To communicate, you need a language, symbols, letters and expressions that can better tell the other party what’s in your mind. In bookkeeping, language needs to communicate different accounting transactions and daily operations being processed inside your business; it needs to be proper and precise, standing on solid terminologies that can clarify what exactly the sender wishes to communicate to the receiver in his message. ABC of bookkeeping language reflects an array of terms and definitions frequently used by accountants, bankers, bookkeepers or other business associates; both parties in this communication process need to precisely understand what the other party intends by using specific terminologies.
Bookkeeping, hence, has
its own lingo which is pretty much identical in many nations; however, it does
not always embrace the same meaning due to controversial scenarios of financial
transactions.If “Grammaire” is the underlying footing of the French
language, bookkeeping also has its own grammaire that regulates its
different facets. One of the distinguished rules in bookkeeping is the “Debit
and Credit” rule of thumb which splits different entries into debit, such
as cash-ins and equipment, or credit, such as revenues and cash-outs.
Owner’s
Equity and Stockholders’ Equity
Likewise, terminologies employment
in bookkeeping varies according to different business scenarios. For instance,
in sole proprietorship the frequently used term for capital is owner’s equity,
reflecting the property of capital in the hands of a single owner; on the other
hand, using stockholders’ equity term is relevant to corporation type of
business organizations; in corporations, capital is disbursed among different
shareholders who invest their savings in the business in the form of interest
bearing stocks. The difference between the two terms cannot be overlooked in bookkeeping
speech.
Bookkeeping
Core Terminologies
Intact bookkeeping reflects
the proper preparation of financial statements commonly used in any business
entity (Balance Sheet, Income Statement, and Cash Flow Statement). The components
constituting these financial statements are common concepts used in the world
of accounting among different users. Examples are assets, liabilities, equity,
operational income, operating expenses, and so forth. Each terminology has its
own integer meaning and leaves a describing image in the receiver’s mind. The following
short definition can help understand the referring significance for these
terms.
Assets: are resources owned by the company, such as cash,
equipment, supplies, land, etc.
Liabilities: are obligations the company owes, such as loans,
accounts payable, notes payable and bonds.
Administrative Expenses: are outgoings the company incurs indirectly relevant
to a specific function, such as manufacturing or sales, sometimes called
administrative costs.
Property: reflects the same significance as assets.
P.P.E: Property, Plant & Equipment, an asset account
which comprises long-term tangible assets, such as plant facilities, land,
heavy outfits, and so forth.
Cash Inflows/Outflows: refers to the duplex operation involved to cash-ins,
such as cash receipts from trade customers, sale of spare assets, receipts from
factoring and personal funds invested, and cash-outs, such as payment of wages,
purchasing equipments, income tax and interest on bank loans.
Among others, these
terms form integral parts of commonly used financial statements; P.P.E, for
instance, can be found in the assets sections of the classified balance sheet, while
depreciation expense, which is a contra asset account, can be found in income
statement.
