A business owner is accustomed to juggling a variety of tasks and departments within their company. Even if you’re working with a team, it is still important to be able to delegate and relieve the stress. Understanding each area is important, not just to stay on course but also to participate in the discussion and improve efficiency within your company.
Understanding and knowing accounting jargon will be a key skill you need to develop. This will allow you to better answer questions from potential investors and handle your accounting tasks.
ACCA offers a wide range of courses to help business owners develop the skills they need to manage their finances.
We’ll give you a list with the basic accounting terms that you should know to be able to communicate effectively.
Assets
Assets include everything that your business owns. They can be tangible or intangible and could include tools, property or land, trademarks, copyrights, or patents.
Liabilities
Liabilities are obligations your business has to meet, whether they’re short-term financial obligations or long-term financial obligations. They can include salaries of staff, credit card bills for the company, loans or taxes.
Expenses
The expenses are the costs that you incur to provide a service or product. You’ll usually need to categorize four different types of costs:
Fixe Expenses
These are expenses that you will incur each month or year. These fixed expenses include salaries and rent. They are not affected by fluctuations in sales, inflation or productions.
Varying Expenses
Variable costs will vary depending on the production and performance of the business. Variable expenses can occur when an organization needs to fulfill a larger order.
Accrued expenses
These are individual expenses that have been reported, but not yet paid.
Operating Expenses
Operational costs are expenses that a business must incur to generate revenue. Examples include marketing costs, employee payroll or business insurance.
Accounts Payable
The money you owe for goods or services that you have already provided is called accounts receivable. This money will be credited to your balance sheet because your customer has a legal obligation to pay it.
Amounts
Accruals are the summaries of expenses and sales that have not yet been processed. This will either result in a positive or negative impact on your income statements.
Capital
Capital is the money that you will need to grow your business. Cash that you can withdraw from your bank account. It does not include any assets or liabilities of the business.
Profit
Profit is how much money you have made in your business after all costs (such as operating, interest and depreciation).
Depreciation
Depreciation can be defined as the gradual reduction of the value of an item over time. You can depreciate and write off larger items for tax purposes if they have a negative impact on your ability to run your business efficiently.
GAAP
GAAP, or Generally Accepted Accountancy Principles, is a set of guidelines that are widely accepted by certified accountants and business owners for the purpose of accounting and financial reporting. When trying to secure investments, it is important to follow GAAP. Investors heavily rely on it when making investment decisions.
Fiscal year
Fiscal year is the period that a company uses to prepare its financial statements. The fiscal year can be the same as the calendar year in some companies. Others may vary depending on the time you prepare your financial statements, such as July to June.
Burn rate
It is important to know how quickly you spend money in your business when managing your cash flow.
Equity
Owner’s equity or equity is the amount invested by business owners in their businesses. The difference between assets and liabilities is your equity.
Are you ready to develop a complete understanding of your finances and learn more? Discover ACCA courses that will empower you and give you the skills to make better financial choices, future proofing your business.
