Your business can benefit greatly from knowing accounting speak, regardless of whether you handle your own accounting, hire an in-house accountant or hire a third-party accounting firm. In addition to helping you better understand your numbers, you will also be able to make wiser business decisions as well. The following are some basic accounting terms that small business owners need to know, followed by our reference guides. Here are some common accounting terms:
10 Accounting basic term
Accounts payable
The term accounts payable (AP) is used to describe all your unpaid expenses. They should be recorded (and considered as) bills due to the business.
Asset
An asset is anything that a company owns that has a monetary value, such as cash, real estate, equipment, and inventory. An asset’s liquidity can vary, which means some assets are easily spent, like cash, while others are hard to spend, such as property, which must be sold first.
Balance sheet
During a given period of time, such as monthly, quarterly, or yearly, the balance sheet records the basic accounting formula of assets = liabilities + stockholder equity/capital. The financial health of a business can be determined by its balance sheet.
Credit
It is an accounting entry that increases a company’s liabilities or decreases its assets. A credit owed to the business decreases assets, whereas a credit owed by the company increases liabilities.
Ledger general
The general ledger is the side of the bookkeeping ledger where all business transactions are recorded, including sales, credit purchases, office expenses, and income losses.
Gross margin
The gross margin or profit is calculated by subtracting the total number of sales from the associated costs, such as manufacturing, wholesale, material, and supply costs.
Loss
A loss occurs when a service or product sells for less than what it costs to supply or manufacture, or when expenses exceed revenues.
Capital
Capital is the amount of money that can be used for operations and investment. In addition to cash, it may also include non-cash assets that can be leveraged or liquidated. The amount of capital a company could spend, not how much it is spending, is its capital.
Cash flow
Monthly cash flow refers to how much cash you anticipate receiving in a month. Annual cash flow refers to how much cash you expect to receive over a specific period.
Certified Public Accountant (CPA)
In order to obtain the CPA designation, an individual must pass a uniform certified accountant exam and be licensed by their home state. This indicates a certain level of mastery in accounting as a means of verifying their qualifications.