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If you’re just starting to navigate your books, you may be unsure of some of the lingo. It’s like a different language for those outside of the accounting world, but the more you work with your books, the quicker you’ll catch on. What’s important is to think of everything in terms of your business; these terms provide you with vital information about your company’s standing. Let’s go over some common terms you’ll frequently hear and need to use in order to discuss and understand your books.

Need to write off an uncollectible invoice but don’t know how? It’s sad but sometimes people don’t pay you what is owed.  You need to get these numbers out of your books, but you also want to track this correctly, so what do you do? Here are step-by-step directions to do this in QuickBooks:  

Step 1.  In your Chart of Accounts create an Income Account called “Bad Debt.”

Step 2.  In your Items create an item called “Bad Debt-Uncollectible” and link it to “Bad Debt” (the account you created in Step 1).

Step 3.  Create a Credit Memo in your QuickBooks and use the Item “Bad Debt-Uncollectible” (that you created in Step 2) with the amount that you need to write off.

Step 4.  Apply this Credit Memo to the invoice(s) that are uncollectible.

Now when you look at your P & L report, you’ll see a negative number in the Income Area, labeled as “Bad Debt.” Although it seems unusual to have a negative number for Income, this is correct.

Here is an example of what is happening in the background:

Consulting Services Income            $500.00

Bad Debt                                              -$500.00

                    Total:                                      $0.00

Step 5.  Make a note to never do business with this individual/company ever again!

Have you ever left a conversation with your accountant with nothing but confusion, asking yourself “What did they just say?” You’re not alone. We’re here to bridge the gap between accountant and client. Here is a list of common terms you will likely here from your accountant, if you haven’t already, and what they actually mean:

Accounts Payable (A/P): Money you owe to others.

Accounts Receivable (A/R): Money others owe to you.

Asset: Items of value owned by a business. This includes money in your bank, A/R, equipment, vehicles, buildings, and so on.

Bad Debt: Uncollectible A/R.

Balance Sheet: A list of company assets, liabilities and equities for the company.

Cost of Goods Sold (COGS) (a.k.a. Cost of Sales—COS): What it directly costs to produce your product or service. For manufacturing companies, this includes raw materials and the direct labor to make your product. For service companies, this includes the cost of labor to directly service your customer.

Equity: How much you have invested into your business or taken out of your business. This is where any profit from your business will show up.

Liability: This includes all the debts you owe to other businesses, such as A/P, credit cards and loans.

Profit and Loss Report (a.k.a. Income Statement): This shows you how well (or not) the business did for a specific time period (month/quarter/year).

Next time you speak with your accountant,