Important Bookkeeping Terms Small Businesses Should Know

Updated: Mar 28

Bookkeeping is the boring but vital part of every business, both large and small, that many people overlook or try to get through as quickly as possible, rather than as accurately as possible.


There are bookkeeping terms used which may seem discouraging and complicated, but once you learn them it isn’t really that hard. Here are some of the important terms you need to know.


Accounts Receivable & Accounts Payable

This is easy – Accounts receivable is the money your customers owe you. This is considered an ‘asset’, (see below). Once a customer pays, the invoice is removed from this group.

Accounts payable is the money you owe suppliers, other businesses etc. This is considered a ‘liability’, (see below). When you pay, this is removed from this group.


Asset & Liability

An asset is any item belonging to your business that has a countable value. This includes land, buildings, equipment, vehicles, inventory, money in the bank, cash in the till and ‘accounts receivables’.


Liability is the opposite of asset. It is debt, be this money you owe suppliers, (even if you have an arrangement to pay every 60 days, until you pay it is considered a debt in bookkeeping parlance), loan repayments, salaries and so on. Anything you have not yet paid, but must pay, comes under this heading.


Balance Sheet

A balance sheet shows the balances of what you owe and what you are owed. It has your assets and liabilities. You can see that you are owed 100 and owe 40 at a glance. This lets you keep up to date with how your business is doing.


Break-Even Point

The point at which you cover your expenses.


Cash Flow

‘Cash flow’ is what it seems, the movement of cash in your business.


Equity

This is a practical valuation of your business. You take your liabilities out of your assets and are left with Equity.


Expenses

‘Expenses’ are simply the costs you have; purchases, wages, overhears such as rent, utilities and so on.


Liquidity

Money available to use, or assets than can be converted into cash.


There are about 20 more terms you should learn, but start with these and progress from there – or perhaps a more interesting alternative is to let us at Probookkeeping help you organise your books.

#BalanceSheet #Bookkeeping #ProfitampLoss

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