Archive for the ‘Accounting Terms Explained’ Category

Chart of Accounts and Nominal Codes

November 21st, 2008 by Duane Jackson

User of our online accounting software should rarely, if ever, see terms like “Chart of Accounts” or “Nominal Codes” in our software. It’s designed to be used by non-accountants so it’s written in plain English without the fancy jargon.

But some people see these terms elsewhere and may wonder how they relate to the accounting software they are using. So here I’m hoping to explain some of these terms.

When you receive money into your business or when you spend money from your business you need to classify it  – perhaps as “income from sale of product x” or “Office Rental Expenses” or “Bank interest”. These classifications have a number of uses. Firstly in analysis – without the classifications how would you know how sales of product X compare to sales of product Y. Or how much your bank has charged you (or paid you) in interest in the last year.
The second purpose for these different classifications is for tax and accounting purposes. Depending on what the money you received or paid out was for, it will be treated differently for tax purposes and will be displayed different in your company accounts.

So a “nominal code” is simply one of these classifications. They’re also sometimes referred to as “accounts”. So the complete set of different classifications for your bookkeeping records are called the “Chart of Accounts”.

They do exist in KashFlow. But we break them down into subsets of “Sales Types”, “Outgoing Types” and “Bank Transaction Types” – each subset is accessible in the specific area of the software.  We don’t see the point in showing you codes that are Sales Types when you’re entering bank transactions and vice versa. If you really want all codes to show in all areas then go to Settings – > Advanced Settings and enable the Access All Nominals  option.

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Aged Debtors Report Explained

November 20th, 2008 by Duane Jackson

My background is in IT, not in accounting. So I’ve had to learn a lot of accounting jargon and concepts over the past couple of years. I’m going to try to put some of this knowledge to good use by explaining in layman’s terms some of the terms and concepts I initially found intimidating. Starting with an Aged Debtors report….

An “Aged Debtors” report is one of those mysterious sounding things that accountants talk about. If you’ve got a minute to spare we can de-mystify it for you.

An Aged Debtors report is simply details about how much you were owed at a certain period in time.

The report below is based on 1st March 2008.

The first column is easy enough – it’s the name of the customer that owes you the money.

‘Balance’ simply tells you how much they owed you on this date.

Now comes the more useful part….

‘Current’ tells you how much of what they owe is from the current month (ie, March in this example). So although John Smith owes you 90p, it’s not a big deal because he was only recently invoiced.

Next we have the 3 months prior to the month we are looking at. So, as we chose March as the starting point – Feb, Jan and Dec are listed. In these columns you can see how much of the ‘balance’ figure results from invoices raised in these months.

So looking at customer Acme, we can see a number of things:
They owe us £68.17 in total
£32.90 of that money is from an invoice raised in February
Another £32.90 is from January
£0.79 is from December
£1.58 is owed from some point prior to December

Whilst this report is useful for you as a business owner, it’s also useful to others. For example, your bank manager might want to see this if you have (or are applying for) a loan. A high number in the total for the ‘Older’ column tells the bank manager that you are having trouble getting paid by your customers.

There is another report called Aged Creditors. This gives you the exact same kind of information, but is based on what you owed your suppliers at a particular time (as opposed to what your customers owed you).

An unhealthy Aged Creditors report would worry your bank manager even more as it suggests you are having problems paying your suppliers.

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