Small Business Accounting Language & Terminology You Should Know

Not Understanding Accounting Terms Can Doom Your Growing Business

Most business owners and managers view accounting as a necessary evil, many of them proclaiming that it’s ‘all Greek’ to them.  The mumbo-jumbo and jargon of the accounting industry is somewhat of a perplexity to most folks.  Let’s look at the language and terminology of the accounting industry that you should know.

  • Account. An account is the financial information for one particular customer.  For instance, for regular customers, an account would reflect their payments, purchases, and debits.
  • Accounting.  The term ‘accounting’ is a general term that refers to the process of tracking business income and expenses, and then plugging these numbers into various formulas and calculations in order to glean a better look at the status of a business, and about its finances.
  • Accounts payable.  The amount that a business owes is known as its accounts payable.  This can include purchases made on credit, unpaid utility bills or rent, and so on.
  • Accounts receivable. The amount that the business expects to receive is known as its accounts receivable.  This includes money that is owed to the business, and any sales that the business made to customers and clients on credit.
  • Accrual method.  This type of accounting system accounts for both expenses and income that are earned or that are incurred within a twelve-month period.  This period may not be when the expenses of income were paid or received.
  • Bad debt.  When someone owes a business and the debt cannot be collected, it is known as bad debt.  Bad debt is considered an operating expense and can be deducted as such.
  • Balance sheet.  The balance sheet is a document that lists a business assets, liability, equity or net worth.  This is the difference between the value of the business’ assets and the total of the business’ liabilities.
  • Bookkeeping.  The term ‘bookkeeping’ refers to the tasks of recording various dates, amounts, and sources of business revenues and business expenses.  Bookkeeping can be considered as the beginning point of the accounting process.  Accurate bookkeeping allows for accurate business accounting.
  • CFO.  Chief executive officer.
  • Cash flow.  The excess amount of cash above the cash outlay within a particular period of time.
  • Cash method.  This type of accounting system accounts for both expenses and income as they are actually paid or received.
  • Controller.  Someone who maintains business accounts and audits those accounts.  An accountant is a controller.
  • Double-entry. This type of accounting system involves recording each business transaction twice, with each entry being listed as a debit and then a credit, or vice versa.
  • Internal control. The internal accounting procedures that are in place to safeguard assets from fraud and ensure efficiency.
  • Invoice.  The invoice is a record of a particular transaction, sometimes submitted to a client or customer when a payment request is made.  The invoice may also be called a statement or bill.
  • Ledger.  The ledger is a collection of related financial information.  There are accounts payable ledgers, accounts receivable ledgers, expenditures ledgers and more.  Ledgers were once an actual book that would be written in by hand.  Today’s “books” are electronic and kept on a computer.
  • Net income.  Net income is the gross income minus any expenses that the business has.  The net income will represent the profit the business made for a specific year.
  • Receipt.  A receipt is a written record of a particular transaction.  The buyer of a product or service will receive a receipt to show what he paid.  The receipt is often known as a sales slip.