As a small or medium-sized business owner, you are likely a master at your product or service. You would have also built an effective marketing or sales strategy to win over customers. But odds are you fail to understand even the most basic of bookkeeping terms. And that’s where you make a blunder.
When you fail to understand why your bookkeeper utilises different accounts to segment your finances, you can’t measure your success. You need a clear financial picture if you want the business to grow and not stumble into cash-flow issues.
Not knowing your basic bookkeeping terms is like going to a physician who knows everything except your stomach. The doctor doesn’t have the entire knowledge to make a comprehensive diagnosis. Similarly, you need to know the ins and outs of business finances to make a smart decision. Besides keeping your company on the green track, knowledge of virtual bookkeeping services and outsourcing your accounting to them will save a lot of your time.
With that goal in mind, let’s dive into some of the common terms used by virtual accounting companies.
The most basic term, it keeps track of all your business transactions. It is also the most important. Generally, bookkeepers have a cash receipt account and cash disbursement account to record all activity.
Any sale that you make and do not receive the payment for it immediately goes under accounts receivable. You should always have a proper record of it so that you can send your clients or customers accurate invoices. The record also tells how much money your customers owe you.
This is the opposite of accounts receivable. This the money you owe others. Maintaining accurate payables has two benefits. It ensures that you never pay the same bill twice and that all your payments are made on time, preventing penalties.
A lot of times, small businesses take a loan. It could be to buy equipment, vehicles or even to furnish your office space. The loans payable account keeps track of all the payments that are due and when they are due.
Besides the above terminology, if you opt for virtual bookkeepers, some other terms you may hear are:
This is the total count of products still sitting on your shelf. It is advised to perform a manual inventory count in set intervals and check it against the number on your books. This is important because any unsold product is money waiting to flow into your business. And each one of it should be carefully accounted for.
Like cash, sale is another simple to understand terminology. It tracks all the revenue you generate through sales. The record is beneficial in understanding the current position of your business.
Anything that your business buys, from finished goods to raw material, is considered a purchase. It is vital when calculating your Cost of Goods Sold (COGS). You subtract it from Sales to attain your gross profit.
One of the most significant costs a business bears is payroll expense or the amount paid to your employees. It is essential to maintain employee expenses management effectively so that you can pay employee tax and fulfil other government requirements.
We know that most business owners dread accounting chores. We can make it simple for you by being your bookkeeping ally. So, when you’re ready to make the jump, give us a ping!