Accounting Terminology for Business Owners
September 28, 2021
When you run a business, you should work on improving your knowledge of technical financial terms and concepts for a better understanding of your business. Even if you hire a professional accounting service for your enterprise, knowing what’s going on never hurts!
Here’s a business owner’s guide to a few basic accounting terms they should be familiar with.
Balance Sheet
A balance sheet represents your company’s financial health by specifying its assets, liabilities, and ownership equity during a particular timeframe. It’s a snapshot of your business’s financial position and highlights your current financial standing.
Accounts Payable & Receivable
Accounts payable encompass any and all bills that you haven’t yet paid to your vendors, creditors, or suppliers. The total amount of all of the accounts payables is categorized under current liability on the balance sheet.
Accounts receivable refers to the money that’s owed to you by your customers, collaborators, or partners for the goods or services you provided them. The sum of all the accounts receivables falls under the category of current assets on the balance sheet.
Equity
Equity is the total value of your business’s assets after all liabilities have been deducted. In case of a sole proprietorship or partnership, this may be referred to as owner’s equity.
Income Statement
The income statement displays expenses, profits, revenues, and losses for a specific period of time. This may also be called the profit and loss statement. It summarizes your business’s income progress for a specific period.
Cash Flow Statement
The cash flow statement shows where your business was earning or receiving money from (funding sources) and how that money was spent during a specified time.
Fiscal Year
This is a 12-month period defined by each business to analyze their uses accounting progress and prepare financial statements. It may coincide with the calendar year (1st January to 31st December) or follow a different 12-month course (for e.g. 1st July to 30th June).
General Ledger
The general ledger is essentially a complete recording of every financial transaction your business has had over its lifetime. It includes expenses, assets, liabilities, revenue, and equity.
Depreciation
This is a term used to describe the decline in value of a certain business’s assets over time. It’s used to assess tax deductions which can help your business recover some of these costs.
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