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Accounting Fundamentals

Core accounting concepts and terminology used throughout Fiskl.

Accounting​

The systematic process of recording, measuring, and communicating financial information about a business. Accounting helps you track income, expenses, assets, and liabilities to understand your financial position and make informed business decisions.

Accountant​

A professional trained in accounting principles who helps businesses maintain financial records, prepare reports, ensure tax compliance, and provide financial advice. In Fiskl, you can grant your accountant access to view and manage your financial data.

Bookkeeping​

The day-to-day recording of financial transactions, including sales, purchases, receipts, and payments. Bookkeeping forms the foundation of your accounting system and ensures accurate financial records.

Chart of Accounts​

A complete listing of all accounts in your accounting system, organized by category (assets, liabilities, equity, income, and expenses). Your chart of accounts provides the structure for recording and organizing all financial transactions in Fiskl.

General Ledger​

The complete record of all financial transactions in your business, organized by account. The general ledger is the central repository of your accounting data and forms the basis for all financial reports.

Double-Entry Bookkeeping​

An accounting method where every transaction affects at least two accounts—one debit and one credit. This system ensures that your books always balance (Assets = Liabilities + Equity) and provides built-in error checking.

Debit​

An entry on the left side of an account in double-entry bookkeeping. Debits increase asset and expense accounts, while decreasing liability, equity, and income accounts.

Debit Entries​

Transactions recorded on the debit side of accounts. For example, when you purchase equipment, you debit (increase) your equipment asset account.

Credit​

An entry on the right side of an account in double-entry bookkeeping. Credits increase liability, equity, and income accounts, while decreasing asset and expense accounts.

Credit Entries​

Transactions recorded on the credit side of accounts. For example, when you receive payment from a client, you credit (increase) your income account.

Journal​

A chronological record of business transactions before they are posted to the general ledger. Each journal entry includes the date, accounts affected, amounts, and a description of the transaction.

Multi-Journal​

The ability to maintain multiple separate journals for different types of transactions (sales journal, purchase journal, cash receipts journal, etc.). This helps organize transactions and simplifies recording repetitive transaction types.

Cash vs Accrual Accounting​

Two primary methods of recording transactions, each suited to different business needs.

Cash Accounting​

You record income when you receive payment and expenses when you pay them. This method is straightforward and provides a clear view of your current cash position.

Example: You invoice a client on March 1st for $1,000. The client pays on April 15th. In cash accounting, you record $1,000 income in April.

Benefits:

  • Simple to maintain
  • Clear view of available cash
  • Ideal for small businesses with straightforward finances

Cash Method Accounting​

Another term for cash accounting, emphasizing the methodology of recognizing transactions based on cash movement.

Accrual Accounting​

You record income when it's earned and expenses when they're incurred, regardless of when money changes hands. This method matches revenue with related expenses and provides a more accurate picture of profitability.

Example: You invoice a client on March 1st for $1,000. The client pays on April 15th. In accrual accounting, you record $1,000 income in March.

Benefits:

  • Matches revenue with related expenses
  • More accurate picture of profitability
  • Required by many lenders and investors
  • Necessary for larger businesses

Accrual Method Accounting​

Another term for accrual accounting, emphasizing the methodology of recognizing transactions based on when value is exchanged.

Which Method Should You Choose?​

Accrual accounting is widely regarded as the superior method for comprehensive financial management. With tools like Fiskl, managing accrual accounting becomes as straightforward as handling cash-based accounting.

Key Differences:

  1. Timing: Cash focuses on immediate cash flow; accrual focuses on when value is exchanged
  2. Complexity: Cash is simpler; accrual requires more detailed record-keeping
  3. Financial Picture: Accrual provides a more accurate long-term view of business performance
note

Fiskl works in a way that allows you to switch between cash and accrual accounting methods without altering your original information. You can generate reports using either method at any time, giving you flexible views of your finances.

Accruals​

Adjustments made to record revenues earned or expenses incurred that haven't yet been paid. Accruals ensure that financial statements reflect the true financial position under accrual accounting.

Accrued Expenses​

Expenses that have been incurred but not yet paid. For example, employee wages earned but not yet paid, or utilities used but not yet billed. These are recorded as liabilities until payment is made.

Accounting Cycle​

The complete sequence of accounting procedures repeated each accounting period:

  1. Identify and analyze transactions
  2. Record transactions in journals
  3. Post to the general ledger
  4. Prepare a trial balance
  5. Make adjusting entries
  6. Prepare financial statements
  7. Close temporary accounts

Accounting Period​

A specific time frame for which financial statements are prepared, typically monthly, quarterly, or annually. Consistent accounting periods allow you to compare performance over time.

Financial Year​

A 12-month period used for accounting purposes and preparing financial statements. This may or may not align with the calendar year, depending on your business needs.

Fiscal Year​

Another term for financial year. The fiscal year is the 12-month period your business uses for accounting and tax purposes.

EOFY​

End of Financial Year—the closing date of your fiscal year. This is when you finalize accounts, prepare annual financial statements, and complete tax reporting requirements.

Opening Balance​

The balance in an account at the beginning of an accounting period. This becomes the starting point for tracking changes throughout the period.

Trial Balance​

A report listing all accounts and their balances at a specific point in time. The total debits should equal total credits, verifying that your books are mathematically balanced.

Reconciling​

The process of comparing two sets of records to ensure they agree. Most commonly, this involves matching your bank statement transactions with your accounting records to identify any discrepancies.

Audit​

A formal examination of your financial records by an independent party to verify accuracy, completeness, and compliance with accounting standards. Audits provide assurance to stakeholders about the reliability of financial statements.