Basic Bookkeeping Terms You Need to Know (Part II)
01. Chart Of Accounts
This is an integral organizational tool that helps a business index all of its accounts in one place for easy reviewing. You can use the financial breakdown displayed in your chart of accounts to create a profit and loss statement and keep an eye on all your transactions. The chart of accounts exists to make keeping the books simpler for you because every single transaction is broken down and recorded.
02. Cost Of Goods Sold (COGS)
Another more obvious term, the cost of goods sold refers to how much it costs a business to produce the goods that it sells. This includes any materials and all the necessary labor, and working out the COGS of a single sale tells you how much you need to pay any workers, which is documented under your accounts payable.
03. Double-Entry Bookkeeping
This type of bookkeeping allows you to create two separate entries detailing the same transaction. It pertains that every transaction you make has different effects in different accounts. For efficient double-entry booking, use a journal, a ledger, a trial balance, and financial statements. You'll first record a transaction in your debit entries, which refer to your income, and then again in your credit entries, which refer to your expenditures.
Your equities will show you the worth of your business once you have no more debts or other expenditures to pay off. So, they are the money you actually have because you have already paid out for everything you owe. You can work out your equities by subtracting your liabilities from your assets and then record the information in your accounts.
Your expenses are all the money that you spend to keep your business on track. A few common expenses are the costs of producing goods, wages for labor, utility bills, and other general supplies. You spend money out of your business to benefit it, such as with the printer example for the double-entry booking term, so even though you're spending money you are putting it back into the business.
06. Expense Category
To organize those expenses for easier bookkeeping, they can be put into expense categories. COGS is one example of an expense category because all your expenses related to production and labor are categorized together. Other categories include how much you spend on bills, the repayment of any loans, and any general supplies, such as technical equipment.
07. General Ledger
The general ledger is the overall collection of all your accounts and should be your main point of interest when reviewing all of your business' financial activities. It will contain your debit and credit entries, both validated by a trial balance, all your individual journal entries, and every account that you keep. A well-organized general ledger will keep your business in perfect order.
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