Having a basic understanding of accounting terms is essential for any business owner. Knowing the language used by accountants can help you understand and make better decisions when managing your finances. In this blog post, we will break down some common accounting terms in simple terms, so that you can gain a better understanding of how they work.
Balance Sheet
A balance sheet is a snapshot of a business’ financial position at a particular point in time. It includes assets, liabilities, and equity. Assets are resources owned by the company including cash and other items with monetary value such as inventory or equipment. Liabilities are any debts or obligations owed to creditors or other third parties such as outstanding loans or accounts payable. Equity is the net worth of the business which takes into account all assets minus all liabilities.
Income Statement
An income statement (or profit & loss statement) is a financial report that shows how much money a company has made (revenue) and spent (expenses) over a particular period of time. This statement shows whether or not the company was profitable during this period and can be used to inform future decision making regarding prices, expenses, investments etc.. The income statement also breaks down each revenue source separately so that you can see where your money came from and how well each individual product/service performed during that time frame.
Cash Flow Statement
A cash flow statement shows how much money is flowing in and out of your business over a specified period of time such as one month or one year. This document helps you track what funds are available for operations, investments, dividend payments etc., as well as helping you identify potential liquidity issues before they become serious problems. The cash flow statement also helps you plan ahead for future expenses by allowing you to anticipate when large expenditures may be required.
Accounting terms can be intimidating to those who have not been exposed to them before but having an understanding of these basic concepts can be invaluable information for any business owner looking to get ahead financially. With the help of this blog post, we hope you now feel more comfortable with these basic accounting terms and their definitions so that you can make more informed decisions when it comes to managing your finances! Still have questions? Contact us now - we can help you understand how knowing your numbers can help you build your business and give you your time back.
