Bookkeeping terminology to remember

It may seem a bit overwhelming to try to understand all of the terms that go into bookkeeping. Once all these are boiled down into more easily described definitions, then it’s really pretty easy to do. Understanding bookkeeping terminology is quite important for Tulsa small business bookkeeping or anywhere else, as it makes managing finance quite easy.

What is bookkeeping?

It generally refers to a system recording financial transactions about a business or individual. It includes complete and proper records of every transaction, as follows:

1. Transaction Recording: Maintaining proper records for every financial transaction including sales, purchases, receipts, and payments. Usually, journals or ledgers are used to record transactions.
2. Keeping detailed records for the different types of accounts such as assets, liabilities, income, and expenses is known as account management.
3. Tracking the coming and going of money of a company to ensure it has got sufficient balance to meet its requirements is referred to as cash flow tracking.

Terminologies to remember:

You should keep the following in mind:

1. The money your company owes suppliers or vendors are known as “accounts payable”(AP).
2. “Accounts receivable” is the money that clients or customers have to give to your business(AR).
3. Assets are resources that are valuable and belong to your business. 
4. Liabilities are the amounts that your business has due to  third parties 
5. Equity is the remaining interest of the owner in the business
6. Revenue refers to the flow of money from normal business activities, including sales and charges for services.
7. Expenses: Costs involved in the process of earning revenue. They include salary, rent, etc.
8. A statement showing the net profit or net loss for a specific period by summarising costs, and expenses is called a profit and loss statement also known as a P&L.
9. Balance sheet: A paper in terms of the assets, products, and equity of your business at some point in time.
10. Cash flow refers to the coming and going of money in bookkeeping. When there is more coming in than leaving, that is called positive cash flow.
11. General Ledger: A register containing all the money matters of a business. It is produced by recording the source documents with every booking of accounts.
12. Journal entries: The process of making money entries, such as the debit and credit of the supporting document, in the general ledger.
13. Bank Agreement: A process making sure bank records agree with the accounting of the business.
14. Depreciation: The time when the cost of an asset is more than its expected period of use.
15. Cash maintenance is a method in which income and expenses are recorded at the time real money is received or paid.
16. Management of payroll means the process of managing benefits to employees, salaries, daily pay, and losses.
17. Tax Liability: This is the total amount your business has in tax to government bodies.
18. Invoices: Written demands for repayment of goods supplied or services delivered to clients.
19. Receipts: Source documents providing evidence of a particular amount paid for products or services.
20. The chart of accounts: A complete listing of all the accounts your business has in use when recording financial activities, which are organized by assets, liabilities, equity, revenues, and expenses.

Conclusion

You can confidently administer your own bookkeeping, secure in the knowledge that you understand the terms, and absolutely know the true financial state of your business. Informed business decisions, proper and lawful financial statements, and staying current with various tax requirements all depend on bookkeeping. This task goes to the heart of otherwise much more involved and sophisticated financial management endeavours, such as forecasting, budgeting, and strategic planning.