Basic accounting terms every band should know

Accounting may seem like a strange and foreign language to most, but it doesn’t have to be. There are some simple terms that every band should know that will help them whether you are keeping track of your own finances or hiring someone to do it for you. The five major terms in accounting are:

• Assets
• Liabilities
• Owner’s Equity
• Revenue
• Expenses

The two most important terms to know right away are revenues and expenses. Simply speaking, these two terms are what you make and what you spend.

Revenues are any money that your band earns as a band. This may include ticket sales from shows, selling CDs or songs on the internet, royalties from licensing opportunities, and merchandise sales. Revenues do not include what your band makes as individuals working part-time jobs. You want to keep the band money separate from each of your personal finances.

Expenses are what you purchase using the band’s money. There may be a whole host of expenses that may crop up in the course of your career, but some of the main ones you will see frequently are:

• Advertising expense (posters, flyers, etc.)
• Transportation expense (gas, vehicle rentals, etc.)
• Rent expense (if you are renting practice space)
• Tax expense (if your band is set up as a corporation)

Keeping track of the money that comes in and out of the band’s coffers is very important. It is also a basic starting point for your band’s economic success. Use a notebook or Excel program to keep track of your revenues and expenses and make sure you keep it current. Start by keeping track of the cash your band has, whether it is money that you each have put in or that you have earned in revenue.

The other three terms you should know in accounting get a bit more complicated, but you should be familiar with them. Even if you make enough to hire an accountant, it is good to know these things.

• Assets are any resource that the band has which holds value (i.e. cash, equipment, your bands record deal or licensing agreements)
• Liabilities are debts the band owes to others (e.g. a band credit card or loan)
• Owner’s equity is the band’s claim to its assets or basically what your band is worth

Keeping these few terms in mind should help you get started with a more sound financial understanding. To start, though, it is very important for your band to keep money separated from your personal accounts. Keep track of your band’s cash flow each time someone puts money in to the band, takes some out, you gain some revenue, or when any money is spent and you will be on your way to helping your band stay financially afloat.

Image by Flickr.com user GenBug.