The Language Of Finance Around Bookkeeping Made Simple(r)
So We’ve looked at Double Entry bookkeeping here but you’re thinking it might as well be written in Latin. So Ive decided to breakdown the terms of the language to understandable real life situations. you can use this as a quick recap reference to jog/unfog your brain (for proper definitions just google it and some proper accountants will explain/bore you).
So Basically the types of factors that influence your business account can be broken down into 5 groups.
Basically words, so here goes:
Assets (stuff owned, stuff you can sell) are resources that are owned by a business and will/can provide benefit in the future such as:
Cash – obviously a wodge in the bank.
Supplies – Assets we haven’t yet used eg: We own 10 unused pencils. Until you’ve used up all that lead they are an asset.
Accounts receivable – things or money owed to us by others. (Bob owes us ten quid for mowing his lawn).
Inventory – you’re a book seller and you have 50 books to shift. That’s your inventory.
Pre-paid expenses – you’ve paid for not only this weeks delivery of milk. But next weeks. Next weeks milk is already yours.
land – section of ground owned by your business you can do whatever you want on, later in time.
Building – almost more obvious than the example above.
Equipment – if your a gardener, this is your lawn mower, sheers etc.. Stuff you need to do the job.
Expenses – this is the money you have to spend to make your business work eg: The cost of the fuel to get your prized puddings to the local market. These are usually as follows:
Salary expenses – the amount you pay your mate to stand in the stall and sell the products.
Rent expenses – the cost of office rent where you do your accounts in.
Supplies expenses – the costs of all those pencils you’ll need
Interest expenses – the interest on your credit card for buying all the stuff you needed to get started. Cost of loans for example.
Cost of goods sold – cost of individual ingredients for building cakes.
Basically all the bills you need to pay. Basically all the stuff you owe to others, or others need of you. Here are examples:
Accounts payable – you ordered 25 eggs: Bills en route!
Accrued liabilities – you’ve had a bill, its sat on your desk and you haven’t yet paid it.
Notes/Bonds Payable- A written promise to pay for something at a later date (basically an IOU). A loan which will have conditions. The conditions (interest for example) will be put in the expense category (above) and the outright loan will be a liability.
Basically whats left when you pay all you bills (liabilities) and is often considered ‘net assets’. It can be written as Assets – liabillities = Equity.
Earnings – basically if your self employed and own 100% of your company. Every penny earned after every penny spent is your dividend.
Dividend – basically earnings divided up between people who own business, as above but you own 50% of your company and your mate owns 50% you share the above earning between two.
Basically all the inflows of money coming in from each city in your empire before liabilities (bills). Also known as Gross income/revenue. Use this to brag like everyone else does. eg:
Service revenues: You’ve unplugged Mrs Mavis’s sink and she’s given you £30 – that thirty quid added to the other 2 sinks you unplugged that morning means you have a revenue of £90 (£30 per sink x 3 sinks = £90)
Sales revenues: you’ve made 12 teddy bears. you sell 5 of them at £10 each. revenue of £50 = 5 bears x £10 each = £50