If you’re new to small business and doing your own bookkeeping or thinking about taking on the services of a professional, Arabon’s quick A-Z guide to commonly-used jargon will get you in-the-know quickly so you can be in control of your bookkeeping sooner. Whatever your situation, it’s important to understand the some of the common language so you can better understand your business financials.
Accounting – the process of identifying, measuring, and reporting financial information.
Accounts Payable (AP) – a record of all unpaid invoices, bills and other creditor payments. Examples of accounts payable include invoices for goods or services, bills for utilities and tax payments due. Sometimes known as trade payables.
Accounts Receivable (AR) – a record of all accounts from customers you sell to but are yet to pay. These customers are called debtors (or trade debtors) and are generally invoiced by a business.
Accrual Accounting – a method in which income is recorded when it is earned and expenses are recorded when they are incurred, all independent of cash flow.
Amortisation – gradual reduction of amounts in an account over time, either assets or liabilities. Typically used for intangible accounts such as trademarks, software or websites.
Assets – property or item with a current or future value that is owned and controlled by a business or individual.
Auditors – third party accountants who review an entity’s financial statements for accuracy and provide a statement to that effect.
Balance Sheet – summary of a company’s financial status as at a single point in time, including assets, liabilities, and equity.
Bankrupt – an individual can be declared bankrupt when they cannot pay their debts and aren’t able to reach an agreement with their creditors.
Business Activity Statement (BAS) – If you are a business registered for GST, you need to lodge BAS. Your BAS will help you report and pay your GST, PAYG instalments, PAYG withholding tax and other taxes. Bookkeeping services will lodge BAS for you.
Bookkeeping – Recording of financial transactions both income and expenditure in an accounting system.
Break-Even Point – the exact point when a business’ income equals a business’ expenses.
Budget – a listing of planned revenue and expenditure for a given period.
Chart of Accounts – an index of the accounts a business will use to classify transactions. Each account represents a type of transaction such as asset, liability, owner’s equity, income and expense.
Credit – entered in the right column of accounts. Liability, equity and revenue increase on the credit side.
Debit – entered in the left column of accounts. Assets and expenses increase on the debit side.
Debt – any amount that you owe including bills, loan repayments and income tax.
Default – a failure to pay a loan or other debt obligation.
Depreciation – recognising the decrease in the value of an asset due to age and use.
Equity – the value of ownership interest in the business, calculated by deducting liabilities from assets.
Expenses – Money spent to operate the company that is not directly related to the sale of individual goods or services.
Financial Year – a 12-month period typically from 1 July to 30 June in Australia.
Financial Statements – a group of reports containing the balance sheet and the profit and loss statement.
Fixed Asset – a physical asset used in the running of a business.
Fixed Cost – a cost that is not part of producing a good or service.
Forecast – a list of future financial transactions. Forecasts help to plan cashflows or develop a more accurate budget.
General Ledger – a record of all the businesses transactions.
Journals – where bookkeepers and accountants record each transaction in the business. Most journals are created automatically by accounting systems when a bill, invoice, pay run or bank transaction is processed. Other transactions are recorded through a manual journal.
Net Profit – also known as your bottom line, is the total gross profit minus all business expenses. This could be your net profit before or after tax.
Overheads – the fixed costs associated with operating a business such as rent, marketing, utilities and administrative costs.
Payroll – payroll is often a key function of a bookkeeper and involves processing pays for employees then reporting aspects of payroll such as superannuation or tax withheld to the government.
Profit – gross income minus expenses.
Profit and Loss Statement – a financial statement listing sales and expenses. Use it to work out the gross and net profit of a business.
Reconciliation – The act of reconciling transactions and accounts against source documents. For example, reconciling receipts against a bank statement.
Return on Investment (ROI) – a calculation that works out how efficient a business is at generating profit from the original equity from the owners/shareholders. It’s a way of thinking about the benefit (return) of the money you invest into the business. To calculate ROI, divide the gain (net profit) of the investment by the cost of the investment. The ROI then becomes a percentage or a ratio.
Revenue – the amount earned before expenses, tax and other deductions.
Statement of Accounts – a summary of amounts owed to a vendor, lender.
Invoice – a list of goods sent, or services provided, with a statement of the sum due for these; a bill.
Trial Balance – a summarised list of all the general ledger accounts (both revenue and capital) contained in the ledger of a business.
This is a fundamental list of commonly used jargon in the bookkeeping and accounting industry. To learn more about Arabon’s services and how we may be able to help you get your small business accounting requirements under control and give you more time back to focus on what you do best, contact Arabon today on 1300 ARABON or visit our website.