Finance people are well-versed in finance, but bookkeeping terminology can lead to misunderstandings by CEOs unfamiliar with the finance professionals' language. Whether within your company or client relationship, explaining financial codes in clear words ensures that your CEO can make better decisions with confidence.
The most typical words your bookkeeper uses are decoded in this blog with simple explanations. This aims to demystify the terminology of bookkeeping for those who may not be familiar with the finance.
Accounts payable means that we have promised to pay our vendors for things we've bought, like raw materials or offices, but we still need to give the money. Accounts payable are the purchase invoices that are owed to suppliers or vendors.
With riskrate, you can stay on top of your spending and open purchase invoices in real-time.
Accounts receivable means when our customers owe us the money because they bought products or services, but they still need to pay for it. Accounts receivable are the sales invoices owed to the company by customers.
With riskrate, you can have peace of mind and have your open sales invoices analyzed in
Amortization is like slowly using up resources over time. In bookkeeping, we spread out the cost of something, like a machine, over many years because it helps us make money for a long time.
Accrual accounting is when a business counts the money they will get, even if they have not received it. This helps companies to keep track of all the things they're owed and all the things they owe to others. So, with accrual accounting, you recognize revenue and expenses when earned or incurred, not when cash changes hands.
Balance Sheet is a snapshot of a company's financial position. A balance sheet is like a big picture of all the assets and liabilities you have and how much they're worth. It shows how many products you have, how much money you have, and how much you owe to others.
With riskrate, you can consolidate multiple companies to get your balance sheet analyzed in real-time.
Chart of Accounts
The chart of accounts helps businesses see where their money is coming from and where it's going. It's like having a particular list to keep everything in order, just like a chef needs a menu to know what ingredients to use for different dishes. A chart of accounts is a list of all accounts used by a company to classify financial transactions.
With riskrate, you can edit a chart of accounts with a few clicks.
Debits and Credits ❤️
Debits and Credits are the heart of all bookkeeping. When you get money, you book the money on the 'debit' side. And when you spend money, you reserve the money on the 'credit' side. But here's the trick: for the bookkeeping to stay balanced, you must put the same amount of money on both sides. So, if you got 5 dollars, you put a 5-dollar on the 'debit' side. If you spent 3 dollars, you put a 3-dollar on the 'credit' side. That way, the bookkeeping stays nice and level, and we can see how much money is on each side.
Depreciation is like when your tools get a little worn out from using them a lot. In a business, depreciation is when we say that some things, like machines or equipment, get a bit 'used up' over time, so we need to keep track of that. Typically, we decide that depreciation will be done, for example, in 5 years or 15 years. This is important as it helps profit and loss planning.
Fixed assets are like the tools and things a business uses every day. They get used up slowly, and they stay with the company for a long time. Fixed assets are long-term assets like property, equipment, and vehicles.
The general ledger is like that big notebook but for businesses. It helps companies write down all the money they get and spend. Companies have different pages for different things, like one for product sales, another for buying supplies, and so on. This way, businesses can keep track of all their money in an organized manner. It's like having a unique book to write down all the vital money. A general ledger is a record of all financial transactions in one place.
Profit & Loss, the same as Income Statement
Profit and loss track how much money your company makes from selling products and how much you spend on things like raw materials, salaries, marketing, and other costs. If you make more money than you spend, you have a profit, but if you spend more than you make, you have a loss.
With riskrate, you can run your profit & loss compared to the budget or scenarios on autopilot, whether you run a single company or a multi-entity.
Intra-group reconciliation for multi-entities ensures all your companies have the same amount of invoices after trading. So, different parts of the same Group of companies check to make sure they all have the right amount of money and things. Monthly reconciliation means that bookkeepers make sure two sets of records match.
With riskrate, you get your intra-group eliminations run on autopilot. Simplifying some bookkeeping terms can help CEOs better understand the financial data, enabling CEOS to make more informed decisions based on the company's finances. With riskrate, you can serve your CEO with superior speed and accuracy.
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