Regardless of the industry that you are in, there are always going to be buzzwords. When you are talking about chefs or even healthcare professionals, there’s a lot of jargon that must be learned. As you choose a business model to follow, there are words that you will use that other people are simply not going to understand.
In the realm of accounting, this is also true. There are businesses that would like to work with an accountant, or perhaps use their software, but there are some terms you will just need to know.
Accounting Cycle
When there is an accounting period of time that comes to an end, there are steps that must be taken in order to do the books so as to prepare for the next cycle. These steps are in reference to the accounting cycle which will include posting journals, dealing with the general ledger, closing entries, and also creating trial balances. Paying and calculating tax is problematic nowadays. Taxmann’s e-TDS is best for tax calculation and payment online.
Accrual Basis Accounting
Most companies will use this accounting method. There are differences between what you receive in cash and what your regular expenses and revenue will be recognized as. Under accrual accounting, you are going to identify revenue and expenses and accrue them, regardless of where nor how much cash is coming in. Cash accounting records will be represented whenever the cash is used for transactions.
Bookkeeping
This is often confused with the term accounting, yet bookkeeping is not the same thing at all. When you have a bookkeeper, they are recording all of the transactions for your business and putting them into a file. This simply means that they are posting transactions, usually to a general ledger, and will do so for every account. This work is handled by the bookkeeper and not the accountant.
Income Statement Terms
The financial statements that you have must be read and understood so as to use them to help your business. You will have a balance sheet and income statement which are two of the most important financial statements, but you also need to include your cash flow statement as well.
What we have done is compiled all of these terms so that you can understand how they are used. Beware: there are some terms that actually mean exactly the same thing.
Cash Flow
When discussing cash flow, this refers to money coming in and money going out for your business. Positive cash flow is what you want. This can be difficult for some businesses who do not understand accrual accounting, and recognize how transactions are incurred which may not be when money changes hands. On the income statement, is it useful to keep track of cash? That’s why you need to have a cash flow statement.
Assets
An asset is nothing more than a resource that can be defined as inventory or equipment, and it may also be represented as having a future benefit for your business. If you don’t own the asset, but your company has assets, this is also the same thing. An example of this would be making payments on a loan for a piece of equipment that you are using. You may not own that equipment, but it is considered an asset of the business.
If you are a small business owner, there are two types of assets that you need to be aware of: current and fixed.
Liabilities
If you have assets, these are the items that your company does possess, but on the other side of this equation are the things that are owned by other people. If somebody else owns it, then this needs to be listed in the liability section.
Liabilities come under many different names including goods in cash, but they are most commonly referred to as financial debts. This can be called accounts payable, mortgages, or even the loans that you are making payments on.
How To Tackle Your Small Business Accounting And Bookkeeping
If you want to understand accounting terminology, and you feel overwhelmed, this is very common yet you need to have a foundation for understanding this terminology if you are going to manage business books on your own. After your business has surpassed a certain point, you will likely have the knowledge needed to handle virtually every accounting task, plus consider outsourcing your bookkeeping and accounting services to perhaps an online provider that provides these services.