Accounting speak in your handmade business is like a foreign language and if you’ve ever talked with a CPA or a business advisor I’m betting you had a headache by the time you were done!
Have you ever, just once, wished that someone would say to you – “So, tell me how much money did you make and how much did you spend?” Wouldn’t that be nice?
Let’s take a look at some commonly used accounting speak terms:
- Cost of Goods Sold
- Other Income
- Other Expenses
- Chart of Accounts
- General Ledger
- Balance Sheet
- Profit & Loss (Income Statement)
- Trial Balance
- Adjusting Entries (Journal Entries, Adjusting Journal Entries)
Holy crapola, these terms are confusing!
Let’s start with the General Ledger – well, that’s accounting speak for a big book (or an Excel/Google Sheets workbook) where you write down detailed information about ALL the financial transactions that happened in your handmade business for a specific period – usually the current month and calendar year.
As you can well imagine, doing books the old-fashioned way using the General Ledger and pages is pretty darned cumbersome and requires that you enter the same information on multiple pages. Let’s think about a bank deposit with money coming from 3 different place — you’d have to enter that information on 4 different pages! First on your 10000 Checking Account page for the total amount of the deposit, and then on each of the 3 different Income pages for just the amount of money from each different revenue stream.
All small business bookkeeping and accounting software makes this so much easier for you. With accounting software you can create your Chart of Accounts from scratch (with the help of that accounting speak CPA of yours) or choose from a basic list and then customize it to meet your needs.
That’s enough accounting speak for your handmade business for this week – next week we’ll talk about the Chart of Accounts.