As a business owner, a basic understanding of accounting is critical to effectively managing your finances. One important aspect of bookkeeping is to familiarise yourself with key accounting terms. In this blog post, we will go over 10 important accounting terms that every business owner should know. By mastering these terms, you will be better equipped to make informed financial decisions and communicate effectively with your accountant or financial advisor.
Revenue refers to the total income your business generates from its operations, such as the sale of products or services. It is an important metric for assessing the financial performance of your business.
Expenses are the costs incurred to run your business, including rent, salaries, utilities and supplies. Accurately tracking and categorising expenses is essential for budgeting and assessing profitability.
Assets are the economic resources owned by your business, such as cash, inventory, equipment or real estate. Knowing your assets helps you determine the value and liquidity of your business.
Liabilities are the debts and obligations your business has to external parties, such as loans, trade payables or outstanding invoices. Managing liabilities is important for maintaining financial stability.
Equity represents the net value of your business, calculated by subtracting liabilities from assets. It reflects the residual value of your company’s assets after all liabilities have been met.
Cash flow refers to the movement of money in and out of your business over a period of time. A positive cash flow ensures that you have enough liquidity to cover expenses, pay off debts and invest in growth.
Profit and Loss Statement (P&L):
An income statement ( P&L), also known as a profit and loss statement, summarises your business’s income, expenses and net profit or loss over a given period. It helps assess profitability and identify areas for improvement.
The balance sheet is a snapshot of your business’s financial position at a given point in time and shows assets, liabilities and equity. It helps you understand the overall financial health of your business.
Depreciation is the gradual reduction in the value of assets over time. It is recorded as an expense in your financial statements and is important for proper asset valuation and tax considerations.
Cash flow forecast:
A cash flow forecast estimates future cash inflows and outflows and helps you anticipate potential cash shortages or surpluses. It helps with planning and ensures that sufficient funds are available when needed
At BBCTallinn, we understand the importance of accounting in managing the financial aspects of your business. Our team of experienced professionals offers comprehensive accounting support and services tailored to your specific needs. Whether you are a small start-up or an established business, we can help you with bookkeeping, preparing financial statements, tax compliance and much more. By utilising our expertise, you can focus on growing your business while ensuring accurate and reliable financial records. Contact us today to learn how BBCTallinn can help you with your accounting needs and contribute to the success of your business.