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A Designer’s Accounting Glossary A-Z

A Designer Accounting Glossary A-Z

Accounts Payable Accounts payable (AP) is an accounting entry that represents an entity’s obligation to pay off a vendor or consultant. The accounts payable entry is found on a balance sheet under the heading current liabilities.

 

Accounts Receivable Accounts receivable (AR) refers to money owed by customers/clients to another entity in exchange for goods or services that have been delivered or used, but not yet paid for.

 

Accrual Basis  Method of ACCOUNTING that recognizes REVENUE when earned, rather than when collected. Expenses are recognized when incurred rather than when paid.

 

Asset is a resource with economic value that an company owns or controls with the expectation that it will provide future benefit. Assets are reported on a company’s balance sheet.

 

Audit  A professional examination of a company’s financial statement by a professional accountant or group to determine that the statement has been presented fairly and prepared using GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (GAAP).

 

Bad Debt  All or portion of an ACCOUNT, loan, or note receivable considered to be uncollectible.

 

Bank Reconciliation  A process by which an accountant determines whether and why there is a difference between the balance shown on the bank statement and the balance of the cash account in the firm’s GENERAL LEDGER.

 

Balance Sheet a statement of the assets, liabilities, and capital of a business or other organization at a point in time, detailing the balance of income and expenditure over the preceding period.

 

Cash Basis   Method of bookkeeping by which REVENUES and EXPENDITURES are recorded when they are received and paid.

 

Chart of Accounts A listing of the accounts available in the accounting system in which to record entries. The chart of accounts consists of balance sheet accounts (assets, liabilities, stockholders’ equity) and income statement accounts (revenues, expenses, gains, losses). The chart of accounts can be expanded and tailored to reflect the operations of the company.

 

Client Deposit could be an amount paid by a customer/client prior to the company providing it with goods or services. In other words, the company receives the money prior to earning it. The company receiving the money has an obligation to provide the goods or services to the customer or to return the money.

 

Cost of Goods Sold (COGS) are the direct costs attributable to the production of the goods sold by a company. This amount includes the cost of the materials used in creating the good along with the direct labor costs used to produce the good. These are normally referred to as “project costs” in an interior design firm. It excludes indirect expenses such as distribution costs and sales force costs. COGS appears on the income statement and can be deducted from revenue to calculate a company’s gross margin. Also referred to as “cost of sales.”

 

Equity is the amount of the funds contributed by the owners (the stockholders) plus the retained earnings (or losses). Also referred to as shareholders’ equity.

 

Financial Statements
Presentation of financial data including BALANCE SHEETS, INCOME STATEMENTS and STATEMENTS OF CASH FLOW, or any supporting statement that is intended to communicate an entity’s financial position at a point in time and its results of operations for a period then ended.

 

Gross Sales The total amount of sales for cash and on credit accumulated during a specific accounting period.

 

Income  Inflow of REVENUE during a period of time.

 

Income Statement (Profit and Loss Statement) is a financial statement that measures a company’s financial performance over a specific accounting period. Financial performance is assessed by giving a summary of how the business incurs its revenues and expenses through both operating and non-operating activities. These normally cover 12-month periods of time.

 

Inventory Tangible property held for sale, or materials used in a production process to make a product.

 

Invoice  Bill prepared by a seller of goods or services and submitted to the purchaser.

 

Journal Entry (Adjusting Entry) A journal entry is used to record a business transaction in the accounting records of a business. Adjusting journal entries are recorded at the end of an accounting period to alter the ending balances in various general ledger accounts. For example, you could accrue unpaid wages at month-end if the company is on the accrual basis of accounting.

 

Liability is a company’s legal debt or obligation that arises during the course of business operations. Liabilities are settled over time through the transfer of money, goods or services.


Markup  The amount added to the price of a product by a retailer to arrive at a selling price.

 

Net Income is calculated by taking revenues and adjusting for the cost of doing business, depreciation, interest, taxes and other expenses. This number is found on a company’s income statement and is an important measure of how profitable the company is over a period of time.  

 

Overhead is an accounting term that refers to all ongoing business expenses not including or related to direct labor, direct materials or third-party expenses that are billed directly to customers. Overhead must be paid for on an ongoing basis, regardless of whether a company is doing a high or low volume of business. It is important not just for budgeting purposes, but for determining how much a company must charge for its products or services to make a profit. These are NOT Project Costs!

 

Purchase Order Written authorization to a vendor to deliver specified goods or services at a stipulated price.

 

Retainer is a sum of money paid before a job is to begin. This is done to secure the first month of work in most cases. Sometimes it is paid back at the end or job. You can also net it with the last invoice on a job and return the difference. Make sure this is clearly defined in you contracts.

 

Revenue is the amount of money that a company receives during a specific period for time billings and purchasing. Revenue also includes discounts and deductions for returned merchandise.


Sales Tax  A TAX that is levied by a state or city government on the retail sale of goods and services.

 

Vendor Deposit/Work in Progress are goods in production that have not yet been completed. It includes any deposits made to vendors before the final product has been completed.

 

 

Written by Kimberly Merlitti of KMM Consulting

Kimberly Merlitti owns KMM Consulting based out of San Francisco, CA. Kimberly has 20 years of experience working in accounting for companies such as Swinerton Builders, WRNS Studio and Martin Group. She has her Masters in Accounting from Golden Gate University located in San Francisco, CA. KMM Consulting’s clientele include a diverse group of service based companies, with a main focus on small interior design, construction and architectural firms. The goal of her firm is to make the businesses she works for as profitable as they can be by educating them on accounting, cash flow management, tax deductions, project reporting, and business management.

 


 

Ivy is the # 1 software for designers. To learn more about Ivy, schedule a demo with an Ivy Guru who can show you how designers use Ivy to streamline their workflow and make more time for what they love, design.

 

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