Top 25 Basic Accounting Terms All Business Owners Should Know

Basic Accounting Terms

What is accounting?

The first thought that comes to our mind when we think about Accounting, is that it is a type of documentation that is primarily related to monetary transactions. Accounting services include communication of all financial and non-financial particulars about companies for both small businesses as well as large businesses. Accounting can be categorized into various parts such as financial and management accounting, tax auditing, external auditing, etc.

The fundamental & important thing in accounts is to analyze, summaries and to report the particulars about every economic transaction involved in the business.  Accounting services for small business owners is a major portion of every company, whether it is for small business owners or a large business owner. Accounting means an overall summarization of the economic transactions for a certain time period of a business.

Accounts of a particular company show the economic situation of a company, it has information about the cash flow and all the operations going on in the business.   An accountant usually has the responsibility of all the records and the documentation related to the Accounts Department. An Accounts outsourcing company works as a Bookkeeper for small businesses, which could also sometimes do all the documentation related works such as gathering data of the financial health of the company.

Regardless of the size small business or a large business, there should be an independent accounts department for the proper and smooth functioning of the business or the company that involves proper budget discussions. One needs to take firm decisions about the development of the company and so on. Bookkeeping and accounting services for small business owners involve a bookkeeper who can look after the general needs of accounting services.

What is the importance of Accounting?

The fundamental and the major importance of Accounting is that it documents every financial transaction within a company; it keeps records of the economic condition of the related company and many more. Accounting services for small business owners play a very critical role in organizing a business. Business management can be unable to make a decision without proper documentation of the accounting services. To come to the proper conclusion, the management usually relies on the statistical data and the information that the documentation and the accounts department provides.

The main purpose of this accounting is to record monetary transactions in a systematic order in the accounts book and to calculate the overall profit- loss and to find out the financial situation of the company. This work can be outsourced to an accounts outsourcing company, who can do the same job for your company-

Mainly there are three basic economic statements that are generated by the Accounting services for small business owners-

The usual payment statement provides a clear idea and information regarding the profit and loss of a company or a business.

The balance sheet could also provide a clear idea of the economic condition of the company in a set time period.

Cash flow is generally a connection between the payment statement and the balance sheet which analyses and shows the amount of cash that is generated over a given period of time.

It is extremely important that one keeps the financial info transparent and up to date to keep the business up and running. Here are some following reasons because of which maintaining clear accounts is critical for your business.

It evaluates the business performance

One’s financial and transaction info could show the output of the business operations and also the economic position of a small business or organization.  In other terms Accounting services for small business owners gives proper information about what is going on with your small business in terms of finance. Keeping clear and up to date records will help one to trace the expenses, debts and gross.

Ensures statutory compliance

There are certain accounting terms and conditions. And this varies from company to company and also among states.  Accounting services for small business owners provide accounting service systems that ensure statutory compliance for your business. The accounting service functions ensure certain compliance and liabilities such as GST income tax, and pension funds. There are a lot of accounting services in Pune that can help you follow the guidelines and compliance-related issues.

Helps to create a budget and future projections

Making wrong budgets and error-prone projections can either build up or destroy a business. The financial records usually play a primary role when it comes to doing business.  With the best accounting services in India, one can make a budget and future projection.

Accounting Terms All Business Owners Should Know

    • Accounts Receivable and Accounts Payable:  These are the first terminologies one needs to understand as a business owner, especially if one wants to have payment timely. Accounts receivable can be termed as the amount that it owes to others. Managing accounts receivable and collecting dues on time maintains a healthy cash flow. These can be properly maintained by bookkeeping and accounting services for small business owners.
    • Accounts payable is the exact opposite;  it’s the money a business owes, this can be done by an accounts outsourcing company
    • Assets:  Assets in any business assets are considered as one that is owned by the concerned business and one can transfer it to cash at any point of time. It can also use them as collateral if any such situation emerges. Accounting services for small business owners focus on this aspect also well so that in case of any requirement the same can be used. Assets are always shown on the balance sheet. For tax purposes, the cost of assets could depreciate over time. An accounts outsourcing company can assist the business to have the right assessment of the property to meet any emergency of cash or any other form of a loan.
    • Balance Sheet:  A balance sheet can provide an insight into a business’s financial health. It summarizes primary financial data like asset or liabilities, and also equity, at a given time. A balance sheet could be used to understand the total value of a company, its current or long-term debt, assets, and risk analysis. The statement of accounts or balance sheets can help one to know the original position of the business. The owners of any business can have great help from an Accounts outsourcing company if it needs to have proper analysis and interpretation of these statements.
    • Break-Even Point:  Accounting services for small business owners provide shows the break-even analysis of accounts, which can help one determine at what point one will reach a cash flow positive situation and make a profit.
    • Cash Flow: Cash flow is fundamentally the movement of cash from receivable accounts to payee accounts). There is a delicate balance, which can be disrupted by dues, expenses, lack of excess capital. With the help of the best accounting services in India, one can create a cash-flow monitoring system. To have better cash flow, the business needs to have proper development and forecast so that at the very right moment the availability of cash is there. It can also take the assistance of an Accounts outsourcing company to know the indicators that are alarming for typical situations and from various strategies as well as policies to overcome the concerned situation.
    • Cycle for cash conversion:  Understanding the cash conversion cycle is an essential part of managing cash flow. The cash conversion cycle is primarily defined as the time it takes for a business to sell inventory, collect dues and pay the bills. Ideally, this cycle should be extremely short so that the money isn’t tied up in inventory or accounts receivables. Accounting services for small business owners calculate the cash conversion cycle (CCC), which one should know to support a specific situation and maintain a cash reserve to support the business.
    • Cost of Goods Sold:  The Cost of goods sold or cost of sales is usually defined by a calculation of all the costs involved in manufacturing or selling a product. It’s an essential part of the business tax return and can reduce your taxable income. Understanding the COGS can also help you determine the pricing of products, profitability and help one ensure sustainable margins. It will also help one identify the product lines that may be killing one’s profitability. An accounts outsourcing company can analyze COGS is reported on your profit and loss statement.
    • Credit:  Accounting services in Pune can provide business owners with required information related to the credit line, to the personal and business credit score, Educating oneself about why credit matters to the business, the importance of healthy credit, and what the financing options are. One should not intermingle with your personal credit with your business credit.
    • Expenses:  Accounting services for small business owners show the expenses incurred in the daily running of the business – from office rent to marketing expenses, training to vehicle mileage.
    • Liabilities:  Liabilities are the legal or financial debts that a business or company has, such as loan dues cash credit debt, taxes owed, accounts payable, staff wage… These are all shown on the balance sheet. An accounts outsourcing company can provide a balance sheet after assessing the finances.
    • Profit:  Accounting services for small business owners let one assess the company’s cash flow, one might be quick to assume that your business is profitable. Accounting services in India could help a company become cash flow-positive; it means the cash inflows exceed the cash outflows.
    • Profit is similar: For a company to be profitable, it needs to have more money coming in than it does going out. When one sees that one has more receivables than one has payables, it can be easy to assume that a business is making a profit.  Without taking the help of accounting services in Pune it can be said that business cannot sustain in the short or long run.
    • Profit and Loss Statement:  Accounts outsourcing companies can generally give a profit and loss statement or income statement. This accounting term usually refers to a primary financial tool that provides an overview of how a business is performing over time. A bookkeeping and accounting services for small business owners could provide profit and loss statement which breaks down the revenue generated and expenses incurred. It helps to see how profitable their business is and how much cash is left over after the losses are accounted for to grow your business, pay off debt, or contribute to your salary as a business owner.
    • Accruals: Accruals are primarily adjustments for revenues that have been collected but have not yet been earned by the company.
    • Accrued Expense: Accrued expenses are expenses that are recorded but still not paid off.
    • General Ledger: It holds the total record of a company’s financial transactions.
    • Journal: Before a ledger is made all financial transactions are recorded in a Journal.
    • Trial Balance: It checks credit and debit amounts.
    • Capital: Capital is the total value of financial resources- cash or other assets, which a company owns.
    • Revenue: Revenue is the total amount of money generated from business or selling of services or goods.
    • Forecasting: It helps in to make a prediction by analyzing historical data to make future predictions related to budget and accounting.
    • Fiscal Year: It is the year with specific dates between which the statements display the situation of the business.
    • Equity: It is the shareholding pattern of a company and its owners.
    • Dividends: Dividends are paid to shareholders when a company makes a profit.
    • Burn Rate: It is the rate at which cash is burnt by a business during negative cash flow.
    • Accrual Accounting: The process of accounting where expenses and revenues are calculated in the total.