Accounting Glossary

Some of the terms you may encounter during your bookkeeping research

 

Accounting Software

Quickbooks Online, Xero, Netsuite, Intact, Freshbooks, and Wave are the ones you’ll hear the most often. We CAN work with all of these but we have clients use Quickbooks Online. Xero is a second option, but only if clients insist on using that.
 

Accounts Receiveable

Also referred to as AR, this is the revenue side of things and money that’s owed to the company. AR can be its own department inside companies of companies. Typically, those companies are mid-sized and bigger. If there are receivables or outstanding invoices, that means a customer or vendor owes the company money. You’ll hear the term “Net 30,60, 90, 120+” used and that is to indicate how long the customer has to pay before the invoice is late.
 

Accounts Payable

Also referred to as AP, this is the expense side of things and money that the company owes. Just like AR, it can be its own department. Tasks like managing and paying bills, expense and receipt management, and in general any money that needs to leave the company is within this department.
 

Accrual Based Accounting

An accounting method where expenses are matched with the related revenues and/or are reported when the expense occurs, not when the cash is paid. Much less often will you see companies using this method, even though most should.
 

Audit

An audit is an in-depth review and examination of a company’s records and assets. CPAs typically do them and you’ll also hear the term Audit Firms. That indicates that the firm performs audits. Audits are expensive.

 

Balance Sheet

The report/statement that houses three parts: Assets, Liabilities, and Shareholder Equity. Pretty common term. Details the balance of income and expenditure over the preceding period.

Total assets = Total liabilities + Equity

 

Benefits

When you hear this, think personal, business, and group insurance, health care, and making sure everything checks out with the state and feds.

 

B2B

Business to business.

 

Cash Based Accounting

An accounting method where receipts are recorded during the period they are received and expenses are recorded in the period in which they are actually paid. This is the most common/simpler method.

 

Cash Flow Statements

The report you look at to see where your company’s cash is going and coming from. Pretty important report.

 

Chart of Accounts

It does exactly what it says: it’s the report that lists out all of the different accounts (like assets, liabilities, operating revenues, etc.) within the company. It’s the structure and detail.

 

Class Tracking

A fancy term. Used really to create an easier way to track expenses and costs that are associated with a SPECIFIC department, location, property, event, or project. Think of a construction company that does new house build outs and remodels. Class tracking will help with organization and details, specific to those departments.

 

COGS

Cost of goods sold.

 

Contractor vs. Employee

Independent contractors are self-employed, while employees perform services that can be controlled by an employer (what will be done and how it will be done). The employer has the legal right to control the details of how the services are performed by an employee. If an employer-employee relationship exists (regardless of what the relationship is called), workers are not independent contractors and their earnings are generally not subject to Self-Employment Tax. An employer must withhold income taxes and pay Social Security, Medicare taxes, and unemployment tax on wages paid to an employee. Independent contractors receive a form 1099 at the end of the year, which reports to the IRS how much money was paid to the contractor. In contrast, employees receive a W-2.

 

CPA, Controller, CFO

Terms and titles for accounting people. CPA = Certified Public Accountant. CFO = Chief Financial Officer. Controller = The person overseeing and often times doing the bookkeeping in a company.

 

Dashboard

Like a car dashboard, only related to accounting metrics. botkeeper has one and provides all of its clients with one that is fully customizable. Even cooler, botkeeper can show non-financial and accounting metrics. Clients like this, a lot.

 

Deferred Revenue

Payments received ahead of time for services or goods which have not yet been performed or delivered. Ever sign up for a 12-month service and pay it in full? Deferred revenue is the company keeping tabs on your specific payment that day, but over the next 11 months too.

 

Depreciation Schedule

These break down the depreciation of the firm’s long-term assets. They calculate the depreciation expense for each asset and allocate the cost of each asset over its useful life. Accountants use these schedules not only to compute the expense, but also to track beginning and ending accumulated depreciation.ue-id-here

 

Financial Reviews

Basically a less strict audit. Still done by CPAs, and it’s done to indicate that the company is compliant with GAAP.

 

GAAP

Stands for Generally Accepted Accounting Principles. It’s a collection of commonly-followed accounting rules and standards for financial reporting. Investors, accountants, and folks interested in understanding your numbers prefer companies that follow GAAP.  

 

General Ledger

You can also say GL. This is essentially the place where all the financial info is stored, sorted, and digested. Think of this as a book, and the chart of accounts as the table of contents section. Contains a debit and credit entry for every transaction recorded within it, so that the total of all debit balances in the general ledger should always match the total of all credit balances. If they do not match, the general ledger is said to be out of balance and must be corrected before reliable financial statements can be compiled from it.

 

Inventory Tracking

The method/way around how companies that have swag and items keep tabs on all of it. Excel sheets are common for companies to use in this instance but there are many sites and platforms that are available to help. Think things like Shopify, SOS, and 2Touch. FBA. Fishbowl.

 

Job Costing

Similar to class tracking, but over a defined and specific period. In that construction company scenario, think of the expense and costs associated with remodeling the house at 432 Botkeeper Avenue.

 

Journal Entry

A journal entry is a recording of a transaction into a journal like the general journal. Journal entries for accounting require that there be a debit and a credit in equal amounts. Oftentimes, an explanation for the transaction will be included. The transaction affects both the balance sheet and income statement.

 

Monthly/Month-End Close

Essentially, this is the process of getting everything in order and organized. Typical practice is to organize, process, input, and classify all transactions for the month after the month ends and then generate necessary reports from that info.

 

Nonprofit Accounting

Nothing specifically different for non-profits versus for-profits outside of the fact that non-profits are REQUIRED to get financial reviews and audits at certain thresholds. It varies state by state, so keep that in mind. Here’s a good resource to check in a pinch: Non-Profit Audit and Financial Review Check. Also, the term 501C3 will be used instead of non-profit. That’s just the IRS code indicating it’s a non-profit.

 

Payroll

There’s more to this one than just making sure you get paid twice a month. Tax withholdings, time tracking, sick days, vacations, bonuses, and all the fun stuff that goes into calculating exactly how much you earned.

 

Prepaid Expenses

Future expenses that have been paid in advance. You can think of prepaid expenses as costs that have been paid but have not yet been used up or have not yet expired. The number of prepaid expenses that have not yet expired are reported on a company's balance sheet as an asset.

 

Profit & Loss Report

Summarizes the revenues and expenses generated by the company over the entire reporting period; shows management and investors whether a company made a profit or lost money in that time period. Also called P&L or statement of income.

Revenue - Expenses = Net Income

 

Pro Forma

A report and also a method that typically comes up when a company is going through some significant capital change like a new capital raise, merger, acquisition, or capital restructure. Used to get a sense of the company’s financials and how things may look after such an event.

 

Reconciliations

Making sure the numbers sync up across the board. Typically, it means making sure the accounting software and bank accounts are showing the same numbers. Balancing a checkbook! Reconciliations confirm whether the money leaving an account matches the amount that's been spent, and allows you to make sure the two are balanced at the end of the recording period. Differences may include uncleared deposits/checks, bank service charges, etc.

 

SaaS

Software as a Service
 

Vendor Mapping

Think of vendor mapping as connecting the dots between certain expenses and certain vendors within a chart of accounts. Creates more predictability and visibility of expense allocation.

 

Year-end Close

Undertaken at the end of the year to close out business from the previous year, carry forward balances from the previous year, and open posting accounts for the upcoming year. Year-end closing is part of a company's closing operations and is used to create a company's financial statements.

 

409a Valuations

The process of pretty much figuring out what a company is worth. Companies will typically want to go through a 409a when they start to issue stock and/or start to raise money. 409a’s are often done through financial firms. Also expensive.

 

1099

A 1099 job is a job that is performed by a self-employed contractor or business owner as opposed to an employee. The 1099 form is the Internal Revenue Service form the employer fills out for the person doing the work. It denotes how much money was paid for the service.

 

Leave the Accounting Lingo to Us

Ready to get out of the glossary and back into your business? Botkeeper can handle your bookkeeping from start to finish!