Quick Accounting Terminology
Accounting Terms Every Contractor Should Know (Made Simple):
Accounts Payable (AP)
Money your business owes to others - like suppliers, subs, or vendors. Think of it as your “bills to pay”
Accounts Receivable (AR)
Money owed to you by clients or customers for work you’ve completed. These are your unpaid invoices.
Profit & Loss Statement (P&L)
A report that shows your income and expenses over time. It tells you if you’re making a profit or not. This is pretty much your best friend report.
Balance Sheet
A snapshot of your business’s financial health - it includes what you own (assets), owe (liabilities) and what’s left over (equity)
Cash Flow
The movement of money in and out of your business. Positive cash flow means you have more coming in than going out - and that’s always the goal.
Chart of Accounts
The list of categories used to organize your financial transactions. (like income, materials, subs, tools, etc.)
Reconciliation
The process of comparing your bookkeeping records with your bank or credit card statements to make sure everything matches.
Job Costing
Tracking all the expenses related to a specific project so you know how profitable it was. This is so important and easily overlooked because it’s honestly tedious.
Depreciation
A way to account for the decrease in value of assets (like equipment or vehicles) overtime.
Accrual vs. Cash Accounting
Cash Basis: You record income/expenses when money changes hands.
Accrual Basis: You record income/expenses when they’re earned or incurred, even if money hasn’t moved yet.