10 Basic Accounting Terms For New Business Owners
February 3, 2021
What are basic accounting terms for new business owners?
- Accounts Payable
- Accounts Receivable
- Financial Statements
- Working Capital
- Gross Profit
- Net Profit
As a new entrepreneur, you may not have much idea about accounting. But it is a necessary part of business, with some people hiring accountants for their companies. Even if you have a designated person to do the bookkeeping, you need to understand your financial records to have an idea of where your organization is going. Keep on reading for basic accounting terms for new business owners!
An invoice is an official document detailing the products and services you will provide to a customer in exchange for payment. It can be also be called a “bill”.
Accounts payable is the list of expenses that your company owes and hasn’t paid for yet. This usually refers to short-term debts and is recorded in your liabilities.
Accounts Receivable is the sales you have gathered from your products and services, but have not yet collected. This is considered an asset in your books.
A financial statement compiles all the reports regarding your company’s financial transactions. Under it are other accounting terms:
- General Ledger: This is a recording of all your business’ financial transactions beginning from its operation until the present.
- Balance Sheet: This records your financial transactions at a specific point in time.
- Income Statement: This shows how much your company profited during a specific period in time.
Cash Flow Statement: This statement shows the incoming and outgoing movement of money in your company.
This is the amount of money that your business can allocate towards investments. This can be computed by deducting the liabilities from the assets in your balance sheet.
Revenue is the total amount of money your company garnered from the sale of your product and services without the deduction of expenses. Because of this, it is also oftentimes referred to as “gross sales”.
Gross profit is the amount of money left when you deduct the cost of goods sold (COGS) from the revenue. COGS include the price for material and labor used to make your product or service.
Net profit is the amount of money left when the operating costs, interest, and tax has been deducted. This is your income when all expenses are removed.
Assets, in the simplest terms, are the things your company owns. This includes cash and items that can easily be converted into money. It also covers the accounts receivables, office equipment, discounts, buildings, inventory, franchises, and intellectual property.
Liabilities are money, products, and services your company owes. This includes account payables, taxes, wages, credit card payments, and bills.
You must learn about these basic accounting terms for new business owners to keep up with the growth of your company. Understanding your financial transactions can also help guide your decisions when it comes to spending money and investing.
If you need more help when it comes to entrepreneurship and accounting, you may send your inquiries to Benito Keh for additional assistance. As a seasoned businessman, he has many tips to help your company grow.