Do you feel embarrassed or confused when talking to your accountant or bookkeeper? This guideline will help you feel more in control and have a better understanding of the terms and reports commonly used.Common Accounting Terms To help YOU understand YOUR business better.Lisa A Hubbard, Contractor’s Keeper
1 www.ContractorsKeeper.com How often have you ended a call with your accountant or bookkeeper feeling more confused than you were before it started? If your response is a variation of, “pretty much every time” we understand. Or, more commonly – do you avoid having those conversations altogether because they tend to overwhelm you or leaving you feeling embarrassed or lost? Our goal is to put you back in the know and feeling confident that you understand everything that is happening in your business. We’ve compiled a list of the most common accounting terms, along with their abbreviations (where appropriate) and definitions. It is a big list, and some of these items are less common and may not apply to your business – but we hope you find it a handy reference and will use it as needed. -Contractor’s KeeperGeneral Terms Of course, there are accounting terms that don’t pertain to a particular financial statement. For those, we’ve reserved the “general” category. Accounting PeriodAn Accounting Period is designated in all Financial Statements (Income Statement, Balance Sheet, and Statement of Cash Flows). The period communicates the span of time that is reported in the statements. AllocationThe term Allocation describes the procedure of assigning funds to various accounts or periods. For example, a cost can be Allocated over multiple months (like in the case of insurance) or Allocated over multiple departments (as is often done with administrative costs for companies with multiple divisions). Business (or Legal) EntityThis is the legal structure, or type, of a business. Common company formations include Sole Proprietor, Partnership, Limited Liability Corp (LLC), S-Corp and C-Corp. Each entity has a unique set of requirements, laws, and tax implications. Cash Flow (CF)Cash Flow is the term that describes the inflow and outflow of cash in a business. The Net Cash Flow for a period of time is found by taking the Beginning Cash Balance and subtracting the Ending Cash Balance.
2 www.ContractorsKeeper.com A positive number indicates that more cash flowed into the business than out, where a negative number indicates the opposite. Certified Public Accountant (CPA)CPA is a professional designation that an accountant can earn by passing the CPA exam and fulfilling the requirements for both education and work experience, which vary by state. CreditA credit is an increase in a liability or equity account, or a decrease in an asset or expense account.