Starting a business isn’t easy. You start out with an entrepreneurial spirit and a great idea. Before long you suddenly have a million thoughts, concerns, and questions swirling around in your head. Small business accounting tends to take a backseat to other items.
This is understandable, as accounting terminology leaves most with a headache. However, the continued success and stability of your business depends on having your accounts in order. That’s why we took the time to clearly define the most common accounting terms that you will encounter. That way, you can face your Quickbooks account with confidence.
Small Business Accounting Terms
Revenue – This is the money that your company brings in from each sale
Liabilities – This is the money that your company owes. Liabilities are divided into short term(due within one year) and long term(not due within one year.)
Assets – This is a combination of the tangible and intangible property that bring value to your company. Current assets can be converted to cash within 1 year, for instance, money owed to you by customers, while fixed assets don’t convert that quickly, such as furniture and equipment you’ve purchased.
Cost of Goods Sold – This is one of the most important pieces of information that a small business owner should know. This is how much money it costs to produce what you sell. If you know how much it costs you to produce an item, it will guide you in what you should price your product at in order to make a healthy profit.
P&L – Otherwise known as ‘Profit & Loss.’ This report details earnings, expenses and net profits for a given period. This report is also sometimes called Income Statement. Your company is profitable if your revenue exceeds your expenses.
Balance Sheet – This report is a snapshot of of your assets and liabilities at a single point in time, often used, in conjunction with your P&L, to evaluate the performance of your company. If your assets (cash, property, equipment, inventory, etc) are larger than liabilities (debit, payables, etc) then you company is solvent, meaning you have the ability to meet any outstanding financial obligations.
Small business accounting can seem overwhelming, however, we are confident that just knowing a few key terms can provide clarity At My Small Business Pro we take pride in handling the accounting so that our clients are empowered to make important decisions accurately and with confidence.