Whether you’re building an integrated lending product or an auto-reconciliation feature for your SMB customers, here are the accounting terms you should know.
Building and maintaining integrations of any kind can be challenging, and accounting integrations are some of the most complex. They require an extensive understanding of accounting principles, bookkeeping, and how financial data behaves.
The requirements also differ depending on the use case. For instance, building an integration to push data into an accounting package is vastly different from building pull functionality to assess a loan application. Therefore, the terms you’ll need to be aware of will also vary.
This series aims to eliminate the confusion you may encounter when building and maintaining accounting integrations by introducing key terminology, explaining how accounting data behaves in different platforms, and how it differs from translational data. Let’s kick things off with the basics.
What is accounting?
Accounting is how you record and organize financial transactions to show a company’s financial results and position.
The fundamental principle of accountancy worldwide is that accounts are produced on an accruals basis. They record a transaction in the period it relates, regardless of when cash changes hands (in other words, when goods are delivered or services provided).
Terminology for credit decisioning and risk assessment
Accounting data provides crucial insight into the health of a business over time, as well as supplier and customer risk. It can be used to assess loan and insurance applications, speed up onboarding processes, and monitor the financial health of your customers on an ongoing basis.
Below are some terms you’ll need to become familiar with if you’re using accounting integrations in your credit decisioning and risk assessment processes.
| Terminology | Definition |
|---|---|
| Income | Sales for a company’s normal business activities during a set time period. |
| Expenses | Costs incurred by a company available in the profit and loss statement. |
| Liabilities | Debts or obligations owed by the company, payable in money goods or services. |
| Current Assets | An asset that can be reasonably expected to convert into cash, sell, or consume in less than one year. |
| Current Liabilities | Obligations or liabilities that will extinguish in less than one year. |
| Current Ratio | A measurement of a company’s liquidity that is calculated by dividing current assets by current liabilities. |
| Cash Equivalents | Short-term (generally less than three months) assets easily converted into cash and for which the amount of cash is identifiable. The exact definition depends on the GAAP applied. For instance, IFRS is particular at three months or less. FRS 102 (UK) is not so specific and refers to ‘about three months’. |
| Inventory (Stock) | Stock of goods held for manufacture or resale. |
Terminology for accounts payable automation
Manual reconciliation is no longer acceptable to SMBs. Integrations are table stakes. Each accounting platform treats payables differently. In order to standardize payment data to allow for automated reconciliation, you must be familiar with the below terminology.
| Terminology | Definition |
|---|---|
| Creditor | A party that a company owes money to. |
| Purchase Invoice | An invoice a company receives from a supplier, that needs to be paid by the company. |
| Accounts Payable (Trade Creditors) | Amounts due to suppliers for goods or services received. |
| Aged Payables (Aged Creditors) Report | A report showing the amounts the company owes suppliers, grouped by how overdue the amount is. The timeframes are usually 0, 30, 60, 90, and more than 90 days. 0 days is not yet overdue, 30 days overdue, etc. |
| Inventory (Stock) | Stock of goods held for the purposes of manufacture or to re-sell. |
| Liabilities | Debts or obligations owed by the company, payable in money goods or services. |
| Purchase Orders | Authorization sent to a supplier confirming the company’s intent to purchase goods or services. |
Terminology for accounts receivable automation
Each accounting platform treats receivables differently. To build accounts receivable automation functionality, you’ll need to become familiar with the principles below.
| Terminology | Definition |
|---|---|
| Debtors | Customers who owe money to the business. |
| Invoice | A document from supplier to customer which summarizes the goods or services provided, and the price of the sale. |
| Accounts Receivable (Trade Debtors) | Amounts due from customers for goods or services they have provided the company. |
| Aged Receivables (Aged Debtors) Report | A report showing the amounts the company owes suppliers, grouped by the timeframe the amounts are overdue by. The timeframes are usually 0, 30, 60, 90, and more than 90 days. 0 days is not yet overdue, 30 days overdue, etc. |
| Inventory (Stock) | Stock of goods held for the purposes of manufacture or to re-sell. |
| Credit Notes | A document provided to customers that cancels out, or reduces, the amount on a sales invoice that has been previously sent. This, therefore, reduces the amount owed to you by a customer (or results in you having to make a payment to the customer). |
| Sales | Sales for a company’s normal business activities during a set period of time. |
| Bad Debt | Any amounts owed to a company from a customer that will not be received. |
How Codat can help
Over 300 clients already use our business data APIs to build integrated products for their SMB customers. Our API infrastructure is leveraged by clients ranging from lenders to corporate card providers and business forecasting tools, with use cases including automatic reconciliation, business dashboarding, and loan decisioning.
Our integrations are standardized to a single data model, allowing clients to build to Codat once rather than having to sink their Engineering resources into building and maintaining each complex integration themselves.
Create a free account to start building today, or complete the form below to get in contact with our Sales team.