Bookkeeping Definitions

Do some of the terms used by bookkeepers or accountants make your head spin?

Then Bookkeeping Definitions is a must see page!

Accrual Accounting

A method of accounting that recognizes business transactions as they are completed. Also called double entry bookkeeping, as each transaction is recorded using two entries, one a debit and the other a credit.

Assets

Assets are the things, both tangible and intangible that the business owns and that have a value. Basically there are three classes of assets, current, fixed and non-current.

Current assets include cash and any other assets that can be liquidated (converted into cash) quickly. Examples of current assets include cash, accounts receivable, inventories, and prepaid expenses.

Fixed assets are assets that have relatively long lives, like plant and equipment or buildings. These assets are not generally kept for the purpose of resale, and make an ongoing contribution to the economic viability of the business.

Non-current assets are long term investments and intangible assets, such as patents, franchise costs, copyrights or goodwill.

Cash Accounting

A method of accounting that only records transactions when cash is exchanged. Also called single entry bookkeeping as each transaction is recorded with a single entry.

Equity

Owner's equity is the owner's stake in the business. It includes the amount invested in the business by the owner and any accumulated or retained profits over the life of the business.

Liabilities

Liabilities are what the business owes to external parties and are generally classified as either current or non-current.

Current liabilities are those that will require payment in the short term, like accounts payable or a bank overdraft. Non-current liabilities are long term and include things like bank loans or mortgages.

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