Accounting 101: Basic Business Terms

When it comes to starting and running a business, entrepreneurs quickly learn that there’s a lot more to it than just churning out a product or service. You have to sell your goods, too, which means you have to learn sales tactics and terminology. And selling is easier when you pave the way with a few good marketing tactics aimed at your ideal target audience. Therefore, it’s also beneficial to learn basic marketing skills.

There’s a lot to running a business on the back end, as well. Small business owners have to know a little bit about finance, bookkeeping, and accounting. While you don’t need to be an expert in these fields, it’s advisable to know enough to keep your business out of trouble and maintain a grasp on whether it’s making money — or not.

Know When to Hire Experts

One of the best payoffs for any entrepreneur often comes in the form of hired professional help. Smart business owners know their strengths and weak-nesses, and they aren’t afraid to hire people to help where their skills are lacking.

Adams Accounting Solutions can fill the gap if your accounting skills are a little shaky. We specialize in all aspects of small business accounting, including tax preparation, operations consulting, and internal control evaluation. Our goal is to help make your business as profitable as it can be. 

It’s Never Too Late to Learn Something New

We also like to educate our clients so they can become better business people. Here are a few basic accounting terms that every business owner should understand and be familiar with.

Balance sheet: A balance sheet is a snapshot of the assets and liabilities of a company at a specific point in time. It may also include shareholders’ equity and business capital. 

Income statement: Sometimes called the P&L or profit and loss, it shows revenues, expenses, and profits over a given period. This financial statement provides a snapshot of the overall health of the business.

Accounts payable: Accounts payable refers to expenses incurred but not paid yet. In other words, it’s money the business owes to others. Accounts payable show on the balance sheet as a liability.

Accounts receivable: Accounts receivable is the opposite of accounts payable. It refers to all the money others owe your business for services rendered or products sold. Accounts receivable are shown on the balance sheet as an asset.

Cost of goods sold (COGS): COGS refer to costs directly related to creating whatever the business sells. For instance, materials and labor fall into this category. COGS does not include expenses incurred to run the business, such as sales and marketing or overhead.

Net income: Net income is the amount of money you have left after sub-tracting total expenses from total sales for a certain period. Net income is also known as net profit.

Gross profit: Gross profit is the amount of money left after subtracting COGS from total revenue for the same period. Gross profit does not take into account overhead expenses such as rent and utilities.

Need a More In-Depth Lesson?

There are many more accounting terms that apply to small businesses. We don’t have enough room to discuss them all here. But we’re happy to talk you through everything in our office. Give us a call at 913-888-9100 to schedule an appointment.