Accounting words, in plain words.
No one is born knowing what a trial balance is. Here is every term an owner meets, explained in a sentence or two, with a small ringgit example where it helps.
Rules change.Confirm current rates and dates with the Royal Malaysian Customs Department, LHDN or your accountant. Faas gives general education, not legal or tax advice.
Accounts payable
Money your business owes to suppliers for things you have already received but not yet paid for. It is a liability. In Faas Easy Mode this shows as "I owe".
Accounts receivable
Money your customers owe you for things you have already sold but not yet been paid for. It is an asset, because the money is on its way to you. In Faas Easy Mode this shows as "who owes me".
Accrual basis
A way of keeping books where you record income when you earn it and costs when you incur them, even if the cash moves later. It gives a truer picture of how the business is doing in a given month.
Ageing
A list of unpaid invoices or bills grouped by how long they have been waiting, for example current, 1 to 30 days late, 31 to 60 days late. It shows you who to chase first.
Assets
Things your business owns or is owed that have value. Cash in the bank, money customers owe you, stock on the shelf, equipment and vehicles are all assets.
Audit
An independent check of a business's books and records, done by an auditor, to confirm the accounts give a fair picture. Whether your business needs one depends on its size, type and who relies on its accounts.
Audit trail
The record of who did what and when in your books: who created an invoice, who edited it, who posted a journal. A good audit trail cannot be quietly rewritten, so anyone reviewing the books can trace every number back to its source.
Bad debt
Money a customer owes you that you have given up hoping to collect. When you decide an invoice will never be paid, you record it as a bad debt, which is an expense.
Balance sheet
A snapshot of what your business owns (assets), what it owes (liabilities) and what is left for the owner (equity) on one particular day. The two sides always balance: assets equal liabilities plus equity.
Bank reconciliation
Checking that the bank balance in your books matches the bank statement, line by line, and explaining any difference. It catches missed payments, double entries and mistakes. Faas matches most lines for you and asks about the unclear ones.
Bill
An invoice you receive from a supplier, which you have to pay. In accounting it creates accounts payable until you settle it.
Bookkeeping
The day-to-day job of recording every sale, purchase, payment and receipt so that your accounts are complete and correct. Accounting builds reports and advice on top of good bookkeeping.
Break-even
The point where your sales exactly cover your costs, so you make neither a profit nor a loss. Every sale after that point adds to profit.
Capital
Money or assets the owner puts into the business. Capital is not income, so it does not count as profit. It is recorded separately as part of equity.
Cash basis
A way of keeping books where you record income only when money arrives and costs only when money leaves. It is simple, but it can make a busy month look quiet if customers pay late.
Cash flow
The movement of money into and out of your business over a period of time. A business can be profitable on paper and still run short of cash if customers pay late or big bills land together.
Chart of accounts
The full list of account names a business uses to sort its money, such as Bank, Sales, Rent and Trade payables. Each account usually has a code and sits in one of five groups: assets, liabilities, equity, revenue or expenses. Easy Mode hides the codes, Full Mode shows them.
COGS (cost of goods sold)
The direct cost of the things you sold in a period: what you paid for the stock, or for the materials and labour that went into it. Take it away from sales to get gross profit. Also called cost of sales.
Contra
An entry that offsets what a customer owes you against what you owe the same party, so only the difference needs to be paid. It is used when someone is both your customer and your supplier.
Credit
One side of every accounting entry. A credit adds to liabilities, equity and revenue, and reduces assets and expenses. It does not mean "good" or "owed to you". It is simply the right-hand column.
Credit note
A document you send a customer that reduces what they owe you, for example after returned goods or a price correction. It can be applied against another invoice, or you can refund the money.
Debit
One side of every accounting entry. A debit adds to assets and expenses, and reduces liabilities, equity and revenue. It is simply the left-hand column, not a "bad" thing.
Debit note
A document that increases what someone owes. On the supplier side, you send one to a supplier to return goods or claim back an overcharge, which reduces what you owe them.
Delivery order
A document that lists what is being delivered to a customer and is signed on receipt. It proves the goods arrived, and is often followed by an invoice. It does not ask for payment.
Deposit
A part payment made before the work or delivery is complete. It secures the booking or order. Until the work is done, a deposit is usually treated as money you owe the customer in goods or services, not as finished income.
Depreciation
Spreading the cost of a long-lasting item over the years you use it, instead of counting it all as an expense on the day you buy it. It reflects that equipment wears out and loses value.
Double-entry
The method behind all proper accounting: every transaction is recorded twice, once as a debit and once as a credit of the same amount. Because the two sides must match, mistakes show up quickly. Faas does this for you in the background.
Drawings
Money the owner takes out of the business for personal use. Drawings are not an expense and do not reduce profit. They reduce the owner's equity instead.
e-Invoice
An invoice issued in a standard digital format and shared through the government's system, instead of a loose PDF or paper copy. In Malaysia this runs through LHDN's MyInvois system. Who must use it, and from when, is set by the authorities and can change.
Equity
What is left for the owner after you subtract liabilities from assets. It is made up of capital put in, profit kept in the business, less drawings. Also called owner's equity.
Expenses
The costs of running your business in a period, such as rent, utilities, supplies, wages and marketing. Expenses reduce profit.
Financial year
The 12-month period your business uses to prepare its yearly accounts. It does not have to be January to December. Your books are closed and summarised at the end of each financial year.
Fixed asset
A long-lasting item the business owns and uses, rather than sells, such as a car, an oven, a computer or a shopfront renovation. Its cost is spread over its useful life through depreciation.
General ledger
The master book of your accounts. It holds every entry for every account, so you can see all the movement in Bank, Sales or Rent in one place. Reports like the profit and loss and balance sheet are built from it.
Gross profit
Sales minus the direct cost of what you sold (COGS). It shows how much you make from your products or services before overheads like rent and wages.
Inventory
Goods you hold to sell, or materials to make what you sell. Also called stock. Unsold inventory is an asset until it is sold, when its cost becomes COGS.
Invoice
A document you send a customer asking to be paid for what you sold them. It lists what was supplied, the amount, the due date and how to pay. Once issued, it becomes accounts receivable until paid.
Journal entry
A single record in the books made of at least one debit and one credit that add up to the same amount. Faas creates journal entries automatically when you send an invoice or record a payment. Accountants also post them by hand for adjustments.
LHDN
Lembaga Hasil Dalam Negeri, the Inland Revenue Board of Malaysia. It handles income tax matters and runs the MyInvois system used for e-Invoices.
Liabilities
What your business owes to others: supplier bills, loans, tax set aside for payment and money held for customers. Liabilities are claims on your assets.
Margin
Profit expressed as a percentage of the selling price. It tells you how many sen of every ringgit of sales you keep. Gross margin uses gross profit, net margin uses net profit.
Markup
Profit expressed as a percentage of the cost, not the selling price. People often mix up markup and margin. The same sale has a bigger markup than margin.
Net profit
What is left after you take away all costs from your sales: cost of goods, rent, wages, utilities and everything else. It is the bottom line of the profit and loss. Easy Mode simply calls it money in minus money out, over a period.
Opening balance
The amount already in an account when you start using a new set of books, carried over from your previous system or from the end of the last year. Getting these right means your reports start from the true position.
Overhead
Regular costs of keeping the business running that are not tied to one particular sale, such as rent, utilities, insurance and admin wages. They have to be paid whether you sell a lot or a little.
Period lock
A setting that closes a past month or year so that nobody can change entries dated in it. Once an accountant has finished a period, locking it keeps the numbers stable. Mistakes are fixed by a dated correcting entry in an open period instead.
Petty cash
A small amount of physical cash kept in the office for little everyday costs, such as stamps, parcel fees or a coffee run. Each payment should have a receipt, and the cash plus receipts should always equal the starting amount.
Prepayment
A cost you paid in advance for something you will use later, such as a year of insurance paid upfront. It is held as an asset and turned into an expense month by month as you use it.
Profit and loss
A report that shows your sales, your costs and the resulting profit (or loss) over a period of time, such as a month or a year. Also called an income statement. It answers the question: did we make money over this period?
Purchase order
A document you send a supplier to order goods or services at an agreed price. It is a promise to buy. When the goods and the supplier's bill arrive, you compare them with the purchase order before paying.
Quotation
A written price offer you send a customer before any work starts. It lists what you will supply and for how much, and for how long the offer is valid. If the customer accepts, it can be turned into an invoice. Also called a quote or estimate.
Receipt
Proof that money has changed hands. A receipt you give a customer shows you received their payment. A receipt you keep from a supplier shows you paid. Keep both, because they back up your records.
Retained earnings
The profit your business has made over the years and kept, instead of the owner taking it out. It builds up in equity.
Revenue
The money your business earns from selling its goods or services, before any costs are taken off. Also called sales or income. Money put in by the owner is capital, not revenue.
Reversing journal
A journal entry that cancels out an earlier one by posting the opposite debits and credits. It is the clean way to correct a mistake in a locked period, because the original entry stays visible and the fix is dated and traceable.
Source document
The original paper or file that proves a transaction happened, such as a supplier invoice, a receipt or a bank statement. Every entry in the books should be traceable to one.
SST
Sales and Service Tax, a Malaysian tax that some businesses must charge on certain goods or services and then pay over to the authorities. Whether your business needs to register depends on what you sell and your turnover, so check with the Royal Malaysian Customs Department or your accountant.
Statement of account
A summary sent to a customer listing all invoices, payments and credit notes over a period, with the total still owed. It is handy for customers who forget which invoices are open.
Stock take
A count of the goods you actually have on the shelf or in the store room. You compare the count with your records and fix the differences, which can come from theft, damage or mistakes.
Trial balance
A list of every account with its balance, split into a debit column and a credit column. The two columns must add up to the same total. If they do not, there is a mistake somewhere. Accountants use it as a health check before preparing reports.
Turnover
The total amount of sales your business makes over a period, before costs. Some rules and thresholds, for example around tax registration, are based on turnover, so it is worth knowing yours.
Withholding
Tax that the person paying holds back from a payment and sends to the authorities on the recipient's behalf, so the recipient receives the amount less the held-back part. Whether it applies depends on the type of payment and who is paid, so ask your accountant.
Working capital
The money available to run the business day to day: current assets such as cash and customer debts, minus current liabilities such as supplier bills due soon. Too little and you struggle to pay bills on time.
Let Faas do the debits and credits.
Easy Mode explains each word the first time you meet it, while Faas keeps proper double-entry books underneath.