Common Terms Bookkeepers Use in the UK
Bookkeeping is part of the bedrock of your business. You cannot make informed decisions if you do not know what’s happening in your sole trade or small business. Whether you’re doing your own sole trader bookkeeping, familiarity with the terminology can help immensely.
Accounts payable refers to what you owe over the course of operating your sole trade or small business. This term may cover suppliers and service invoices you have not paid yet.
Accounts receivable refers to what other companies or customers owe you for goods from your sole trade or small business but have not paid yet.
The accounting period refers to the period the bookkeeping report is for. Accounting periods can vary to allow you to examine different periods for your sole trade or small business, such as a month or year.
Appreciation is the increase in the value of your sole trade or small business assets. Appreciation should be tracked in your bookkeeping records since it may become part of your company’s taxes later.
Using your bookkeeping records, a balance sheet summarizes your sole trade or small business assets, liabilities, and equity. It’s an excellent bookkeeping tool and a way for you to see a snapshot of your business.
Reconciliation is the process of comparing your sole trade or small business’s bookkeeping to your bank statements. The primary focus is on identifying inconsistencies between the two records.
Capital is a financial asset. The term can refer to cash or goods; you need to record them for your bookkeeping records, whether from you personally or from investors.
Cash flow in bookkeeping refers to how money enters and leaves your sole trade or small business. You can use your bookkeeping records to monitor current cash flow or forecast future options.
Cost of Goods Sold (COGS)
Every product or service your company sells has a cost that goes into its manufacture. The COGS figures may include our labour or raw materials, for example.
Current liabilities refer to anything your sole trader or small business will pay within one year. Common examples you may see in bookkeeping include supplier payments.
Credit refers to two things, which can make it complex in bookkeeping. Credit may refer to a decrease in assets or an increase in liabilities you must pay back later.
Debit does the opposite of credit. This bookkeeping entry marks an asset increase or a decrease in liabilities, depending on its application.
Depreciation is the loss of value over time, like the wear and tear on a manufacturing device. Tracking depreciation in bookkeeping can be complicated, but it may help reduce your tax burden.
Double Entry Bookkeeping
Double entry bookkeeping means every transaction is entered twice for higher records fidelity. Entries are paired into debits and credits, and the number of transactions must be equal.
Expenses cover the regular business running costs, such as employee salaries. Expenses can be broken into several categories so you have a clearer picture of your sole trade or small business.
Fixed assets are items your sole trader or small business will use for at least two years. Generally, these fluctuate very little in that time.
A general ledger is the complete record of your company’s financial transactions from the beginning. This document is a great source of trend data for your small business.
HMRC stands for HM Revenue & Customs. This non-ministerial department manages taxes you must pay as a sole trader or small business owner.
Inventory refers to finished goods for sale and materials your company uses to make finished goods. Inventory also requires its own meticulous set of records.
Long Term Liabilities
Long term liabilities refer to any debt or obligation that you have more than a year to pay off, such as a loan. These liabilities require precise bookkeeping so you can track them over the entire period.
Net profit is how much your company makes after you deduct expenses like raw materials or salaries. This number can be generated for various accounting periods.
Pay-As-You-Earn is a system put in place to pay taxes and other contributions before you disburse wages for your small business employees. Hence, they are paying their contributions as they earn income.
Payroll refers to the employee salaries you pay as a small business. Professional bookkeeping services can help you manage payroll and contributions you must make on behalf of employees.
Profit and Loss Statement
This statement is a bookkeeping report that summarizes your sole trade or small business’s performance. This tool is great for understanding your company’s performance in a specific period.
Return On Investment
Return on investment (ROI) is a way of looking at how much revenue a given action created. While this is often considered a marketing term, it can apply to any decision you make for your business.
Single Entry Bookkeeping
Single entry bookkeeping displays one entry per transaction, so ensuring accuracy is paramount. This method is sometimes also referred to as cash based.
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