Accounting Terms You Need to Know

Accounting and bookkeeping can be a complicated and stressful task. There are many forms to track, terms to know, and new practices to keep up with. Understanding the jargon can help you better understand your business’s bookkeeping and financial status. We’ve put together a list of accounting terms you need to know to help you stay on top of things!

Accounts Payable refers to the money that the business owes. Any unpaid bills and expenses are considered accounts payable and, technically, debt. These are listed as short-term liabilities on your balance sheet.

Accounts Receivable refers to the money that is owed to you for services that you have provided but have not yet received payment for. Monitoring and managing your accounts receivable ensures you maintain a positive cash flow. This is classified as an asset on your balance sheet.

Accruals are known as bills that you have not paid yet, or sales that you have made that have not been paid. In reference to your balance sheet, think of accruals as outstanding services or sales that you have not yet received a bill or payment for.

Assets are known as any items that your business owns that have value, including vehicles, cash, and property.

A Balance Sheet is a list that shows your assets compared to your equity and liabilities. A balance sheet helps you monitor the health of your business, keep track of cash flow, and monitor overall finances. Keeping your balance sheet updated allows you to make informed and calculated decisions when it comes to payments, investments, and risks.

Cash Flow refers to the money that flows in and out of your business, including income and expenses. Keeping track of your cash flow is an essential part of understanding the financial state of your business.

Expenses refer to the money that you spend to keep your business running and functioning. Expenses may include the cost of your goods, the rent and upkeep of your building, any office supplies, and payroll.

Equity is the value that remains after liabilities are removed or paid. To determine equity, you should subtract your liabilities from your assets.

Income Statements show the amount you have spent and the amount you have made at any given point. Income statements are used to monitor and report revenues and expenses, and show profit or loss earned.

Liabilities refer to debts that your company owes to someone else. There are two categories: short-term liabilities (accounts payable or credit card balances) and long-term liabilities (loans).

Return on Investment (ROI) refers to the profit your business makes from something you invested in. For example, your ROI is divided by the investment you put into it. In short terms, it is the amount you make back after investing in something for your business. It’s essential to track ROIs to know what investments are worth making and what investments you should change.

Even if you are a pro when it comes to bookkeeping language, it can still be a daunting task to constantly update, track, and review your bookkeeping and finances. Trust Warren Accounting Group to help! We offer a variety of services to take some of the stress off of you so that you can focus on your business. For more information on our accounting and bookkeeping services, give us a call!