“Recover a balance”, “Make an entry”, “distribute dividends”. You didn’t understand anything? It’s normal. It’s because you don’t speak the accounting language!
When you talk to your accountant, a few technical words come up regularly. Accounting has its lexical field just like any other discipline.
Let’s take a tour of the recurrent and essential technical vocabulary.
An accounting account
This is surely the most important concept in accounting. The account is the basic classification method of accounting in which all transactions relating to the same item or items of the same nature are listed.
An account is characterized by a number and a title. The accounts are divided into 7 major classes (which together form the general chart of accounts (PCG).
An accounting entry
An accounting entry is the transcription into the accounting language of a transaction or flows through the use of accounts.
In general, the entry mentions the wording of the transaction, if possible the number of the document justifying the entry, the date, the journal to which the entry relates, and of course the number of the accounts used. Note that an entry must necessarily be balanced, that is to say, that the debit is always equal to the credit.
The accounting journal
An accounting journal is a grouping of all accounting transactions of the same nature. Thus the accounting department will be able to open a Purchasing journal, a Sales journal, a Miscellaneous Operations journal (OD), a Bank journal, etc.
The accounting entry corresponds to all the entries that are recorded in the accounts throughout the year. Usually, the accountant is responsible for this task. A quality entry is a guarantee of reliability and a saving of time when the accounts are closed. Accounting entry is done using dedicated software.
The general ledger
The general ledger is a document that lists all the accounting entries that have been entered over a period. Thanks to current accounting software, ledgers are edited in PDF or Excel format.
The general accounting balance
The accounting balance summarizes all the balances of all the accounts used over a period. Each line of the balance shows the account number, its title, and its credit or debit balance. If the entry has been correctly made, the accounting balance must be balanced: the total of the debit column is equal to the credit balance.
Equity corresponds to the funds made or left at the disposal of the company by the partners or shareholders (owners). They, therefore, correspond to the debt that the company owes to its owners.
In the balance sheet, shareholders’ equity is made up of certain class 1 accounts, in particular share capital, reserves, retained earnings, profit for the year, or even regulated provisions. Equity is found at the top of liabilities (right column).
Within the chart of accounts, cash (also called cash) corresponds to class 5 accounts. Cash corresponds to all the cash available to the company, whether it be shared, various investment securities, savings. or even current accounts.
Cash accounts are balance sheet accounts. They are therefore found at the bottom of the asset (left column).
Accounting closure is the act of “closing the accounts” on the closing date.
It is also an opportunity to make so-called “inventory” entries which consist in particular in attaching expenses and income to the financial year to which they relate, in valuing the assets at their fair value bypassing, if necessary, provisions for depreciation or to recognize the various taxes owed by the company.
Apart from very small ones, most companies are subject to the obligation to draw up annual accounts.
The balance sheet, the income statement, and the appendices, all closed on a closing date defined at the time of the creation of the company, from what is called the annual accounts.
The partners or shareholders of the company (owners) will approve the annual accounts each year during the annual general meeting. It is said that this general assembly is ordinary because it is regular. Once the accounts have been approved, they must be filed with the administration (registry of the commercial court) within a maximum period of 2 months.
Distribution of dividends
When a company makes a profit and has paid its tax, there is still a sum which the partners or shareholders can partly dispose of. The latter can indeed decide to pay all or part of this amount, provided of course that the cash (liquidity) allows it.
This distributable amount is called: the dividend.
Note that nothing obliges the partners or shareholders to pay each other the dividend. In this case, the amount remaining undistributed will remain inequity and will constitute an available reserve for the benefit of the company.
A tax declaration consists of a standardized form provided by the tax authorities in order to declare a category of income and thus to calculate and pay the tax due on this income.
Companies, depending on their legal form and tax regime, may be subject to either income tax or corporation tax.
Tax returns must be completed with sincerity. They will be returned within the regulatory deadlines under penalty of fines and tax penalties.
There are a multitude of tax returns depending on the tax or tax to which they relate.
You have surely already been in contact with the collaborators of an accounting firm. So you’ve heard of the “fiscal period”.
This period usually lasts from 1st January to late May. It corresponds to a very busy time during which employees will have to:
- close their clients’ accounts,
- review the accounts,
- establish tax packages,
- complete tax returns
- or to transmit the information to the legal services in view of the general meetings,
all within the allotted time in order to avoid late payment penalties.
This busy period is mainly due to the fact that a large part of the companies closes their financial year on December 31 of each year.
In conclusion …
These technical terms obviously do not constitute the entire technical accounting lexicon. However, they qualify what one might call the “BA-BA” of accounting concepts. Essential concepts to know if you want to discuss accounting.