3. Accounting Terminology

Account Within SapphireOne, the term Accounts can refer to various tables, such as General Ledger accounts, Client accounts, and Vendor accounts. Client accounts are typically used for providing credit to clients, while Vendor accounts are utilized for managing purchases from different suppliers. All of these account types are managed within the Accounts mode of SapphireOne.
An example of a General Ledger account transaction demonstrates how transactions are assigned to specific ledgers. SapphireOne features eleven categories for better organization: Income, Cost of Sales, Other Income, Expenses, Appropriation, Current Assets, Non-Current Assets, Current Liabilities, Non-Current Liabilities, Bank Assets, and Equity.
Accounting Period Provides the unit of measure to assess your business performance over a specified time. Ordinarily, this will be a calendar month which would make 12 financial periods in a financial year. Some organisations will do a fortnightly period which will make 24 periods in a financial year, but ultimately it is up to the user to configure the financial periods. Also some organisations run 13 periods in a financial year.
Account ID An Account ID is a unique reference code assigned to an account, ensuring easy identification and tracking. In SapphireOne, Account IDs are alphanumeric and can be applied to various entities, such as General Ledger, Clients, Vendors, Job Projects, Assets, Payroll/HR, Activities, and Resources. Additionally, SapphireOne offers the capability to create Class IDs for each of these entities, including General Ledger Class, Client Class, Vendor Class, Job Project Class, Inventory Class, Resource Class, and Activity Class. These unique identifiers facilitate efficient organisation and management within the system.
Accounts Payable Account payables represent the amounts owed by your organisation to vendors who have extended credit for goods or services. This financial metric tracks various transactions, such as vendor payments, vendor invoices, vendor credits, vendor journals, vendor refunds, and money payments, as well as any partial or full allocations. By monitoring account payables, organisations can effectively manage their outstanding debts and maintain healthy relationships with their suppliers.
Accounts Receivable Accounts Receivable refers to the amounts owed to your organisation by clients who have been granted credit for goods or services. This financial metric monitors various transactions, such as client receipts, client invoices, client credits, client journals, client refunds, and money receipts, as well as any partial or full allocations. By keeping track of accounts receivable, organisations can efficiently manage outstanding receivables and ensure timely collection of payments from their clients.
Audit Trail An audit trail is a chronological record of financial transactions, activities, or events within SapphireOne. It provides a detailed and transparent history of each transaction, including information on the parties involved, dates, amounts, and any changes or modifications made. Audit trails are essential for maintaining accuracy and integrity in financial records, as they allow for the tracking, verification, and analysis of transactions. Additionally, audit trails support internal and external audits, ensuring compliance with regulatory requirements, and help detect potential fraud or discrepancies in financial reporting.
Balance Sheet In financial accounting, a balance sheet is a condensed report of an individual or your organisations financial standing. This statement, otherwise known as a statement of financial position or statement of financial condition, includes a comprehensive breakdown of assets, liabilities, and equity as of a specific date, typically the end of a fiscal year. Often referred to as a snapshot of a company’s financial health, a balance sheet provides an overview of all financial statements for your organisation.
Chart of Accounts A chart of accounts is a categorised list of all the financial transactions of an organisation. It provides a structure to organise financial data and facilitates the recording, grouping, and summarising of financial transactions. The chart of accounts typically includes assets, liabilities, equity, revenue, and expenses, and it serves as an essential tool for tracking financial activity and preparing Profit and Losses (P&L), balance sheets and trial balances. It is a fundamental component of SapphireOne and is fundamental in creating your financial reporting for budgeting, identifying trends, and making informed decisions for your organisation.
Locked Period In general accounting terms, a locked period refers to a specific period where transactions are not allowed to be recorded or modified. This could occur at the end of a fiscal year or accounting period, during an audit, or during system maintenance. During the locked period, accounting software may restrict access to specific accounts or modules, preventing any transactions from being entered or changed until the period is unlocked. This helps ensure accuracy and prevents errors or fraudulent activity during critical accounting periods.
Cost of Sales Cost of Sales, commonly referred to as Cost of Goods Sold (COGS), operates in a manner akin to an expense account. This financial metric represents the direct costs associated with producing or acquiring goods and services that a business sells. By subtracting COGS from the company’s revenue, you can calculate the Gross Profit, which serves as an essential indicator of a business’s financial health and operational efficiency.
Current Assets Current assets are assets that can be readily converted into cash within a one-year timeframe. These assets typically possess a debit balance, signifying their positive contribution to the business’s financial position. However, a notable exception to this general principle is the case of provision accounts, which may carry a credit balance due to their function as reserves for anticipated liabilities or expenses.
Non-Current Assets Non-current assets, also known as long-term or fixed assets, are assets that cannot be easily converted into cash within a one-year timeframe. These assets generally have a debit balance, indicating their positive value to the company. An exception to this rule is the Accumulated Depreciation Accounts, which may carry a credit balance as they represent the reduction in value of the asset over time due to wear and tear or obsolescence.
Current Liabilities Current liabilities represent financial obligations that your organisation is anticipated to fulfil within a one-year timeframe. These short-term liabilities customarily maintain a credit balance, signifying the amounts the company owes to various parties, such as Vendors, Consultants, Lenders, Suppliers, or Employees. Common examples of current liabilities include accounts payable, short-term loans, and accrued expenses.
Non-Current Liabilities Non-current liabilities, also known as long-term liabilities, are financial obligations that a business is not expected to settle within a one-year timeframe. These liabilities often include obligations such as long-term loans, lease liabilities, and other forms of debt that extend beyond one year. These commitments usually require periodic payments and have a significant impact on a company’s financial stability and planning.
Double Entry Accounting Double Entry Accounting is a fundamental bookkeeping method used in financial accounting to accurately record and track a company’s financial transactions. In this system, each transaction is recorded with two entries: a debit and a credit, affecting two separate accounts. The total debits must equal the total credits to maintain the balance of the accounting equation: Assets = Liabilities + Owner’s Equity
Financial Statements Financial statements are crucial records that display of your organisations financial status and performance, helping stakeholders like investors, creditors, and managers make informed decisions. One key statement is the Balance Sheet, which reveals an organisations assets, liabilities, and owner’s equity at a particular moment, following the formula: Assets = Liabilities + Owner’s Equity.
Another important statement is the Income Statement, which summarises an organisations revenues, expenses, and net income or loss over a specific period, such as a month, quarter or a year. It offers insights into the organisations profitability and operational efficiency.
Lastly, the Cash Flow Statement provides information about the cash entering and exiting an organisation during a specific time frame, covering operating, investing, and financing activities. This statement helps stakeholders understand the company’s cash management and liquidity.
Together, these financial statements offer a comprehensive overview of a company’s financial health, enabling stakeholders to evaluate its performance and make well-informed decisions.
Fixed Assets Fixed assets, also known as non-current assets, are long-term tangible assets that an organisation acquires and uses in its operations to generate income over an extended period. These assets typically have a useful life of more than one year and are not intended for resale during the normal course of business. Examples of fixed assets include buildings, machinery, vehicles, and office equipment. Fixed assets are subject to depreciation, which represents the decrease in their value over time due to wear and tear or obsolescence.
General Ledger A general ledger is a comprehensive financial record that consolidates all the financial transactions of an organisation. It serves as the primary source of information for preparing financial statements and includes accounts for assets, liabilities, owner’s equity, revenues, and expenses. Each account in the general ledger, known as a ledger account, contains a summary of all the transactions related to that specific account. The general ledger is essential for maintaining accuracy, providing a clear financial overview, and facilitating the process of financial reporting and analysis.
Gross Profit Gross profit is a financial metric that represents the difference between an organisation’s total revenue and its cost of goods sold (COGS). It is a measure of an organisation’s profitability and efficiency in producing or providing its goods and services, excluding other operating expenses, taxes, and interest. Gross profit is often expressed as a monetary value or as a percentage, known as the gross profit margin, which is calculated by dividing gross profit by total revenue and multiplying by 100. This metric is crucial for understanding an organisation’s financial health and evaluating its ability to cover operating expenses and generate net profit.
Income Income refers to the money an organisation receives over a period of time as a result of its business activities, such as the sale of goods and services, interest on investments, or rental income from properties. It serves as a measure of an organisation’s financial performance and provides insights into its ability to cover expenses, generate profit, and grow. Income is a critical component of financial statements, such as the income statement, where it is compared with expenses to determine the net income or loss for a specific period. Monitoring income helps organisations evaluate their financial health and make informed decisions about future investments and expenditures.
Income Statement An Income Statement, also known as a Profit and Loss Statement, is a financial report that summarises an organisation’s revenues, expenses, and net income (or loss) over a specific period, typically a quarter or a year. It provides insights into the organisation’s profitability and operational efficiency during that time frame. The income statement starts with the total revenue generated from the organisation’s activities, and then subtracts various expenses, such as cost of goods sold, operating expenses, and taxes, to calculate the net income. By reviewing an income statement, stakeholders can assess an organisation’s financial performance and make informed decisions about its financial health and growth prospects.
Net Profit (Loss) Net Profit (or Loss) is a financial metric that represents the remaining amount of an organisation’s income after all expenses, taxes, and costs have been deducted. It is a key indicator of an organisation’s overall profitability and financial performance during a specific period, such as a quarter or a year. If the net profit is positive, it signifies that the organisation has generated more income than expenses, indicating profitability. Conversely, a net loss occurs when the organisation’s expenses exceed its income, suggesting a negative financial performance. By analyzing net profit (or loss), stakeholders can assess an organisation’s financial health, operational efficiency, and potential for growth.
Opening Balance Opening Balance is the initial amount of money or value in an account at the beginning of a financial period, such as the start of a month, quarter, or fiscal year. It represents the financial position of an organisation before any new transactions are recorded. Opening balances are essential for maintaining accurate financial records and serve as the starting point for tracking an account’s changes throughout the period. In subsequent periods, the opening balance of an account is typically equal to the closing balance of the previous period, ensuring continuity and consistency in the organisation’s financial reporting.
Operating Profit Operating profit, also known as operating income or operating earnings, is a financial metric that measures an organisation’s profitability from its core business operations, excluding non-operating income and expenses, such as interest and taxes. Operating profit is calculated by subtracting the cost of goods sold (COGS) and operating expenses, like salaries, rent, and utilities, from the organisation’s total revenue.
This metric provides insights into the organisation’s efficiency and effectiveness in generating profit from its main activities, without considering external factors like financing or investments. Operating profit is essential for evaluating an organisation’s financial health, operational performance, and ability to generate profits through its core operations.
Other Expenses Other expenses, sometimes referred to as non-operating expenses, are costs incurred by an organisation that are not directly tied to its core business operations. These expenses are separate from the cost of goods sold (COGS) and regular operating expenses, such as salaries, rent, and utilities. Examples of other expenses include interest on loans, losses on the sale of assets, foreign exchange losses, and legal fees related to non-operating activities.
These costs can impact an organisation’s overall financial performance, but they do not provide direct insights into the efficiency or profitability of its primary operations. By examining other expenses alongside operating profit, stakeholders can gain a comprehensive understanding of an organisation’s financial health and the effect of external factors on its bottom line.
Other Income Other income, also known as non-operating income, refers to the money an organisation receives that is not directly related to its core business operations. This type of income is separate from the primary revenue generated through the sale of goods and services. Examples of other income include interest earned on investments, rental income from properties not used in the business, gains on the sale of assets, royalties, and foreign exchange gains.
Other income can contribute to an organisation’s overall financial performance, but it does not directly reflect the efficiency or profitability of its main operations. Evaluating other income alongside operating profit helps stakeholders gain a comprehensive understanding of an organisation’s financial health and the influence of external factors on its financial performance.
Retained Earnings Retained earnings represent the accumulated net income (or loss) that an organisation has retained over time, rather than distributing it to shareholders as dividends. Retained earnings are a part of the organisation’s owner’s equity, reflecting the earnings that have been reinvested back into the business for growth, expansion, or debt repayment.
The retained earnings balance is updated at the end of each financial period by adding the net income (or subtracting the net loss) and subtracting any dividends paid to shareholders. A positive retained earnings balance indicates that the organisation has generated more profits than it has distributed, while a negative balance, referred to as an accumulated deficit, signifies that the organisation has experienced more losses or paid more dividends than it has earned.

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