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Accounting Terms Every Businessperson Should Know
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A statement is a formal written summary of unpaid, and sometimes paid, invoices. Unlike an invoice, a statement is not generally used as a formal request for payment, but may be more of a reminder to a customer or client that payment is due or that payment has been made.
A receipt is a written record of a transaction. A buyer receives a receipt to show that he paid for an item. The seller keeps a copy of the receipt to show she received payment for the item. Receipts are sometimes called sales slips.
A balance sheet is a statement listing a business's assets, liabilities, and net worth, or equity (the difference between the value of the assets and the liabilities).
Accounts payable are amounts that your business owes. For example, unpaid utility bills and purchases your business made on credit would be included in your accounts payable.
Accounts receivable are amounts owed to your business that you expect to receive. Accounts receivable include sales your business made on credit.
Bad debt is money owed for a business debt that cannot be collected; it can be deducted as an operating expense.
Net income is gross income less expenses; it represents a business's profit for a given year.
The accrual method of accounting accounts for income and expenses that are earned or incurred within the 12-month period, which is not necessarily when it is received or paid. (For more information, see Cash vs. Accrual Accounting.)
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