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Good Accounting Basics: Terms You Should Know and How They Affect Your Business

Running your business in an efficient manner includes understanding important terms that help maintain its financial stability.  While small and large businesses may have an account that does the record keeping for them, there are terms you should be familiar with that are commonly used in the business world. Not only should you know basic vocabulary used in accounting, you should review their meanings closely to understand how they are used in regular business practice.

Many of these terms are learned early in business development when new owners begin their venture.  They help you understand differences between a profits and losses, debts and credits, and income and tax expenses to name a few.  Financial reports is created from this data to help you understand who, what, when, where, how, and why business funds are used and their related purposes.  As you work with financial experts in balancing your budget and building revenue, these terms become an important part of your vocabulary as your business moves forward.

Cash Flow Financial Reports

This term details cash sources and how the money is used.  Depending on the type of business there may be multiple forms of cash flow that help run daily operations.  These funds can have a two-fold meaning. First, they may be referred to as money coming into the

Good Accounting Basics Terms You Should Know and How They Affect Your Business2

business or profit earnings. Secondly, they may be referred to as funds used for operation duties or activities.

These documents contain three important financial statements including income statement, statement of cash flows, and balance sheet. This information acts as communication data as it is shared throughout the organization (reviewed by those who are entitled to access the information). Depending on the type of business, this information may be required to be shared with the public. Lenders and owners of the business most often review report contents.

Find out what are the 10 Strategies to Improve Client Accounting Services here

Profit

This term refers to monies earned by the business, but it can have multiple meanings based on how the company keeps track of gains and losses.  This may be referred to sales revenue minus expenses from a certain time period. A large number of businesses may review potential business profits on a yearly basis.  For public companies profit may be called net income.

Balance Sheet

Liabilities, equity, and assets of the business are summarized using this sheet. This gives a current overview of how the business stands and what it has.  Some businesses may refer to this as “accounts.” Multiple elements such as inventory, cash, and stock are detailed. The sheet helps outline how business assets are equal or balance with business equity and liabilities.

Financial Statement

Also known as “financials,” this provides an overview of business details based on financial reports. This includes the cash flows, balance sheet, and income statement.  These documents help upper management make decisions for the business and control assets due to more detailed data enclosed.

Credits and DebitsGood Accounting Basics Terms You Should Know and How They Affect Your Business3

Also known as increases and decreases, this is data recorded that shows transactions the business makes as they are made. A credit may refer to revenues earned and a debit may refer to expenses or purchases made. When this information is recorded it shows a balance between credit balances and debit balances.

Fixed Assets

These are physical assets belonging to the business with a long-life span. These assets assist the business in conducting regular operations. Examples include vehicles, machinery, buildings and land.  These assets are usually not for sale but serve a unique purpose for the business.

Income Statement

When a business has multiple lines of income or revenue it is recorded with this document. This helps form different business reports that detail earnings and losses from profits gained.  It is known to have other names such as the operating statement and the earnings statement, depending on the industry of the business.

Accounting

Most financial preparations such as summary reports, tax filings, and daily operations are through structured procedures and methods known as accounting.  The action of recording, accumulating, storing, and analyzing financial data related to regular activities of a business entity.  Investors, lenders, and business managers rely on reports developed through related practices to make informed financial decisions for business purposes. Find out more about our accounting service and how it can benefit you.

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Posted on April 10, 2014 at 3:00 pm
Categories: Accounting & Payroll Services in Singapore

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