2 TERMINOLOGY

Precise terminology is important in bookkeeping and accounting. Key terms are given at the end of each chapter to highlight appropriate terminology. It is important to be clear on the following:

• Sales – the exchange of goods or services for money. Items such as commission and fees received are also used instead of sales for some services, perhaps by professional businesses such as accountants and lawyers.
• Purchases – goods and services obtained for resale to customers, or for use or consumption in the business.
• Receipts – money received, mainly from cash sales or from customers who have been allowed a period of credit before making payment.
• Payments – money paid out in cash or from the bank account by cheque or digital or electronic means.
• Income – a more general term than sales to also include interest received, rent received from letting part of the business premises and so on.
• Expenses – cash paid for rent, electricity for lighting, telephone charges and so on. This does not include purchases of goods for resale or the purchase of assets, such as machinery and equipment for use in the business.
• Expenditure – includes purchases, expenses and money spent on buying anything else for the business.
• Petty cash – relatively small amounts of cash in the form of notes and coins used to pay small, occasional expenses, such as office refreshments or travel expenses. Normally, the cost would be paid by an employee who would then receive a cash reimbursement.
• Payroll – is accounting for the costs of having employees, which includes all elements of gross pay (before any tax deductions) such as basic wage or salary, plus any bonus, commission and also additional employer costs.