Common accounting terms, explained

When you’re starting up a business, your brain is probably going at the speed of light trying to figure everything out. From legal documentation and finding the right equipment to bringing your business plan to life, there is a lot you are going to have to consider.

With everything on your mind, it’s safe to say that learning accounting terms is not something at the top of your ‘to-do’ list.

However, knowing and understanding some of this terminology can be critical if you want your small business to develop and prosper into a thriving organisation.

We’ve come up with a list of 10 important accountancy terms that you need to know as a new business owner:

1. Cash Flow

This refers to the real or virtual movement of money. For a business, it’s the net balance of cash moving in and out over a specific period of time.

2. Financial Statement

These are written records that convey the business activities and the financial performance of a company. These are often audited by government agencies and accountants to ensure accuracy for tax, financing, or investment purposes.

3. Assets

An asset refers to a resource of value that you own or lease that helps you run your business. These can be physical items such as laptops, or non-physical things such as reputation and brand image.

4. Balance Sheet

This refers to a statement of assets, liabilities, and capital of a business at a specific point in time, detailing the balance of income and expenditure over the preceding period.

5. Income Statement

These are records that show a company’s expenses, income, gains, and losses, which are used to understand the net profit or loss for that time period.

6. General Ledger

In accounting, a general ledger is used to record all of a company’s transactions. The transactional data is organised into assets, liabilities, revenue, expenses, and owner’s equity.

7. Equity Statement

A statement of owner’s equity is a one-page report showing the difference between total assets and total liabilities, resulting in the overall value of shares issued by the company.

8. Accrual Accounting

This is when a business recognises its revenue during the period it is earned and any expenses that they have incurred. This can either be before or after the money is received or dispensed.

9. Burn Rate

In simple terms, this describes how fast a company is spending money. It’s often calculated each month, but can be adjusted for any period.

10. Gross Margin

This refers to the amount of money a business retains after incurring the direct costs associated with producing the goods it sells and the service it provides.

Hopefully, this blog will have provided some clarity on common accounting terms.

If you need assistance with your business accounts, don’t be afraid to get in touch with us.