Getting Back To The Basics: 15 Bookkeeping Terms Every Business Owner Should Know

15 Important Bookkeeping Terms To Know

Properly managed finances are key to long-term success for any business. Even though it is recommended that you hire a professional to help manage your business’s finances, it is important as a business owner to know the basics to ensure your finances are being managed properly. Become a more empowered business owner by familiarizing yourself with these accounting terms:

1. Financial Statements Financial Statements are records of your business’s financial situation. When you apply for a business loan, most lenders will want to see four financial statements: the balance sheet, income statement, cash flow statement, and statement of owners’ or shareholders’ equity.

2. Balance Sheet A balance sheet is a document that outlines your business’s financial status at a point in time. It reports assets, liabilities, and equity.

3. Income Statement An income statement shows revenues, expenses, and profit or loss for a specific period. Profit or loss is determined by subtracting expenses from revenue.

4. Cash Flow Statement A cash flow statement describes the sources of your business’s money and shows how that money was spent over some time.

5. Asset An asset is anything owned by your business that’s of monetary value. An asset can be tangible like land, equipment, or cash, or it can be intangible like a patent or franchise agreement. Assets are shown in terms of cash value on the balance sheet.

6. Liability Liability is a debt your business owes such as a loan, salary, income tax, or rent. On the balance sheet, liabilities are classified by current and long-term liabilities.

7. Equity Equity is the value of your business’s assets minus any liabilities. If your business is a sole proprietorship or partnership, equity is also known as “owner’s equity.”

8. Draw Also known as an “owner’s draw,” this is money you take out of your business for personal use. Business owners can do this by writing a check to themselves from a business checking account.

9. Revenue Revenue is the sum of all money collected for goods or services sold (before expenses are subtracted).

10. Expenses Expenses are the costs incurred by your business to generate income. Fixed expenses stay consistent, such as with rent or salaries, while variable expenses, like raw materials and commissions, fluctuate according to the market.

11. Accounts Receivable Accounts receivable is money owed to your business by your customers. This is considered an asset on the balance sheet.

12. Fiscal Year The fiscal year is a period that a business uses for accounting purposes and to prepare financial statements. It can coincide with the calendar year or take place during a different 12-month period.

13. Depreciation Depreciation is some of your business’s assets, such as vehicles or equipment, will decline in value, or depreciate, over time. Used as a tax deduction, depreciation can help your business recover the cost of some expenses.

14. Capital/Working Capital Capital is the money your business has for paying bills or investing. It equals current assets minus liabilities.

15. General Ledger The general ledger is a complete recording of your company’s financial transactions over its lifetime. This includes assets, equity, expenses, liabilities, and revenue.

Get a Handle on Your Business’s Finances

Do you still need more bookkeeping guidance and help?? Contact the professionals at Stash Bookkeeping for all your bookkeeping needs. Together, we can look over your business’s finances and get you on track for success.