Bookkeeping terms and what they actually mean

Bookkeeping blogs are boring … let’s call it out! But, they’re important.

Unless you have a background in accounting, the majority of bookkeeping terms seem like jargon and can be confusing. 

Sometimes all you really need is a little “cheat sheet” to help jog your memory as to what something means.

So here you go!

15 basic accounting terms you should know

Account: In bookkeeping, an account is a record that tracks financial transactions related to specific elements of the business, such as assets, liabilities, revenue, and expenses. Each account is used to categorize and summarize transactions, making it easier to analyze the financial health of the business. Not to be confused with a bank account!

Accounts Payable: It’s what you owe people! It represents the money you owe to suppliers and creditors for goods and services purchased.

Accounts Receivable: It’s the money people owe you! It's the cash that's coming your way from customers who owe you for the goods or services you've invoiced for. 

Assets: Resources owned by the business that have economic value, such as cash, inventory, equipment, and property. This can include land, buildings, machinery, vehicles, COMPUTERS, phones. etc. Yup! You have assets!

Balance Sheet: The balance sheet is a financial statement that shows all of your assets (what you own), all of your equity and all of your liabilities (what you owe). It helps you understand what the overall financial health of your organization looks like. 

Cash Flow: It’s the movement of money in and out of your business. It's like the financial rollercoaster of your business—money coming in, money going out, and hopefully not too many loop-de-loops along the way! Cash Flow Statement: You guessed it! It’s the statement that tells you what your cash flow is!

Debits and Credits: Fundamental accounting terms used to record transactions. Debits are the money leaving the company. Credits are the money coming into the company. 

Equity: Just like your house has equity, so does your business! This is the owner’s interest in the business (assets minus liabilities).

Expenses: Anything you spend your money on in the process of running your business: rent, salaries, utilities, interest fees on any credit cards, rent, vehicle lease/loan, auto repairs & maintenance, gasoline, mileage, insurances, utilities, office supplies, internet, web based apps, meals & entertainment, advertising, etc. These are expenses incurred to run the business only – MY GOLDEN RULE – Keep business business and personal personal. So no… Netflix is NOT an expense!

Inventory: The goods and materials a business holds for the purpose of resale. Basically… what you have in stock that you will either sell OR use to make your product to them sell.

Liabilities: Debt you owe to other people, including loans, accounts payable, deferred revenues, mortgages, etc.)

Net Income (profit): It's what's left in your wallet after you've paid the bills and treated yourself to a latte or two AND paid the government what you owe them. Also referred to as net profit or net earnings.

Profit and Loss (income statement): A financial statement that summarizes the revenues, costs, expenses and profits/losses of a company during a specified period to show the net income or loss. 

Revenue: It's the big, fancy term for all the cash your company makes from selling stuff (goods or services). Money coming in! It also includes money that comes in from other sources: interest you earn on bank accounts, cash back rewards etc. 

Reconciliation: This is where you go through your account statements and make sure everything matches what you have in your records, you know what everything is and you have the receipts. 

While it's beneficial to grasp bookkeeping terms when diving into the process, let's not overcomplicate things with unnecessary jargon. 

Yes, understanding the basics of bookkeeping is important, but don’t overcomplicate it.

For smooth sailing, just record transactions correctly, categorize them accurately and keep proper documentation. Simple as that, no need to drown in bookkeeping jargon!