Simple Accounting Terms

There are literally thousands of accounting terms, and if you are an accountant, of course you are familiar with them all. For the rest of us, there are certain things that we should be at least a little familiar with, after all, if we handle the household budget on a monthly basis we are actually doing a little accounting of our own.

An accountant is someone who is highly skilled in recording and reporting financial transactions, possibly having to report to numerous people within the company, keeping them abreast of how it is going financially and being the one who deals with the tax collection agencies and other outside forces.

An account payable is something that sounds exactly what it is. It an amount owed to a creditor for goods and/or services. In a grocery store your account payable would be the price of a dozen eggs or a loaf of bread. In an office setting it could be the amount owed for new office furniture or the rent on the building.

An account receivable on the other hand is a claim against a debtor for the uncollected amount. As an accountant, you are looking to receive this debt at some time or another, and then it will become a balanced sheet once again. If, for whatever reason this debt can never be collected, it is considered a bad debt–it is not receivable.

Which brings us to balance. What is a balance? Well, it’s a basic financial statement that shows who owes what and who has paid what up to that date. The bottom line, similarly is the financial statement that shows net income or loss from one date to another.

We all want a positive cash flow. This means that we have money and we are spending less than we are making. A cash flow, by definition is the net of cash receipts and cash disbursements relating to a particular activity during a certain period whether that period be a week, a month or a year.

A bookkeeper is sometimes referred to as an accountant, and while they do some of the same things, a bookkeeper really just, well, keeps the books. That is, they record the financial transactions of a company or business. They keep note of what goes in and what comes out in the hopes of maintaining a balanced account, and sufficient cash flow at all times.