{"id":7601,"date":"2020-11-19T11:01:48","date_gmt":"2020-11-19T18:01:48","guid":{"rendered":"https:\/\/certusbookkeeping.net\/?p=7601"},"modified":"2020-12-16T17:18:55","modified_gmt":"2020-12-17T00:18:55","slug":"6-essential-accounting-terms-for-small-businesses","status":"publish","type":"post","link":"https:\/\/certusbookkeeping.net\/6-essential-accounting-terms-for-small-businesses\/","title":{"rendered":"6 Essential Accounting Terms for Small Businesses"},"content":{"rendered":"

Hiring an accountant is widely considered best practice for small business owners.\u00a0 But delegating financial analysis and reporting doesn\u2019t mean completely checking out of the process each month or quarter. On the contrary, it\u2019s recommended that business owners work closely with their accountants throughout the year to better understand their financial position, and make smart plans for future growth.<\/p>\n

Want to increase your accounting knowledge so you can have more informed, insightful discussions with your account this quarter?<\/p>\n

Start right now, with this list of 6 essential accounting terms for small business owners.<\/p>\n

    \n
  1. Cash Flow <\/strong><\/li>\n<\/ol>\n

    Do you have more cash flowing into your business each month than you pay out to cover costs and expenses? If so, your accountant will conclude that you\u2019re \u201ccash flow positive.\u201d If the opposite is true, your cash flow statement will reveal that you\u2019re \u201ccash flow negative.\u201d<\/p>\n

    Having excess cash on hand means you\u2019re better equipped to keep up with debt, cover unforeseen expenses, and invest in growth opportunities. Your accountant will generate a cash flow statement each quarter to keep tabs on this key performance indicator.<\/p>\n

      \n
    1. Profit and Loss Statement <\/strong><\/li>\n<\/ol>\n

      The profit and loss statement (also known as the income statement) is one of the most important documents used by accountants to determine the profitability of your business.<\/p>\n

      The P&L statement lists revenues and gains as well as expenses and losses over a specific period of time (typically every three months for small businesses). It calculates your all important \u201cbottom line\u201d so you know if you\u2019re operating at a loss or turning a profit.<\/p>\n

        \n
      1. Gross vs Net Profit<\/strong><\/li>\n<\/ol>\n

        Gross profit is what remains when you subtract the cost of goods sold (COGS) from your total revenue. Net profit, on the other hand, drills deeper. It reveals your exact dollar per profit of sales after subtracting all operating expenses, including COGS, taxes, interest paid on debt, etc.<\/p>\n

        Gross and net profit are both profitability ratios. They are key for measuring business performance against an industry benchmark and your competitors.<\/p>\n

          \n
        1. Balance Sheet<\/strong><\/li>\n<\/ol>\n

          The balance sheet offers a snapshot of your overall financial position at a particular moment in time. It lists the assets (such as cash, inventory, accounts receivable, and equipment); liabilities (like accounts payable, income tax, and employee salaries); and shareholder capital.\u00a0 In a nutshell, the balance sheet shows what you own, as well as what you owe<\/em>.<\/p>\n

            \n
          1. Accounts Receivable & Accounts Payable<\/strong><\/li>\n<\/ol>\n

            Simply put, accounts receivable is money your business is owed by customers for goods or services sold. It is considered an asset on your balance sheet. Conversely, accounts payable is money you owe suppliers and any bills you have yet to pay, so it\u2019s listed as a liability on your balance sheet.<\/p>\n

              \n
            1. Bad Debt Expenses<\/strong><\/li>\n<\/ol>\n

              Bad debt happens when you can\u2019t collect payment from your customers. Long term outstanding accounts receivable could be listed on your balance sheet as \u201cbad debts\u201d, and if they\u2019re never collected, may have to be written off as a loss.<\/p>\n

              And there you have it \u2013 six key terms to help you build your accounting vocabulary, join the conversation, and empower smarter decision-making.<\/p>\n

              Contact us<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

              Hiring an accountant is widely considered best practice for small business owners.\u00a0 But delegating financial analysis and reporting doesn\u2019t mean completely checking out of the process each month or quarter. On the contrary, it\u2019s recommended that business owners work closely with their accountants throughout the year to better understand their financial position, and make smart … Continued<\/a><\/p>\n","protected":false},"author":11,"featured_media":8027,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":"","jetpack_publicize_message":"","jetpack_publicize_feature_enabled":true,"jetpack_social_post_already_shared":true,"jetpack_social_options":{"image_generator_settings":{"template":"highway","enabled":false}}},"categories":[49],"tags":[],"jetpack_publicize_connections":[],"acf":[],"yoast_head":"\n6 Essential Accounting Terms for Small Businesses - Certus Bookkeeping<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"6 Essential Accounting Terms for Small Businesses - Certus Bookkeeping\" \/>\n<meta property=\"og:description\" content=\"Hiring an accountant is widely considered best practice for small business owners.\u00a0 But delegating financial analysis and reporting doesn\u2019t mean completely checking out of the process each month or quarter. 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