What Does That Mean?
Many people already know these accounting terms, but not everyone, so while I’m teaching how to operate QuickBooks software, I’m also teaching what, why, and how things are happening behind the scenes.
Chart of Accounts: It’s like the skeleton of your Financial Statements. If it’s not built right, it can’t do its job. It has five main parts: Assets, Liabilities, Equity, Income, and Expenses.
Balance Sheet refers to report of Assets, Liabilities, and Equity. The accounts are arranged in two sections, and the two sections must equal each other. It’s like owning a house. The house is the asset, the mortgage is the liability; any difference is equity. In business we call it Retained Earnings. You can think of it as a statement of what you own, what you owe, and the difference.
Profit & Loss Statement refers to a report of income minus expenses . This is the report that shows whether you have a profit or a loss. This report gives you the Bottom Line (Profit or Loss).
An Income Statement is the same as Profit & Loss, P&L, Statement of Income and Expenses. Yes, it gets confusing sometimes.
Cash Basis Accounting refers to a reporting system that counts only the money you earned and got paid for during the year. It is a very common way of reporting for small businesses.
Accrual Basis Accounting is a system that reports the money you earned during the year, whether you got paid or not, and the expenses you incurred, whether you paid for them or not.
Accounts Receivable: What people or businesses owe your business.
Accounts Payable: What your business owes other people or businesses.
A Certified Public Accountant is an individual who has taken a prescribed course of studies and passed a rigorous exam, admitting them to the profession. They are licensed by the States and subject to various laws, regulations, and professional codes of ethics.