Deciding to take over your finances is a big decision that can have an impact on a large part of both your personal and professional life. To help you understand a bit more of what appears to be a daunting world of numbers and statistics, here is a quick guide to 15 common accounting terms – and more importantly, what they mean.
Accounts payable: the money that your business owes to suppliers, vendors, or creditors for goods or services bought on credit
Accounts receivable: acts as the opposite as accounts payable; the money that your business is owed by those suppliers and vendors for your own goods or services
Accruals: acts as a record for an expense prior to an exchange of money
Balance sheet: financial statements that give a description of a company’s liabilities, assets and shareholders’ equity
Cash flow: the total amount of incoming and outgoing money in a business
Cost of goods sold: the total cost of producing the goods sold by a business
Dividends: company profit paid to its shareholders as a compensation for investment in its equity
Equity: the amount of money left over and returned to shareholders after a business sells all assets and pays off all debt
Fixed cost: a type of expense that does not change from month to month
Gross profit: the profit a business makes after subtracting costs related to supplying their services or making/selling their products
Gross margin: the net sales of a business after subtracting the cost of goods sold
Net profit: the amount a business earns after subtracting deductions and taxes from gross profit
Payroll: total compensation that a business pays their employees
Profit and loss statement: a report that shows the expenses, costs and revenues for a company; this is usually for a specific time
period (i.e., the month of July)
Variable cost: expenses that change depending on the level of production in the business.
Understanding what is happening with the money you put into your business is just as important as earning that money; at By the Book Finance, we can not only manage your finances, but help you understand where your money has been going.
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