15 Jul Basic Accounting Terms Every Business Owner Must Know
Basic Accounting Terms, like other business functions, accounting has its own language and expressions. Accounting terms deal with the financial characteristic of an organization; these are imperative to help run your business. Effective communications are predominantly significant when it concerns the finances of the organization.
The awareness of basic accounting terminology will alleviate communications with the accounting department, even though it has been outsourced.
Here is our list of 12 basic accounting terms that every business owner must know:
1. ACCOUNTS RECEIVABLE
Accounts receivable, also acknowledged as AR, refers to the money which is paid to the organization by the clients post the delivery or sale of a product or service.
2. ACCOUNTS PAYABLE
Accounts payable, also recognized as AP, refers to the money which the organization owes to its creditors for instance suppliers, for the products or services it uses.
One of the most essential accounting terms, assets refer to the wealth ensued by the organization. Assets are owned absolutely without any loan or lien. Assets might undergo depreciation and can be sold. This term covers almost everything – from cash, supplies. equipment, and accounts receivable, to buildings properties, investments, and warehouse inventory.
4. BALANCE SHEET
The balance sheet is one of a business’s most significant financial statements. It is a documentation of a company’s assets, liabilities, and stockholder equities at an exact point in time. It is generated on a regular basis for monitoring and determining the organization’s financial health.
Capital implies a financial asset or its value. Financial assets could be goods or cash. An associated term is a working capital, which is estimated by removing current liabilities from current assets. It is the amount of money obtainable for the organization to utilize.
6. CASH FLOW
Cash flow refers to the expenditure or revenue that is expected to happen through an organization’s business activities over a particular time period.
7. COST OF GOODS SOLD
Costs of Goods Sold, also recognized as COGS, refer to the direct expenses that are connected with the production of the goods that a business sells. The accurate formula used for the calculation of COGS is reliant on the kind of goods.
A credit implies an accounting entry. Depending on the financial transaction, this entry can decrease the organization’s assets or enhance its equity and liabilities.
This is also an accounting entry. Like credit, its consequence on the balance sheet is verified by the financial transaction. Debit can enhance the assets or reduce the liabilities of the organization.
10. GENERAL LEDGER
The general ledger is one of the most imperative general accounting terms. It acts as the total record of financial transactions that have been carried out in the history of the organization. All business transactions, for instance, office expenses, sales, income losses, and credit purchases, are meant to be traced here.
11. GROSS MARGIN
This term refers to the sum number of sales made post deducting the associated costs, for instance, the cost of materials and manufacturing.
Revenue is a fundamental accounting word that refers to the sum of income amount of money accumulated at a particular point of time. The revenue can be through credit purchases, interest income, cash sales, and subscription fees.
While there are numerous more accounting definitions that all management should be acquainted with, this list of basic terms used in accounting ought to help you get the conversation started.