To understand your business accounting records, you should be aware of some of the basic terms in accounting and what they are defined as. Here is a list of some of the most important accounting terms to be aware of in your businesss:
T-accounts: This is the term for where your original source document data gets put into.
Journals: Data from T-accounts flows into the journals. There are five journals in accounting cash receipts, purchases, cash disbursements, sales and general journal. Each has a specific purpose, holding data that is relevant to it's journal title.
Financial statements: Ending balances from the journals end up in the financial statements. These financial statements are the general ledger, balance sheet and income statement.
Accounting cycle: This is the cycle wherebly the data flows from the original source document into T-accounts to journals, and finally into the financial statements. There are 9 steps to this cycle:
- Originating data (source documents)
- Journalize transactions
- Post transactions
- Prepare trial balance
- Prepare financial statements
- Make closing statements
- Balance and rule accounts
- Prepare postclosing trial balance
- Interpret financial information
Other basic terms:
Liabilities: What a business owes
Accounts payable: Amounts owed to creditors
Owner's equity: Financial interest of an owner
Received on account: Cash received from a customer in full or partial payment of a debt
Revenue: Inflow of cash, receivables, or other assets from sale of goods and services
Fiscal year: Any 12-month period
Calendar year: Fiscal year from January 1 through December 31st
Purchase order: Document authorizing suppler to deliver merchandies on quoted prices
There are many more terms, but for the basics, knowing these particular terms can vitally help you understand your business much better.