what is getting produced. However, as an example, this may include the cost of the raw materials (parts) and the amount of employee labor used in production.
Debit (DR): An accounting entry where there is either an increase in assets or a decrease in liabilities on a company's balance sheet.
Credit (CR): An accounting entry that may either decrease assets or increase liabilities and equity on the company's balance sheet, depending on the transaction. There will be two recorded entries for every transaction using the double-entry accounting method: A credit and a debit.
Equity and owner's equity (OE): In the most general sense, equity is assets minus liabilities. An owner's equity is the percentage of stock a person has an ownership interest in the company. The owners of the stock are known as shareholders.
Trial balance: A business document in which all ledgers are compiled into debit and credit columns to ensure a company's bookkeeping system is mathematically correct.
Liabilities (current and long-term): It refers to a company's debts or financial obligations incurred during business operations. Current liabilities (CL) are payable debts within a year, such as a debt to suppliers. Long-term liabilities (LTL) are typically payable over a period greater than one year. An example of a long-term liability would be a multi-year mortgage for office space.
Net income (NI): A company's total earnings, also called net profit. Net income gets calculated by subtracting total expenses from total revenues.
Inventory: Is the term used to classify the assets that a company has purchased to sell to its customers that remain unsold. As these items get sold to customers, the inventory account will lower.
Expense: An expense is any cost incurred by the business.
If you're looking for a bookkeeping firm in Langley, British Columbia, reach out to the experts at Infinite Accounting Solutions.
With many years of experience in the accounting sector, We specialize in mobile bookkeeping. Our team has a thorough knowledge of accounting software, which enables us to render advisory services that are up to date with industry standards.
We offer our services across Abbotsford, Pitt Meadows, White Rock, and Surrey. You can view our full list of services here, read customer reviews here, or get in touch with us here.