Bookkeeping Accounting Glossary of Financial Terms
We created this bookkeeping accounting financial terms glossary because its useful to understand the commonly used financial terms. These are a few important examples however its by no means a complete list of all bookkeeping accounting terms. It’s helpful to know a balance sheet from a balance date or forecast from your end of year financials etc.
Without a basic understanding of such, running a business will be challenging at best. We’ve kept the financial terms as relevant as possible with respect to our client base. For example we don’t concentrate on dealing in property accounting. Therefore there’s little to no point including financial terms specific to that field here.
We also didn’t include a number of the fairly obvious bookkeeping accounting terms like budget, debt, interest and tax. We may alter or introduce other examples in the future should we see the need. If you’d like to see more bookkeeping accounting financial terms within this glossary then please let us know. We’ll even add the four excluded above if you’d like to see them listed.
- Accounts Payable – The term relates to unpaid supplier invoices and or other bills owed by the business to other parties. Accounts payable appear on the balance sheet as a liability.
- Accounts Receivable – This relates to any invoices and or money owed to the business from their clients. Accounts receivable show on the balance sheet as assets.
- Assets – These items are of value, owned by the business and include cash, accounts receivable, vehicles, property, furnishings etc.
- Audit – An independent auditor, or tax official undertake this to find out if the financial records are correct.
- Bad Debt – These receivables get written off when invoices are unlikely too be paid. A company should make a concerted effort to collect outstanding funds. Any such bad debt becomes a cost and or expense.
- Balance Date – Typically the financial year commences April 1st to March 31st, also known as the balance date.
- Balance Sheet – This shows the assets a business owns, what it owes and equity owners have in their business. It’s relevant as of the date shown.
- Capital – This is wealth in the form of money or property owned by a business whether land, buildings or otherwise.
- Capital Gain – The amount financially gained when an assets sold above its original price.
- Cash Flow – This describes cash moving in and out of the business. It shows how a business receives and spends cash using the business statement of cash flow.
- Chart of Accounts – This is an index to classify transactions within the business accounts. Each account represents a type of transaction like an asset, liability, income, expense etc.
- Cost of Sales – When selling product this figure can also be called the Cost of Goods Sold.
- Credit – Crediting either increases equity or liability within the account or decreases expenses or an asset.
- Debit – Debiting either increases expenses or assets within the account or decreases equity or a liability.
- Default – This reflects the failure to pay a loan and or any other debt obligation.
- Depreciation – This is when you’re accounting for assets which decrease in value over time.
- Double-entry bookkeeping – A bookkeeping accounting method recording transactions in two accounts, once as a credit and once as a debit.
- Drawings – They resemble wages and paid from the business for personal expenses.
- Equity – This appears on the balance sheet and represents shares, retained earnings or accumulated losses.
- Expenses – This represents money spent to run a company however it’s not reflective of the sale of goods or services.
- Financial Statement – A summary of a businesses financial position for a given period. Financial statements can include a profit and loss, balance sheet and cash flow statement.
- Financial Year – (see balance date)
- Fixed Asset – These are items of value which enables the business to run. The cost price less deprecation commonly called the book value shows on the balance sheet.
- Forecast – This is an educated prediction of the future financial transactions so to plan a precise budget we use forecasting.
- General Ledger – This is a summary of the company accounts.
- Goodwill – This is an intangible asset that represents the value of a businesses reputation.
- Gross income – This is the money earned by a business before expenses get deducted.
- Gross profit – This is the difference between sales and the direct cost of making sales also called net sales.
- Guarantor – A person who promises to pay a loan in the event the borrower cannot meet their repayment obligations. The guarantor is legally responsible for this debt should the borrower fall behind or fail to pay altogether.
- Insolvent – A business or company is insolvent if they cannot pay their debts when due.
- Inventory – This is a list of items which the business buys and or sells. A stock count’s required to accurately manage this.
- Investment – Shares and property purchased for the purpose of earning money is an asset.
- Liability – This resides on the balance sheet and came by way of debt the company owes. It includes accounts payable, outstanding loans and credit card balances.
- Line of Credit – An agreement allowing a borrower the ability to withdraw money from their account to an approved limit.
- Liquidate – This means quickly selling the company assets converting them into cash.
- Liquidation – This is the process of winding up an insolvent company. An appointed administrator will do this by ceasing business operations, selling assets, paying wages plus creditors and shareholders where possible.
- Liquidity – This is how quick assets can convert into cash if required.
- Margin – The difference between sale price of goods or services and profit. It’s the precise proportion of profit per dollar and generally worked out as a gross margin percentage.
- Mark-Down – Discounts applied to one or more products during company promotions. It’s for the purposes of attracting sales or for shifting surplus by way of discontinued prices.
- Net Assets – Also known as net worth or shareholder’s equity, it’s the total assets minus total liabilities.
- Net Income – The total business earnings after tax and other deductions is the net income.
- Net Profit – This is the total gross profit, minus all business expenses also known as the bottom-line.
- Overdraft – This is a finance arrangement where a lender allows a business to withdraw more than balance of the account.
- Overdrawn – This is when the credit account exceeds its limit or bank account had more than its remaining balance withdrawn.
- Overheads – This represents the business operating costs such as administration, rent, marketing and utilities.
- Petty Cash – Today cash book records for small cash purchases commonly use a debit card connected to the main account.
- Plant and Equipment – These are a group of fixed assets and used during operation of business. They may include but not limited to furniture, vehicles, computers and other tools.
- Principal – This is the amount on loan or the rest of the original borrowed amount owing. The principal excludes interest on the amount borrowed.
- Profit & Loss – The P&L is a formal statement of income. It shows a summary of the financial activity between two points in time. The revenue earned has cost of goods sold and expenses subtracted and concludes with the net profit or loss.
- R&D – This means Research and Development. Businesses use R&D to create new products and or improve how they run.
- Reconciliation – a cross-check that ensures the amounts recorded in the cash-book match the relevant bank statements.
- Revenue – This reflects the turnover, being the money coming into a company from goods or services sold before tax deductions.
- Security – If a loan cannot be repaid the lender takes possession of this collateral, also known as assets.
- Stock – It includes goods for sale and materials for use which the business has on hand.
- Stock-Taking – No, this doesn’t mean taking company stock. It’s a process involving a regular physical count of merchandise and or supplies physically held by a business.
- Tax Invoice – The supply of goods or services requires an invoice, likewise claiming GST requires a valid tax invoice.
- Trial Balance – This report’s used to make sure the account balance is correct before application. It’s to help make sure information in financial statements and or the closing off for a financial period is correct.