Meeting with a tax professional can sometimes be challenging, especially if they’re using a lot of terms that you don’t understand. Consequently, below are just a few of the most common accounting terms that you may want to familiarize yourself with.
Accounts payable: Your accounts payable includes expenses that your business has incurred but have not yet been paid. For example, if you purchased a new copier and you’ve agreed to a net 30 (or net 60) payment term—since that expense hasn’t been paid yet, but needs to be paid within the next 30-60 days, it would be added to your accounts payable.
Accounts receivable: Your accounts receivable (AR) refers to the money that’s owed to your business by your debtors. For example, if you sell widgets to Company X and they pay you at the end of each month, the sum that’s owed to your business would be tracked as receivable assets.
Assets: Your company’s assets include everything that has monetary value. This includes everything from real estate holdings, to cash, to office equipment, to the amount of cash that you have in your business account.
Balance sheet: If you’re a business owner, your balance sheet is a financial statement. It’s often generated at the end of each fiscal year and it lists the organization’s assets and liabilities. Balance sheets help provide a snapshot summary of an organization’s finances.
Gross profits: Gross profits (sometimes referred to as gross income) defines the value of what’s being sold by your business (regardless as to whether you sell products or services) after you deduct the variable costs associated with selling your product or service. For example, if your company sells wedding cakes and you made $700,000 last year in sales, you’d calculate your gross profits by subtracting costs for materials, direct labor, salesforce commissions, credit card fees you may have needed to pay on customers’ purchases, depreciation of equipment used to make your cakes, shipping and/or delivery costs, and utility costs.
Overhead: Your overhead costs are the costs associated with sustaining your business that doesn’t contribute to your profitability. Examples of overhead costs include administrative costs, insurance, rent, and marketing costs, among others.
The bottom line is this: if you meet with your CPA and during that meeting, they use terms or phrases that you don’t understand, it’s OK to ask them to step back and clarify. If you need to meet with a CPA and you’re interested in scheduling an appointment, we can help. Call Hughes, Snell & Co, PA today to get started.
