An introduction to FreeAgent terminology
This article provides an easy A-Z of accounting terms commonly used in FreeAgent. We've also explained how you might hear them referred to elsewhere.
Select the relevant term for more details:
- Accounting basis
- Accounting categories
- Bank transactions
- Bill credit notes
- Contra account
- Explain a bank transaction
- Opening balances
- Show Transactions report
- Transfers between bank accounts
The accounting basis is the method used to prepare your business’s accounts.
Non-UK account types can only prepare their accounts using accruals basis accounting in FreeAgent, which is sometimes called ‘traditional accounting’.
Under the accruals basis of accounting, businesses record their income at the date displayed on invoices issued and on bills received.
Accounting categories in FreeAgent are the categories in your business’s accounting records where transactions are posted, and are divided into accounts for:
Your accountant might also call these nominal accounts or nominal codes.
To see a list of the standard accounting categories available in FreeAgent, you can download a chart of accounts, which is a list of your business's nominal accounts without the transactions they contain. If you’d like to see the accounts with their transactions in, go to the Show Transactions report.
You can add new accounting categories if you need additional nominal accounts.
A bank transaction is a record of money that has come into or gone out of your bank account.
A bill in FreeAgent is an invoice that one of your suppliers will give you, which you’ll need to pay.
A bill can also sometimes be referred to as a 'purchase invoice' or a 'supplier invoice'.
Other software providers might call collective bills 'Creditors' or 'Accounts Payable'.
Bill credit notes
A bill credit note in FreeAgent is a credit note that one of your suppliers will give you if you no longer have to pay the full amount of a bill. A bill credit note is like a negative bill for all, or part of, a bill that has been previously sent to you.
A bill credit note might cancel out a bill completely if it’s for the same amount as the bill, or it might be for less than the bill.
Contacts are individual suppliers and customers who you need to add to FreeAgent in order to create invoices, estimates, bills and projects.
Find out more about contacts in FreeAgent.
The contra account is a holding account designed for situations where money comes into your bank account and then goes straight back out, or vice versa.
For example, if you receive a cheque that bounces you would explain both the incoming sum and the money going back out again to the contra account. Find out more about explaining bank transactions using the contra account.
Drawings are all the monies taken out of a business by a user.
The term ‘expenses’ is sometimes used to refer to all of a business’s day-to-day running costs.
Expenses in FreeAgent are business costs that are paid for by an employee or business owner using personal funds, and later reimbursed by the business that they work for.
These are recorded as out-of-pocket expenses in FreeAgent, for example a train ticket for business travel paid for on a personal credit card.
However, if the cost was paid for directly using business funds, you should explain the bank transaction instead once it’s been imported into FreeAgent via a third-party bank feed integration or bank statement upload. Alternatively, you can add a bill if the cost has been incurred but hasn’t yet been paid for, but will be paid for by the business.
Find out more about the difference between an expense, a bill and a bank payment.
Explain a bank transaction
Explaining a bank transaction is part of the bank reconciliation process of categorising the bank transactions that come into and out of your business bank accounts in FreeAgent.
You’ll need to explain transactions both coming in and going out of your bank account. Find out how to explain a bank transaction in FreeAgent.
Opening balances are the amounts that your business has in each of its accounts as at its FreeAgent start date.
If you’ve been trading for a while, you'll have some opening balances to enter when you start using FreeAgent. These are the figures in your accounts as they stood on your FreeAgent start date.
Find out more about opening balances in FreeAgent.
Show Transactions report
The Show Transactions report displays all your transactions in each of the different account categories in FreeAgent.
This report is also sometimes called the nominal ledger or general ledger. This ledger shows the transactions in all of a business’s accounts, including the amounts of its assets, liabilities, income, expenses and capital.
Transfers between bank accounts
When explaining bank transactions, there are several options you can select. The ‘Transfer to Another Account’ option from the transaction ‘Type’ drop-down menu should only be used when you want to explain bank transactions that relate to transfers to and from another bank account of yours in FreeAgent.
Please note that both bank accounts will need to have been added to your FreeAgent account in order for this function to work.