7 Essential Accounting Terms for Small Businesses

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7 Essential Accounting Terms for Small Businesses
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• Working with your bookkeeper is the best way to
  learn about how youre doing financially. It is
  essential that you work closely together
  throughout each quarter on an ongoing basis in
  order keep up-to date and understand any issues
  better than before! We have found that a lot of
  small business owners are master of their trade
  but have some difficulties in understanding the
  accounting jargon or in communicating with the
  bookkeeper to better understand the financial
  health.

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• If you want to increase your accounting knowledge
  so you can have more informed, insightful
  discussions with your account this quarter?
• Start right now, with this list of 7 essential
  accounting terms for small business owners.

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• 1. Balance Sheet A balance sheet is a snapshot
  of your company's financial position at a
  specific point in time. It lists your assets
  (what you own) and your liabilities (what you
  owe). The difference between the two is your net
  worth. Balance sheets provide the basis for
  computing rates of return for investors and
  evaluating a company's capital structure. In
  short, the balance sheet is a financial statement
  that provides a snapshot of what a company owns
  and owes, as well as the amount invested by
  shareholders. Balance sheets can be used with
  other important financial statements to conduct
  fundamental analysis or calculating financial
  ratios.

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• 2. Profit and Loss Statement A profit and loss
  statement, also known as an income statement, is
  a summary of your company's revenues and expenses
  over a specific period. The PL statement is a
  financial report that shows how much profit or
  loss exists in an organization at any given time.
  This can be broken down into two categories
  positive numbers, which represent increases to
  company revenue negative figures related with
  cost reduction efforts gone sour because they
  decreasingly affect their bottom line (the amount
  left over after all expenses have been paid).

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• 3. Accounts Receivable Accounts Payable
  Accounts receivable is the total amount of money
  that your customers owe you. This figure includes
  both current and past-due invoices. Accounts
  payable is the total amount of money you owe your
  suppliers. This figure includes both current and
  past-due invoices.

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• 4. Cash Flow statement Cash flow is the movement
  of cash in and out of your business. It's
  important to track your company's cash flow so
  you can make sure you have enough cash on hand to
  cover your expenses. The CFS measures how well a
  company manages its cash position, meaning how
  well the company generates cash. The CFS
  complements the balance sheet and the income
  statement. The main components of the CFS are
  cash from three areas operating activities,
  investing activities, and financing activities.
  The two methods of calculating cash flow are the
  direct method and the indirect method.

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• 5. Budget A budget is a plan for how you want to
  use your company's money over a specific period.
  It can help you track your expenses and stay on
  track with your financial goals. A budget is
  basically a financial plan for a defined period,
  normally a year that is known to greatly enhance
  the success of any financial undertaking.
  Corporate budgets are essential for operating at
  peak efficiency. Aside from earmarking resources,
  a budget can also aid in setting goals, measuring
  outcomes, and planning for contingencies.
  Personal budgets are extremely useful in managing
  an individual's or family's finances over both
  the short- and long-term horizon.

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• 6. Gross profit and net Profit Gross profits are
  what remains when you subtract COGS from your
  total revenue. Net Profit, on other hand, reveals
  more details about how much money is made after
  all operating expenses have been paid - including
  taxes owed or interest paid for debt using credit
  card bills as an example of borrowings against
  inventory purchases which will decrease its worth
  over time if not proactively retired through
  sale/exchange transactions with respective
  creditors.

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• We hope this list of essential accounting terms
  will help you better understand your company's.
  Please let us know if there were any other terms
  you would like for us to help you with, join the
  conversation, and empower smarter decision-making.