When you start a new business as an owner, you likely find yourself taking on a lot of different responsibilities, same time you may be dealing with investors and marketing team. To be successful in these situations, you must know accounting terminology.
Here is we’ve provided a list of basic accounting terms. Studying up on the definition and correct usage of accounting terminology will allow us to communicate more efficiently with our accountant. We consider these accounting terms that every small business owner should know.
1. Accounts receivable
Accountant receivable includes money owed by customers as payment for goods or services. Company’s spread sheet will reflect accounts receivable as a creditable asset because there is an understanding that the client is legally obligated to pay this amount.
2. Accruals
This is a list of expenses that you incurred but have not yet paid or a list of sales that have been completed but not yet billed. These accruals can be either positive or negative, impacting both income statement and balance sheet. You will use accrual accounts to mark funds that will hit to your accounts but not yet, typically because of the time it takes to complete the accounting process.
3. Assets
Company’s assets are everything that a company owns. Most of cases, the company’s assets from the accounting perspective are tangible. Tangible assets include things ie, Office Equipment, Property, Land, Cash, etc.
Intangible assets are such as stock, share; copyrights, patents, server and trademarks can also fall under this category.
4. Bad debt expense
When you make a sale on credit, there’s a chance that you won’t receive payment from your sale. Marking bad debt expenses in your account can give you a more accurate look at your bottom line.
5. Balance sheet
Balance sheet is an overview of a company’s financial status, including assets, equity, and liabilities. The company’s accounting equation that you’ll want to keep in mind when it comes to your balance sheet is Assets = Equity + Liabilities
A balance sheet normally has three sections: assets, liabilities, and equity.
6. Cash-basis accounting
In the company Cash-basis accounting is a straightforward accounting method. Normally cash-basis accounting system, you record payments when they’re received or else processed. Accounts receivable do not come into play under cash-basis system.
7. Depreciation
Depreciation is especially crucial for company’s tax purposes. It’s defined as the recovery of an item’s cost over time, you can write off and depreciate larger pieces of equipment on your tax returns that many do. Depreciation normally calls for you to allocate the cost of a tangible asset throughout the entirety of its life, instead of all at once.
8. Dividends
Shareholders are taking company’s earning as dividends. A corporation’s board of directors typically determine the dividend amounts or percentages. They can be issued for cash, stock market shares, or any other property.
9. Expenses
Expenses are the costs of acquiring something. There are four types of costs: fixed, variable, operational and accrued. Fixed expenses in company stay consistent from month-to-month and year-to-year. Expenses like salaries, rent, travel, Internet bills etc.
Variable expenses are tied with to the company’s all production. Accrued expenses are usually single accounting expenses that are reported but aren’t yet paid. Operating expenses are costs that are necessary for a company to operate the business.
10. Forecasting
Forecasting is the prediction process of using a company’s historical financial data to predict future business forecast. Businesses normally used it to estimate budgets for specific time frame, but they can also use it to predict things like sales, gross profits, the value of an asset, or how long it will take to pay off long-term loan.
11. General ledger
This is the complete recording of a company’s financial transactions over the lifelong of the organization. The ledger tracks owner’s capital, shares, assets, revenues, and expenses. Business owners make sure diligent whenever recording transactions in the general ledger.
12. Journals
Journals also referred to as accounts. This is where transactions are recorded as they happen and before they are transferred to the official accounting record book, or the general ledger. While the general ledger records broader things like liabilities, accounts payable will show up in the journal.
13. Liabilities
Liabilities are debts that a company is responsible for paying in the short or long term. Things like mortgages, assets and credit card balances are liabilities.
14. Market value
Market value is a measure of firm worth to investors. Looking at financial documents is an excellent way to measure market value of the company. But market value can also account for intangible things, like intellectual property, data, codes, server many more according to different businesses.
15. Profit and loss statement
The profit and loss (P&L) statement commonly is a financial statement that summarizes the revenues, costs, and expenses incurred during a specified period, usually expenses and net profits for a given year.
16. Revenue
Revenue is the total amount of money collected for goods or services sold before subtracting any expenses end of the year. It also includes all credits or discounts for returned merchandise.
17. Trial balance
Trial balance is a mock exercise used to confirm final figures before generating financial statements. It requires placing the debits and credits on a worksheet to ensure that any current balances are correct. Mainly accounting software’s are used for perform trial balances automatically.
18. Working capital
Working capital is the amount of money a company has kept to invest or spend on necessary items for business. Essentially, it is a measure of operating liquidity and can help business owners to determine how much they can allocate toward operating expenses.
Brush up with accounting terminology
Spent the time to understand business terms is well worth your while and can set you up for future success of the business. These terms are relevant to the owners of all businesses.
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