10 Bookkeeping Terms and Why You Need To Know Them

Basic bookkeeping terms are essential, as you will need to understand what you will be dealing with while processing any transactions or recording any expenses done. This also helps you to understand what your bookkeeper in Victoria BC is telling you at the end of each month, and knowing the terms will help you to not feel alienated when he or she explains anything that is related to your business. It will also avoid you from getting lied to or confuse you when your balance does not equal.

There are a few fundamental terms used in bookkeeping, such as:

  1. Accounting period – This explains the time frame for financial information that are being tracked. Most businesses have their accounting period in duration of a month and have their reports done quarterly or annually.
  2. Accounts payable – This tracks any outstanding bills from vendors or individuals where the company buys their goods.
  3. Accounts receivable – This account tracks the sales done through credit, which is where the customer is given credit directly by the store and the payment will be collected at a later date. It has nothing to do with sales by credit card.
  4. Depreciation – This method is to count the value of the business’s asset, which ages over time and has their values decrease. Assets such as buildings and equipment will need to be replaced after a few years.
  5. General Ledger – The notable of the bookkeeping system, this is where the company’s accounts are summarized systematically.
  6. Interest –When a company buys an asset using a loan, the amount to be paid will be added with the interest, which is based on the percentage of the amount that you borrowed. The bank calculates the amount of interest to be added.
  7. Inventory –This is the list of any goods that the company intends to sell to the customers, and each are tracked accordingly during the duration of time.
  8. Journals – This is where the bookkeeper keeps all the business’s daily transactions in a chronological order. There are three active accounts, and all of them have their own account.
  9. Payroll –Salary or payroll, are expenses from the company as this is when they pay their employees. It also includes any payroll to the government, which includes the taxes on behalf of the employees.
  10. Trial Balance – This is the trial stage of balancing out the books before producing the final financial statement report and closing of the book over the accounting period. Any errors should be rectified and redone at this stage.

Please contact me if you need help with your bookkeeping.

10 Things You Need To Know About Bookkeeping

Whether or not you decide to hire a bookkeeper, it’s a good idea to know the basics of bookkeeping. Because good accounts are the basics of a good business, you need to make sure you know what it’s all about to save you not only the trouble of having someone trying to con you, but also save you time and money in having to find for a specialist only when it is tax season.

Here are the 10 things you need to know about bookkeeping.

  1. Bookkeeping Entry – There are two types of bookkeeping entries that you need to understand so you know which one to use for your business. A single-entry bookkeeping is usually for small businesses that have low volume of transactions while double-entry bookkeeping is for businesses that are more complex and deals with high volume of transactions.
  2. How To Record – You will need to specify what type of transactions took place in your business. You will need to have separate records for each type so you will know what went where.
  3. Accounting System – You either use the cash or accrual accounting system. Cash accounting system is used by home or one-person business where you record every transaction when cash exchanges hands. Accrual accounting system is used when credits are involved, either for your customers or when you’re requesting it from your suppliers.
  4. Debits and Credits – These are the records of incoming and outgoing transactions in your business.
  5. Accounting Cycle – This is where you record each transaction as it happens even when the cash is yet to exchange hands. Pretty much like how if you were to keep a diary of what’s happening in your life, these transactions are recorded chronologically in your accounting journals.
  6. Balancing Your Books – This is where your spending and transaction tally. You will record your assets (what you own), your liabilities as well as your equities in order to have an effectively balanced book.
  7. Chart of Accounts – This is a list of accounts you use to define each type of items from which your money is spent on and/or received.
  8. Financial Statements – These are important financial statements for your business. It will help you to file your taxes accurately as well as provide you an insight on how your business is doing.
  9. Bookkeeping Terms – Familiarizing yourself with the common terms in bookkeeping can greatly assist you in doing your books. Even though you will at one point get used to them, it’s good to learn and understand them beforehand.
  10. Software – You can choose to do your bookkeeping with or without a computer. But knowing what the good accounting software you can use are will help you to keep cleaner, more accurate and efficient books.

Are you looking for a bookkeeper Victoria BC? Please contact me as I’d love to help.