While not everyone has the opportunity to study accounting, it’s worthwhile possessing knowledge of basic bookkeeping when starting a business. Here are ten accounting term definitions to get you started to effectively communicate with your accountant;
- Accounts payable
- Accounts receivable
- Balance sheet
- Cash flow
- Equity
- Fixed cost
- Gross profits
- Inventory
- Profit and loss statement
- Revenue
Accounts payable
The term ‘Accounts payable’ represents amounts owed by a business to its suppliers and consists of unpaid goods and services. It is the debt the company owes and is recorded under current liabilities on its balance sheet.
Accounts receivable
‘Accounts receivable’ represents money others owe a business for its goods and services. It is recorded under assets on the firm’s balance sheet and is a source of short-term cash.
Balance sheet
The balance sheet is an important aspect of business. It records the basic accounting formula of (assets = liabilities + stockholder equity / capital) at a certain point in time, either monthly, quarterly or yearly.
Cash flow
The difference in money flowing in and out over a certain period. A negative flow indicates more money going out than coming in. A positive flow shows more money coming in than going out.
Equity
Equity is assets minus liabilities. Owners’ equity refers to the percentage of stock that represents a person’s ownership interest in a corporation. Equity is owned by business owners and shareholders.
Fixed cost
This is the cost that remains constant regardless of the volume of sales. Rent and insurance are typical examples of fixed costs, as opposed to variable costs, which change according to production levels.
Gross profit
This represents a company’s profitability before deducting overhead expenses. It is derived by deducting the cost of goods sold from revenue for the same period.
Inventory
This describes a company’s assets that it intends to sell to customers.
Profit and loss statement
This is a financial statement that summarizes a company’s performance and financial status by reporting its revenues, expenses and net profits over a specific period.
Revenue
The term ‘Revenue’ refers to the amount of income generated by a business by the sale of goods or services . It may include cash sales, credit sales and subscription fees. It differs from receipts, as it can include monies that are not collected at the delivery time.
Team SAS are always on hand to provide guidance and advice whenever you need it. Get in touch today to see how we can help your business.
