Here are some definitions of accounting terms for non-accountants:
Debits and Credits - A debit is money coming out of an account and a credit is money coming in. When you subtract debits from credits you get the balance of your account. If you have more debits than credits, well, you’re in the red.
Accrual vs. Cash Accounting – There are two main ways to track your accounts. Either accrual or cash accounting. Here is how they differ:
- Cash accounting recognizes transactions when there are inflows or outflows of cash – when customers pay or when you pay your bills.
Accrual accounting recognizes revenue when it is invoiced and expenses when they are due. Here are some benefits:
- See the variability of income and expenses over a period of several months. When invoices or bills are paid late, they may fall into the next period on a cash basis which may give a false impression of volatility
- Seeing revenue and expenses when they occur, regardless of when they are paid, allows you to more accurately forecast the future of your business.
Contact us for all of your bookkeeping needs. We’ll not only keep your books in good order, we’ll also demystify your numbers so that they make sense to you.