One of the biggest stumbling blocks a person endures when navigating in accounting is that the field’s terms or jargon often have many different connotations. And when also you factor how these terms apply to your own business management systems, it’s easy to get confused in their various translations.
Here are four popular words that have multiple or overloaded meanings when expressed in accounting and when applied in cloud business management technology:
“Accounts” is a term often loosely communicated and that can have different meanings between your front and back offices.
- An “account” is often used to define customers or vendors in many CRM or business management systems. For example, a company name such as “Alpha Communications” is classified as an “Account.”
- In accounting, the term “Account” can be used as a short form of “General Ledger Account.” A General Ledger account is used to classify or categorize financial transactions.
Are your books reconciled? This is a common, yet vague question. The word “reconciled” is defined differently among organizations and dictated according to the financial system used.
- Bank Reconciliation is a process of ensuring banking entries in your accounting system are consistent with bank statements.
- Reconciling also refers to a detailed list of records that make up a summary value for a ledger account in the Trial Balance. Many auditors want to see a detailed list of Accounts Receivables’ records that are tied to the Trial Balance at the end of an accounting period.
From accounting to sales and operations, there are several ways to calculate profitability, often referred to as “margins.” Further complicating matters, the use of the word can vary by company and by industry. Below are common examples of the use of margins:
- Gross Margin is Revenue less Cost of Goods Sold (typically labor, materials, and overhead).
- Contribution Margin is often associated with Gross Margin minus materials only or another portion of the Cost of Goods Sold.
- EBITDA (Earnings Before Interest, Taxes Depreciation or Amortization), or Operating Margin, often means Revenue minus Cost of Goods Sold plus Sales and Marketing Expenses.
Invoice and Credit Memos
Invoices and credit memos can apply to both customers or vendors. Because of this, it is important to specify the type of invoice or credit memo at the beginning of any conversation about this topic. In addition, there are several synonyms for these terms used by companies, industries, and in software applications.
- Synonymous terms used to convey a Customer Invoice include Billing, Sales Invoice, Account Receivable, and Receivable.
- Synonymous terms used to reference a Vendor Invoice include Account Payable, Payable, and Purchase Invoice.
Familiarizing yourself with the various meanings of the above accounting jargon can go a long way in both reducing possible confusion and executing your accounting tasks more efficiently.