The Top 10 Accounting Terms You Need to Know for Small Business Success
We know that you got into business with the hope of fulfilling or at least fueling the pursuit of your passions and dreams. That probably means you aren’t doing it because you love spending nights and weekends filling out spreadsheets and sorting through receipts. And yet, careful bookkeeping is vital to keeping the whole show running. You need to at least be aware of what these most important accounting terms mean. Whether you’re doing all the hard work yourself, or you use a service like what we provide at SyncLedgers, all your financial communication will be much more clear if the following accounting terms are part of your everyday vocabulary.
1: Accounts Payable
This refers to money that the business owes to other firms or providers in exchange for a good or service that they have already provided you. They will likely present you with an invoice for it.
2: Accounts Receivable
On the other hand, when you provide a good or service to a customer who has not yet paid you for it, you register it in this account. You will want to generate your own invoices for these.
Current assets are ledger items that you expect to convert into cash within the next year. Inventory you’re selling and accounts receivable are both examples. Assets that provide longer-term benefits without contributing to cash flow, like real estate and heavy machinery, are classed as Fixed Assets.
4: Balance Sheet
This is a financial report that you use to show the difference in value between the company’s assets and liabilities. It allows you to see the equity value of the assets the company owns minus those liabilities.
5: Cash Basis Accounting
This method of recordkeeping does not include accounts payable or receivable. Instead it records cash in and cash out as they occur, without considering the value of any debts.
6: Cash Flow
The amount of revenue or expenses the company generates at any given time through sales or manufacturing.
Fixed Expenses are what you pay on a regular basis, like rent. Variable Expenses, like the costs of labor, change based on circumstances. Accrued Expenses are similar to accounts payable, in that they have been incurred but not yet paid. Operation Expenses are essential, but aren’t directly related to production—advertising and insurance as examples.
8: General Ledger
This is where you record all of the company’s financial transactions throughout is entire operational history.
9: Trial Balance
With this, bookkeepers make sure that the company’s financial records are correct mathematically by compiling all the ledgers and organizing them into debits and credits.
A debt the company owns but can pay off within a year is a Current liability. On the other hand, debts like an office-space mortgage would be a Long-term liability because it is more likely to require payments for much longer than just one year.
If you would rather not spend much of your working time dealing with the issues that these accounting terms represent, contact SyncLedgers today! We take the stress of bookkeeping off your shoulders so you can get back to growing your small business into something even greater.