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A Glossary Of Common Bookkeeping Terms

Author: ALL-PRO Bookkeeping & Consulting Ltd. | | Categories: Bookkeeping , Bookkeeping Services , Payroll

Bookkeeping Company Calgary

Every industry has its language and terms. These words and phrases can be confusing to anyone who is not part of the daily operations of a specific sector, and the bookkeeping and accounting industry is no exception.

To help you understand the terms, acronyms, and phrases regularly used when dealing with bookkeeping solutions, ALL-PRO Bookkeeping & Consulting Ltd. has created this handy reference guide. Here you’ll find valuable information allowing you to comprehend and communicate your business’s needs effectively.

Accrual accounting

In accrual accounting, you recognize income and expenses when they are incurred, not when they are paid. For example, Mr. S buys a book in December, gets the bill and only pays the bill in January. In accrual accounting, the purchase is recorded and shown on the income statement in December at the date of the bill, not in January when it was paid.

Balance sheet

A balance sheet report shows the business owners and managers how much equity is in the business, how many assets the business owns, and what the business owes in liabilities. The balance sheet falls in line with the accounting equation.

Cash accounting

Cash accounting recognizes income and expenses when paid for, not when they are incurred. Here, Mr. S buys a book in December, gets the bill dated December and only pays the bill in January. In the accounts, the purchase is recorded and shown on the income statement in January, the payment date.

Chart of accounts

This is the list of accounts set up in a bookkeeping system into which all the financial transactions are categorized. The main categories are assets, liabilities, equity, income, cost of goods sold and expenses.

Cost of goods sold

Also known as cost of sales, this is the cost to the business of any parts or stock sold to customers. This can also include the manufacturing costs of such products.

Depreciation

Most assets that belong to a business decrease in worth over time due to wear and tear and daily use. This is depreciation. The value used to depreciate the assets is calculated with special rates set by the tax department. It is usually a percentage of the cost price, less previously calculated depreciation. Depreciation can be claimed as a business expense to reduce income tax.

Fiscal year

A fiscal year is a financial year made up of twelve consecutive months that can begin with any month. It doesn’t have to be January. During this time period, a business will update its bookkeeping records. At the end of the fiscal year, income tax will be calculated on the results of those twelve months of trading.

Journal 

A Journal is an entry that is made into the accounts. Journal entries utilize double-entry bookkeeping to make an adjustment to the accounts, such as if a correction has to be made. The journal describes which account is being debited and which account is being credited, states the date, the reason for the journal and a reference.

Ledger

Each account on the chart of accounts has a ledger page. The ledger page lists all the entries against the account, either as a debit or a credit. The ledger page is totalled at the end of every month.

Undeposited funds

This is an asset account in the bookkeeping system in which money that has not yet been deposited into the bank is entered. A business might receive cash and checks or cheques from several customers in one day. The bookkeeper can receive these payments against each invoice in the bookkeeping system and receive each payment into the undeposited fund’s account. The bookkeeper will then total up the payments and write out a deposit slip for the bank with the total and will take that to the bank. 

Once the bank has placed it into the account and it shows on the bank statement, the bookkeeper can move it in the bookkeeping system from the undeposited funds account to the bank account. Some software has the option of clicking on a ‘transfer’ button, and some software will require you to process a journal entry for this to take place.

Reconcile

Reconciling your books involves matching one set of figures or documents with another set of figures or documents. For example, matching the cash book with the bank account and investigating and fixing any differences, or checking that the business has received all the invoices listed on a supplier’s statement and, if any are missing, phoning the supplier for them.

Margins

Margins are calculated as percentages. One example is the gross profit margin based on sales divided by gross profit, and the result turned into a percentage. Businesses can choose what margins they should have to be able to earn a profit and, based on those margins, decide what prices to sell their products to make this happen.

Markup

When a business buys a stock, they usually increase the price before selling it. This is called a markup. So if Betty buys a bag for $10 and sells it for $15, her markup is $5. Markups are calculated as a percentage of the price it costs to buy it or set as a fixed calculation, such as doubling the cost price.

Net Profit

The result after taking expenses away from the gross profit or loss.

Receipt

When payments are received from customers, a receipt can be issued to them to confirm the details of the payment received, particularly useful for cash payments – the receipt provides proof of payment. Also, everyone gets receipts when shopping with their bank card and swiping the card through the electronic machine at the shop counter. Businesses should keep these receipts in a folder to match them up to the bank statement ensuring an accurate cash book.

If you’re looking for bookkeeping solutions, reach out to the expert at ALL-PRO Bookkeeping & Consulting Ltd. We help our clients handle their finances most efficiently and customize our services for their business needs.

Get in touch with us today

To learn more about what we do at ALL-PRO Bookkeeping & Consulting Ltd., please click here. To get in touch with us, please click here or call us at our Calgary office at (403) 630-0012 or Kelowna at (250) 862-6644



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