1 REAL ACCOUNTS DEBIT WHAT COMES IN CREDIT WHAT GOES OUT NOMINAL ACCOUNTS DEBIT ALL EXPENSES AND LOSSES CREDIT ALL INCOMES AND REVENUES

PERSONAL ACCOUNTS DEBIT THE GIVER CREDIT THE RECEIVER

2 REAL ACCOUNTS DEBIT WHAT COMES IN CREDIT WHAT GOES OUT NOMINAL ACCOUNTS DEBIT ALL EXPENSES AND LOSSES CREDIT ALL INCOMES AND REVENUES

PERSONAL ACCOUNTS DEBIT THE RECEIVER CREDIT THE GIVER

Terminology of a/c 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

With the accrual method, you record income when the sale occurs, not necessarily when you receive payment. You record an expense when you receive goods or services, even though you may not pay for them until later. Cashbook Complete uses Cash Based Accounting because it is easier to learn and understand.

Assets Things of value held by the business. Assets are balance sheet accounts. Examples of assets are accounts receivable, furniture, fixtures and bank accounts. See Balance Sheet Categories in the Categories Setup.

Balance Sheet Also called a statement of financial position, it is a financial "snapshot" of your business at a given point in time. It lists your

assets, your liabilities, and the difference between the two, which is your equity, or net worth. Found under the Cashbook menu in Cashbook Complete.

Capital Money invested in the business by the owners. Also called equity.

Cash Based Accounting If you use the cash method, you record income only when you receive cash from your customers. You record an expense only when you write the check to the vendor. Cashbook Complete uses this method of accounting.

Chart of Accounts The list of account titles you use to keep your accounting records. Cashbook Complete uses a simplified version of a chart of accounts and is called Cashbook Categories (in the Setup Wizard).

Cost of Goods Sold (COGS) Cost of items or services sold to your customers.

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

Credits At least one component of every accounting transaction (journal entry) is a credit. Credits increase liabilities and equity and decrease assets.

Current Assets Assets that are in the form of cash or will generally be converted to cash or used up within one year. Examples are accounts receivable and inventory.

Current Liabilities Liabilities payable within one year. Examples are accounts payable and payroll taxes payable.

Debits At least one component of every accounting transaction (journal entry) is a debit. 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 a portion of the cost of fixed assets, such as vehicles and equipment. Depreciation is listed among the expenses on the income statement. With Cashbook Complete, this is normally done by your accountant at the end of the year.

Double Entry Accounting In double-entry accounting, every transaction has two entries: a debit and a credit (called a journal entry). Debits must always equal credits. All General Ledger based accounting programs use double entry accounting.

End of Year Rollover With general ledger based accounting programs, the P & L categories are zero'd and balance sheet categories are carried forward. This is a term used in old accounting systems and not used much these days. Modern accounting systems tend to use open ended accounting. See "End of Year" procedure in Cashbook Complete Help.

Equity The net worth of your company. Also called owner's equity or capital. Equity comes from investment in the business by the owners, plus accumulated net profits of the business that have not been paid out to the owners.

Fixed Assets Assets that are generally not converted to cash within one year. Examples are equipment and vehicles.

General Ledger A general ledger is the collection of all balance sheet, income, and expense accounts used to keep the accounting records of a business. A general ledger works with double entry accounting and journal entries for each transaction. Cashbook Complete uses cash based accounting.

Income Accounts These are the accounts you use to keep track of your sources of income. Examples are merchandise sales, consulting revenue, and interest income.

Income Statement Also called a profit and loss statement or a "P&L." It lists your income, expenses, and net profit (or loss). The net profit (or loss) is equal to your income minus your expenses. This is found under the Cashbook menu in Cashbook Complete.

Inventory (Stock) Goods you hold for sale to customers. Inventory can be merchandise you buy for resale, or it can be merchandise you manufacture or process, selling the end product to the customer. See Products and Service in Cashbook Complete.

Journal The chronological, day-to-day transactions of a business are recorded in sales, cash receipts, and cash payment journals. A general journal is used to enter period end adjusting and closing entries and other special transactions not entered in the other journals. In a traditional, manual accounting system, each of these journals is a collection of multi-column spreadsheets. See "Journal Entries" in Cashbook Complete Help.

Liabilities What your business owes creditors. Examples are accounts payable, payroll taxes payable, and loans payable.

Long Term Liabilities Liabilities that are not due within one year. An example would be a mortgage payable.

Net Income Also called profit or net profit, it is equal to income minus expenses. Net income is the bottom line of the income statement (also called the profit and loss statement).

Profit & Loss Statement Also called an "Income Statement" or "P&L." It lists your income, expenses, and net profit (or loss). The net profit (or loss) is equal to your income minus your expenses. This is found under the Cashbook menu in Cashbook Complete.

Retained Earnings Profits of the business that have not been paid to the owners; profits that have been "retained" in the business.

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

 

Basic termsss

Prior to actually beginning work as an accountant, there is generally exposure to accounting terminology and concepts; whether in the form of classroom instruction or as an intern with on-the-job training.  However, rather than risk the possibility of an individual beginning work as a bookkeeper, or an accounting intern, without the necessary understanding of basic terms and concepts, we will provide a brief overview.

When you get past the automatic block that many individuals put up upon hearing the word “accounting”, the basic concepts and terms are quite easily grasped.  (I personally believe the terms used in learning to calculate baseball statistics is more complicated than accounting terminology).

Debits and CreditsEvery single transaction recorded in the accounting process falls into one of two categories: it is either a debit or a credit.   We could use the official definitions here, but I prefer to keep absorption levels (and interest) high, so we are going to use very simple definitions and examples.  A debit is a transaction of value “added” to an account.  A credit is a transaction of value “removed” from an account.  Debit, value is added.  Credit, value is removed.  For example, in your checking account, a deposit is a debit, a check is a credit. This is as simple as the definition gets in practical application.  How you apply those transactions, depends upon the type of account you are working with.

AccountsOkay, now you will need to know what we mean by >account.  Accounts are simply established to provide a record of individual business transactions as they apply to a certain area or item.  Your personal checking account is established in order to provide a record of individual personal financial transactions you create when you write a check.

All of the accounts are listed in a general ledger.   Today, the actual ledger book has long since been replaced by accounting software that creates a general ledger on the computer.  The concept however has not been altered.  The general ledger is the central location for maintaining all your accounts. Journal entries refer to the posting or entering of the financial transactions to a particular account.

Assets, Liabilities, Equity, Revenue and ExpensesThese are all the different types of accounts the accounting system utilizes.  Assets are accounts that add value to your individual or business worth.  Liabilities are accounts that remove value from your individual or business worth.  Equity is used to identify the individual

contribution of money, or other financial equivalent, invested in individual or business worth.  The revenue account is simply the account that tracks all income generated.  Expense accounts are the individual accounts setup to record the financial transactions that occur, as expenditure, in generating that income.

An example of an asset would be your car.  Your car has a dollar value attached to it.  It adds value to your individual worth.  An example of a liability would be your car loan.  The loan removes value from your individual worth.  The equity in your car would be any money you paid down toward the purchase.  If you use your car to operate a pizza delivery service, the income generated from delivering pizzas would be known as revenue.  Any expense for gas or car repairs would be recorded in an expense account known as “automotive expense”.

Accounting SystemThe reason for establishing any accounting system is to track this information in order to provide for a unified method of “accounting” for all financial transactions as they occur.  Accounting practices give us a way to keep a record, or to give an accounting for your financial transactions.

An accounting system offers a method for checking, balancing, and reconciling all those transactions in order to produce accurate pictures of our financial health.  Profit and Loss Reports, Balance Sheets, and Cash Flow Statements are the end result of compiling all the transactions into meaningful, usable information for individuals and business owners alike.