You probably have heard of Basic Accounting Terms before, but you don’t know exactly what they mean. This guide explains these terms and provides easy-to-understand definitions. A basic understanding of accounting is important for anyone who earns income. It’s even helpful for those who run small businesses, because having a basic understanding of how accounting works is crucial for a successful company. Despite this, not all people can get formal financial training.
Profit and loss statements are a summary of the financial results of a company. The Profit and Loss Statement shows how much a company makes versus how much it spends. Revenue is the money a business earns; expenses are the money it spends on running the business. Expenses are included in the cost of goods sold. Intangible assets are also included. However, not all expenses are directly related to profit.
It is important to learn the lingo of the industry you’re planning to enter. Accounting is a complex profession, and understanding the basic terminology will help you navigate the world of business. You can use this knowledge to impress potential employers and excel in your classes. As a business owner, you should make sure you understand all the basic accounting terms so you can better manage your business. The following are some useful terms that you may encounter as you work in the field.
An accounting period refers to a specific time frame for the financial statements. These periods are generally broken into quarters. Typically, these periods are one month, quarter, or year. Accounts payable refers to money owed for goods and services. This includes rent or utilities. It is due within 30 days. While accounts payable is a liability, accounts receivable is an asset. You should know the difference between the two before you begin using your accounting software.
Another term in accounting is a debtor. A debtor is a person whose money is owed to a business. Normally, a business will treat a debtor as an asset while a creditor is a liability. In a partnership, the owners report their personal tax returns but cannot be held personally responsible for the debts of the company. Also, in accounting, a company’s assets can include money, such as property, vehicles, cash on hand, or an email list.
A receipt proves that a payment was made. Businesses generally produce receipts when they provide services or pay for goods. These receipts should be stored according to IRS requirements and catalogued. It is important to know how to calculate gross profit, as this represents the profits from sales minus the cost of goods sold. A gross profit is also an important indicator of a business’s health. This figure can be found on the income statement or on business tax forms.
Another important concept in accounting is the concept of assets and liabilities. Both are vital for a company to understand, as they are the primary sources of wealth. A company’s assets can include cash, equipment, supplies, buildings, investments, and warehouse inventory. Another basic accounting term is the balance sheet. This document is used to record the assets and liabilities of the business and is a key part of any financial statement. It is the most critical document in the company’s finances, and it is important to understand how the numbers relate to each other.