Accounting Terms Explained

Accounts Payable

Also called A/P or Creditors.  Accounts payable are the bills your business owes to suppliers.  See the Bills to Pay screen in Cashbook Complete.

Accounts Receivable

Also called A/R or Debtors.  Accounts receivable are the amounts owed to you by your customers.  See the Invoicing section in Cashbook Complete.

Accrual Based Accounting

Income is recorded when a sale occurs, not necessarily when payment is received.  Expenses are recorded when goods or services are received, even if they are paid later.  Cashbook Complete uses Cash Based Accounting because it is easier to learn and use.

Assets

Things of value held by a business.  Assets are balance sheet accounts.  Examples include furniture, fixtures and bank accounts.

Balance Sheet

Also called a statement of financial position, this is a financial snapshot of a business at a particular time.  It lists assets, liabilities and the difference between them - equity or net worth.

Capital

Money invested in a business by its owners.  Also called equity.

Cash Based Accounting

Income is recorded when payment is received, and an expense when it is paid.  Cashbook Complete uses this method of accounting.

Chart of Accounts

The list of account titles used for accounting records.  Cashbook Complete uses a simplified chart of accounts called Cashbook Categories.

Cost of Goods Sold (COGS)

The cost of items or services sold to customers.

Creditor

A company or individual whom you owe money.  See the Bills to Pay screen in Cashbook Complete.

Credits

One component of an accounting transaction or journal entry.  Credits increase liabilities and equity and decrease assets.

Current Assets

Assets held as cash, or generally expected to be converted to cash or used within one year.  Examples include accounts receivable and inventory.

Current Liabilities

Liabilities payable within one year.  Examples include accounts payable and payroll taxes payable.

Debits

One component of an accounting transaction or journal entry.  Debits increase assets and decrease liabilities and equity.

Debtor

A company or individual who owes you money.  See Invoices Outstanding in Cashbook Complete.

Depreciation

An annual write-off of part of the cost of fixed assets such as vehicles and equipment.  In Cashbook Complete, this is normally handled by your accountant at year end.

Double Entry Accounting

Every transaction has two entries: a debit and a credit.  Debits must always equal credits.  General Ledger accounting programs use double entry accounting.

End of Year Rollover

In older general-ledger systems, profit and loss categories were zeroed and balance-sheet categories carried forward.  Modern systems tend to use open-ended accounting.  See the End of Year procedure in Cashbook Complete Help.

Equity

The net worth of a company.  Also called owner's equity or capital.  It comes from owners' investment plus accumulated profits that have not been paid out.

Fixed Assets

Assets that are generally not converted to cash within one year, such as equipment and vehicles.

General Ledger

The collection of balance-sheet, income and expense accounts used to maintain a business's accounting records.  A general ledger uses double entry accounting and journal entries.  Cashbook Complete uses cash based accounting.

Income Accounts

Accounts used to track sources of income, such as merchandise sales, consulting revenue and interest income.

Income Statement

Also called a Profit and Loss Statement or P&L.  It lists income, expenses and net profit or loss.  Net profit or loss equals income minus expenses.

Inventory (Stock)

Goods held for sale to customers, whether purchased for resale or manufactured.  See Products and Services in Cashbook Complete.

Journal

A chronological record of day-to-day business transactions.  A general journal records adjusting, closing and other special transactions.  See Journal Entries in Cashbook Complete Help.

Liabilities

Amounts a business owes creditors.  Examples include accounts payable, payroll taxes payable and loans payable.

Long Term Liabilities

Liabilities that are not due within one year, such as a mortgage.

Net Income

Also called profit or net profit.  It equals income minus expenses and is the bottom line of the Income Statement.

Profit & Loss Statement

Also called an Income Statement or P&L.  It lists income, expenses and net profit or loss.  This report is available under the Cashbook menu.

Retained Earnings

Business profits that have not been paid to the owners and are retained in the business.

Trial Balance

A list of accounting categories or general-ledger accounts and their totals.  See the Cash Trial Balance report in Cashbook Complete.