- About BCI
January 8th, 2015
When it comes to accounting, there are a few terms that every bookkeeper must know. Whether you’re applying for a job as a bookkeeper or you’re starting your own business, here are some of the most important terms used in accounting.
Often shortened as “payables,” accounts payable refers to company debts that are owed to creditors, such as suppliers or banks. This is often expressed as a current liability on a company’s balance sheet.
An asset on the balance sheet, accounts receivable is considered revenue that has not yet been collected for products sold or services rendered. Sometimes called “receivables,” this income is the result of sales made on credit.
Assets are considered resources and physical property owned by a company. For example, assets may include cash, receivables, buildings, vehicles, and land. An asset can be current or fixed. Current assets are things that can be depleted within a year, such as cash. Fixed assets, on the other hand, provide value for more than a year, such as a computer.
A balance sheet is a financial statement that shows a company’s current assets, liabilities, and shareholder’s equity. In other words, accountants and bookkeepers use the balance sheet to report what a company owns (assets), how much it owes (liabilities), and the amount invested by shareholders (equity).
This is the cost associated with manufacturing a product that a company sells and includes materials as well as labor. Also called “cost of sales,” COGS doesn’t include the cost of distribution.
Credit may refer to borrowing funds from a lender with the intent to reimburse the full amount plus interest at a date in the future. As an accounting entry, a credit can either decrease assets or increase liabilities and equity. In a T-account, a credit affects the right side.
A debit is an increase to a company’s assets or a decrease to liabilities or equity. When a debit entry is made, it’s recorded on the opposite side of a credit entry—i.e. the left side of the T-account.
Double-entry accounting is a system that records two entries—debit and credit— for every transaction. This method is used to balance the basic accounting equation:
Assets = Liabilities + Equity
Shareholder’s or stockholder’s equity is the difference between a company’s assets and liabilities. In general, equity is the amount shareholders have invested into a company.
Equity = Assets – Liability
An expense is the cost of operating a business in an effort to earn revenue. Examples include employee salaries, depreciation, and payments to creditors.
GAAP is a set of standards and procedures that every company must follow when reporting financial accounting information. When comparing the financial health of two companies, accounting standards are crucial to the success of the economy because investment decisions are based on financial statements that adhere to GAAP.
The income statement is a financial record that shows a company’s total revenue and expenses. It’s also called a “profit and loss statement” or a “statement of revenue and expenses.” For business owners and CEOs, the income statement is a snapshot of a company’s financial health.
A liability is a general term that describes money or services still owed by a company. It can also be expressed as an equation:
Liabilities = Assets – Equity
Revenue is income received from the sale of goods or services.