Many business owners often leave the complicated financial terms and processes to their accountants, so they can focus on running their enterprise. Such is the case, especially if you’re a new businessman. You juggle several responsibilities to make your company thrive that you don’t have the time to study accounting terms.
However, to become an empowered business owner, learning accounting jargon is essential. It can help you make better financial decisions and communicate efficiently with other business owners and investors in the future. Here are some important accounting terms you should learn:
Cash flow refers to the movement of money into and out of the company at a specific point in time. It is the calculation of cash collected and spent on your business operations, investments, and financing.
Your company should have positive cash flow, meaning it has more money moving in than out, considering your capital expenditures. When you generate positive cash flow, you can create value for your shareholders.
Cash Flow Forecast
This is the process of comparing past cash flow statements with projected income and expenses. Through this, you can estimate the amount of money that will move through your business in the future. Forecasts help determine the best time to invest or how long it will take to pay off long-term debts.
These are official records of your business’s financial transactions, including the balance sheet, profit and loss, and cash-flow statements. It is a valuable tool used to understand your company’s performance. Government agencies, accountants, and firms audit these documents for tax, financing, or investing purposes.
This 12-month period is used by businesses for accounting purposes. It is when companies would prepare financial statements, file federal taxes, and have external audits. Although the fiscal year can coincide with the calendar year, it is not always the case. You can be responsible for choosing the start and end dates of your enterprise’s fiscal year.
Everything your company owns that has monetary value is your asset. It can be tangible like cash, equipment, properties, and vehicles, or intangible like stocks, patents, copyrights, and trademarks.
Gross and Net Profit
Gross profit is the money you make after subtracting the cost of producing merchandise or offering services. Net profit is the income left after all the expenses like salary, rent, debt, and other operating costs are paid.
Any debt your business owes, such as loans, income tax, or rent, is called a liability. They are classified into two types on the balance sheet: current and long-term liabilities.
This is the change in the total production cost. The marginal cost comes from making or producing one additional unit. To calculate this, divide the total cost of production by the number of products you’re planning to sell and analyze the result. Sometimes, increasing production doesn’t always mean higher profit.
Get Help From Certified Public Accountants
If you’re a business owner who needs professional accounting services, turn to us at Tostrud & Temp, S.C. in La Crosse, WI. We know it can be challenging to own a company and deal with taxes, payroll, general booking, and compliance issues. That’s why we’re here to provide an organized accounting foundation. We offer cash flow and budgeting analysis, business consulting, sales tax services, and more. Contact us today!