Accounting is a complex field with a significant amount of industry-specific terminology. Below are just a few of the terms that business owners should familiarize themselves with in 2023.
Accounts Payable: Accounts Payable (AP) refers to the amount of money a company owes to its suppliers or creditors for goods or services they’ve received but have not yet paid for. Accounts payable line items represent liabilities on an organization’s balance sheet.
Accounts Receivable: Accounts Receivable (AR) is the amount of money that a company is owed by its customers for goods or services it’s provided on credit. AR line items represent assets on the balance sheet.
Accrual: Accrual refers to the recognition of revenue or expenses in the accounting records before cash is received or paid. This is done to match revenue and expenses with the period in which they are earned or incurred, regardless as to when the cash transaction took place.
Cash Flow: Cash Flow refers to the movement of money into and out of a business over a specific period. It provides insights into the company’s ability to generate cash, meet its obligations, and invest in future growth.
Balance Sheet: A Balance Sheet is a financial statement that provides a snapshot of a company’s financial position at a specific point in time. It shows the company’s assets, liabilities, and equity.
Income Statement: An Income Statement, also known as a Profit and Loss Statement (P&L), is a financial statement that summarizes a company’s revenues, expenses, gains, and losses over a specific period. It shows the company’s net income or net loss for that period.
General Ledger: The General Ledger is the central repository where all the financial transactions of a company are recorded. It contains individual accounts for assets, liabilities, equity, revenue, and expenses.
Gross Profit: Gross Profit is the difference between a company’s net sales revenue and the cost of goods sold (COGS). It represents the profit generated directly from the production or sale of goods and services, before deducting operating expenses.
Return on Investment (ROI): Return on Investment is a measure of the profitability of an investment. It calculates the percentage return earned on the initial investment amount, taking into account the gains or losses generated by the investment.
If learning and understanding accounting terms feels overwhelming, and you’re interested in learning more about how outsourcing your accounting services can help you streamline your accountancy processes, we can help. Call our office today to schedule a free, no-hassle consultation.