As a regular, non-Accountant type person, working in an accounting firm, I realize it sometimes sounds like they are speaking a different language – or perhaps just a bunch of jargon. So, I thought I’d put together a little cheat-sheet for you, if you will.
When your Accountant is talking to you about your overall business, they will say things like: debits, credits, bookkeeping, reconciling, planning, adjusted journal entries, balance sheet, income statement, statement of cash flows and so on. Let me break some of that down into plain English for you:
Credits, on the balance sheet, are liabilities, like debt, expected payments of expenses (also known as Accounts Payable) and Equity (the value of your ownership interest). Also, when someone gives you cash because of a sale then you are also generating a credit on the income statement known as income.
In accounting your debits and credits need to balance each other. This means that when they record them they will refer to the debits going on the left side of the paper and the corresponding credits on the right. Everything in accounting must balance and add up.
Along these same lines, and mentioned above, there is a report called a Balance Sheet. This is where you show that your Assets are equal to your Liabilities and Equity. In simpler terms what you have (Assets) is equal to what you owe (Liabilities) plus what you have retained as your ownership Equity in the business so far.
The accountants will want you to Reconcile (make sure things match up) your accounts monthly. This is because it is much easier to find mistakes (and we all make mistakes) when you stay on top of it.
When things don’t add up or need to get reclassified, the accountant will tell you what “AJE’s” you need to make. These are Adjusted Journal Entries that fix whatever is off. If you have a professional bookkeeper, or have us doing your bookkeeping for you, you won’t hear this phrase very often. If you’re winging it yourself, you may hear it more often!
The income statement is another common report that starts out with your revenue for the time period (month, year, etc.) being discussed. It then lists out your operating expenses like Advertising, Depreciation, Employee Benefits, etc. The expenses are subtracted from the revenue and this tells you of your hopeful profit (versus loss) for the period. There is more to this report, but to keep it simple we will stop here for now. If you want to know more, call your CPA. They love talking about this stuff!
The third common report they will talk to you about is the Statement of Cash Flows. It is designed to show you just that. How it does it should be explained by the CPA for you, not me. So feel free to ask them about it.
Now, if you’re talking to your CPA (Certified Public Accountant! See, I just caught myself using jargon on you) about taxes there is a long slew of jargon that is used here. Things like itemized or standard deductions, various form numbers, organizers, portal, secure email and extensions.
Deductions are things you are allowed to claim on your tax return to help you lower the tax you will end up owing. You will either claim the standard deduction or “itemize” deductions if they are greater than the standard. Some deductions require “Itemizing” them, which means listing them out. Since the Tax Cuts and Jobs Act increased the standard deduction, fewer people will need to itemize. For example, you used to be able to gather up medical expenses and charitable gifts and use those to lower your taxable income. Now, the amounts are different so check with your CPA and get their advice on what you need to know about this. You may still be able to do this, or you may have just saved yourself a lot of time and effort in not needing to gather all of that information up.
1040, 1041, Schedule C, Schedule D, Schedule A and Schedule E are some of the forms you may hear them talk about. Schedule C is for people with self-employment income and expenses; Schedule D is for Capital Gains (when you sell investments you have either a gain or loss from the sale, these are added up here); Schedule E is for rental property items; and Schedule A Itemizes allowable deductions like medical expenses and charitable contributions, etc.
1040 is the main form for filing taxes, although there are other versions of it, this is the most commonly used one and what you will likely hear from the CPA. 1041 is for Estates and Fiduciary filings (when someone passes away) and Trusts.
The most important form from where I sit though is the E-File Authorization Form also known as the 8879 (although there are many, 8879 is the Federal form). You MUST sign and return this form to your CPA after reviewing your taxes for accuracy in order for them to electronically file your taxes. If you do not do this, they do not file your form. So, don’t blow this one off!
In today’s world of high-tech everything, you will hear often about the importance of securing of your personal information. We have both a secure portal (where we can share documents and information with you) and we can use Secure Email as well. Typically, you would use one or the other. For more info on that you can call our office at 603-224-2000. The team is well versed in getting you set up to do that and walking you through it.
Organizers and Engagement Letters are what we send out to you in the annual mailing. It is a Letter that is the contract of our “engagement” with you. It spells out what we will do for you and what you need to do for your end of the bargain. The organizer is a tool you can use to let us know what things have changed in your life in the past year and it helps you organize what information you should be gathering up to send us.
Last, but not least, I will mentions Extensions. This is what is filed when you do not have everything in in time for us to complete your return and file it by the deadline. It gives you six months more to chase down that missing K-1 (a form that typically is sent to you so late you have no choice but to go on extension) or whatever else is missing. When the extension is filed you do need to make a payment if one is likely to be due. So, this is not a simple delay tactic. It is something that requires work on both of our ends and we need it to be accurate. However, it is also not something to be feared. The team here are pros. They can guide you in whatever you need.
I hope this little ditty on what in the world they are talking about when you speak with them was helpful. Not having an accounting degree, but working in an accounting firm, I know firsthand how much of a foreign language it can be! Even with an MBA (Masters of Business Administration) I have to ask them to explain things to me from time to time.
One last bit of advice, if you are speaking with them and do not understand something they say, just ask them. As with any profession, there comes a lingo or jargon that insiders know fluently and those of us in other professions do not. They do not even know they are doing it and they will not think less of you for asking – they will actually think more of you for it.
Why? Because they want you to be comfortable talking with them. They want you to understand and be comfortable with everything they are helping you with. They want you to ask them questions. That is how our best client relationships go. We all get on the same page and accomplish so much more together. Good luck talking with your Accounting Professional! What’s the number? 603-224-2000.