Essential Online Bookkeeping Terms for Beginners
Digital records are easier to update and share, and they offer automated tools to help track income and expenses. Therefore, having clear knowledge of the vocabulary makes these benefits more accessible and effective.
Accounts Payable (AP):
Money a business owes to suppliers or vendors for goods and services received but not yet paid for.
Accounts Receivable (AR):
Money owed to a business by its customers for products or services delivered but not yet paid for.
Accrual Accounting:
Income and expenses are recorded when they are earned or incurred, not when cash is received or paid.
Assets:
Resources owned by a business that has economic value, such as cash, equipment, or property.
Balance Sheet:
A financial statement that shows a company’s assets, liabilities, and equity at a specific point in time.
Bank Reconciliation:
The process of comparing a company’s internal records to bank statements to ensure they match.
Bookkeeping:
The daily recording of financial transactions like sales, purchases, payments, and receipts.
Cash Accounting:
Income and expenses are recorded only when cash is received or paid.
Chart of Accounts:
A complete list of a business’s financial accounts used to organize transactions in the accounting system.
Cost of Goods Sold (COGS):
The direct costs of producing goods sold by a business, including materials and labor.
Credit:
An entry that decreases assets or increases liabilities or equity.
Debit:
An entry that increases assets or decreases liabilities or equity.
Depreciation:
The gradual reduction in the value of an asset over its useful life.
Double-Entry Accounting:
Every transaction affects at least two accounts (a debit and a credit) to maintain book balance.
Equity:
The owner’s interest in the business is calculated as assets minus liabilities.
Expense:
Costs incurred by a business in the process of earning revenue.
General Ledger:
The master record of all financial transactions of a business.
Income Statement:
A financial report showing a business’s revenues, expenses, and profit or loss over a specific period.
Invoice:
A document sent to customers requesting payment for goods or services provided.
Journal Entry:
A record of a business transaction, showing both the debit and credit sides.
Liabilities:
Debts or obligations a business owes to others, like loans or unpaid bills.
Net Income:
The total profit after all expenses have been deducted from revenue.
Payroll:
The process of paying employees, tracking hours, calculating wages, and withholding taxes.
Profit and Loss Statement (P&L):
Another term for the income statement is the profit and loss statement, which shows a company’s revenue, costs, and expenses over a specific period.
Reconciliation:
Matching records between two systems (like bank records and bookkeeping records) to ensure accuracy.
Revenue:
The total money generated from sales before any expenses are deducted.
Trial Balance:
A report listing all account balances from the general ledger to check if debits and credits are equal.
Each term plays a key role in managing your financial data. As you explore them further, you can gradually incorporate these definitions into your day-to-day financial management.
Bottom Line
Understanding the terminology in online bookkeeping is a key step in managing your finances effectively.