Business owners store so much information in their heads. If you started writing out all the things you need to keep top of mind, the list could be endless. While you do need to be aware of what’s happening with your landscaping company’s bookkeeping, you don’t need to constantly be confused about what all the terms your accountant is saying that you can’t keep track of!
We’ve compiled a list that covers some of the most frequent accounting terms you may hear. If you already know these definitions, great! And if not, no worries at all. It’s never too late to learn, and we’re happy to help.
Without further ado, here’s a list of definitions to get you started!
A bookkeeper performs the daily and necessary tasks of recording a business’ financial transactions. With a close eye on the business finances, your bookkeeper should be able to monitor your accounts for any inconsistencies to catch trends before they turn into problems.
An accountant is a financial professional who can review and analyze financial accounts, prepare tax returns, and advise on financial matters. You will hear some accountants referred to as “CPAs” – this refers to a Certified Public Accountant. These accountants have passed the CPA exam, and have a higher level of qualification than accountants who are not CPAs. If the bookkeeper is “in the weeds” of your business finances, the accountant has a broader view. When working together, you have a guide who can help you have a holistic view of your finances to make better decisions and plan for the future.
AccountSolve Bookkeeping + Accounting Services
The services we provide are a hybrid of both the detailed bookkeeping and the bigger picture accounting. We do not, however, do taxes. We’ll simply get everything you need in order to send to your CPA and we’ll help you ensure that you’ve thought ahead to have enough in your tax account when it’s time to pay your taxes.
This is one type of expense that will be included on your income statement. Think of the big picture when you think of operating expenses: it’s whatever you pay to “keep the lights on,” whether you have a building or not. In other words, operating expenses are concerned with all that it takes to keep your company running, not just what you see as a direct-expense on a daily basis.
Cost of Goods Sold (COGS)
This is a specific type of expense. COGS is any expense that’s directly related to your completing the “order.” This is raw materials, labor, storage costs, and any items purchased for resale. Make sure that you and your bookkeeping/ accounting team have correctly categorized your expenses and COGS.
Assets and liabilities
Assets and liabilities appear on a balance sheet – and these terms tend to scare people! But I always describe them like this:
Think about buying a home. The house is your asset, and the liability is your mortgage. The difference between the two is the equity you have in that home.
For your context as a landscaper, your assets are things like equipment, cash, and intangibles that help your business grow,, and the money you owe for various reasons in your business is the liability. The difference between the two is the equity you have in your business.
A tax write-off is any legitimate expense that can be deduced from your taxable income on your tax return. In other words, it’s kind of a slang term for an expense, or cost of goods.
Profit and Loss Statement
The Profit and Loss Statement (P&L) shows the money your business has spent and made over time, using your revenue, cost of goods, gross profit, and other necessary factors. The bottom line of a P&L statement shows your net income. Profit and Loss statements are important because they provide a snapshot of exactly what kind of money your business is actually making so that you don’t have to make blind guesses about how your business is doing.
Some of the terms on a P&L can also be confusing, so here are some more definitions about that:
The sum of cost of goods subtracted from your revenue. Sometimes, this is called “real revenue” because it’s the money that your business will actually use to run the company.
Above the line
“The line” is gross income. So what goes above the line is the clearly defined cost of goods sold – like labor and materials for jobs (think about the money and labor that goes into mowing, for example).
Below the line
All the other expenses it takes to run the business – not deliver the service.
Then you end up with net income, which is your profit (on paper that is)!
This list is by no means comprehensive, but we hope it’s a great starting point for you!
If you’re looking for more hands-on accounting and bookkeeping support, that’s what we’re here for.