Accounting speak in your handmade business can feel like trying to decipher a foreign language.
If you’ve ever talked with a CPA or a business advisor, you’ve probably ended up with a pounding headache by the time you were through!
Wouldn’t it be a breath of fresh air, if someone simply asked you – “Tell me how much money did you make, and how much did you spend?” Imagine that!
Navigating financial and accounting jargon in your handmade business can be as tricky as crafting intricate designs. Don’t worry, we’re here to unravel the complexities and make accounting feel like a walk in the park.
Let’s dive into the world of accounting lingo and take a look at some commonly used accounting speak terms that might make your head spin.
Navigating the world of accounting lingo can literally give you a headache! While you may talk about sales and expenses. CPA’s and business advisors talk in terms of:
- Assets: These are you business treasures – the value of what you own. Like the money in your bank accounts, and the cost of supplies and equipment.
- Liabilities: Money your business owes to others. The sales tax you’ve collected and need to pay to the Tax Department, or money you owe to your credit card company.
- Equity: The portion of your business that’s truly yours. It’s calculated as Assets minus Liabilities.
- Income: The sweet rewards your handmade creations bring in.
- Cost of Goods Sold: The expenses tied to creating and selling your masterpieces.
- Expenses: All the other costs involved in running your business.
Oh, wait! There are more confusing terms…..
- Other Income: Money that your business receives that has nothing to do with the sale of your finished items or patterns. Like Ad Revenue, Commissions, or Affiliate sales.
- Other Expenses: Unforeseen costs pop up every now and then. Perhaps the cost of an item that was stolen or damaged at a craft fair.
- Chart of Accounts: Your business’s financial vocabulary list, where you define the different types of Income and Expenses you have.
- General Ledger: Think of it as the master storybook where all your business’s financial tales are documented.
- Balance Sheet: A snapshot of your business’s financial health (Assets, Liabilities, and Equity) at a specific point in time.
- Profit & Loss (Income Statement): This report tells you your bottom line of whether your business is in the green or the red. Income MINUS Cost of Goods Sold and Expenses PLUS Other Income MINUS Other Expenses. This calculation equals your bottom line Net Profit or Loss.
- Trial Balance: A checklist to make sure your books are balanced.
- Debit: An entry in an account that denotes an increase (or deposit) to your bank account, an inventory purchase, or money you paid for hosting your website
- Credit: An entry in an account that denotes a decrease (or withdrawal) from your bank account, supplies that you took out of inventory, or a payment you made on your credit card.
- Adjusting Entries (Journal Entries, Adjusting Journal Entries): Fine-tuning your books to reflect accurate financial information. These are usually provided by your CPA or tax preparer.
Holy crap, these terms can be confusing!
Okay, let’s take a deep breath and tackle one of these mysterious accounting speak terms.
Let’s start with the General Ledger. That’s accounting speak for your business’s storybook (or an Excel/Google Sheets workbook). Where each page details ALL the financial transactions that happened in your handmade business for a specific period. Usually the current month and calendar year.
Hang on a minute. Let’s be honest! Managing this ledger with paper and pen (or spreadsheets) is about as graceful as a bull in a china shop!
Picture this:
You deposit money from three different sources, and suddenly you’re juggling four pages (or spreadsheets) just to record it all. It’s like having to tell the same story over and over again.
Thankfully, small business bookkeeping and accounting software (like Wave, QuickBooks, and Zoho Books) come to the rescue. No more paper or spreadsheet chaos! With tools like this, you can build your Chart of Accounts from scratch. Of course, it would help if you had some help from your friendly, handmade business bookkeeping coach. Who just so happens to be fluent in accounting speak. That‘s ME! Begin with a starter list and then tweak it to meet your needs.
Let me be honest, no two handmade business will want or need to track the same things.
PHEW! That was plenty of accounting speak for your handmade business, for this time. Brace yourself! Because next time we’ll unravel the mysteries of the Chart of Accounts.
Before you know it, you’ll be speaking the language of finance with ease and flair!
