In our last accountancy terms post we discussed 9 key terms you should familiarize yourself with in 2023. For this post, we wanted to add several more to that list.
Accruals: Accruals are revenues or expenses that have been incurred but not yet recorded in the financial statements. They represent the recognition of economic events before cash is received or paid. Examples include things such as prepaid rent, purchases (and sales) that are made on credit, accrued interest, audit fees, and income tax expenses, among others.
Assets: Assets consist of all economic resources owned by a business. Examples of assets include things such as cash, inventory, equipment, and property.
Audit: An audit is an independent examination and verification of a company’s financial records, statements, and internal controls. Audits are conducted by an external auditor to ensure record’ accuracy, transparency, and compliance with accounting standards and regulations.
Cost of Goods Sold (COGS): COGS refers to the direct costs associated with producing or acquiring the goods or services sold by a company. Things that are included in your company’s COGS include things such as materials costs, direct labor, and any other direct costs directly attributed to the production of goods or services.
Depreciation: Depreciation refers to the systematic allocation of the cost of a tangible asset over its useful life. It reflects the decrease in value or wear and tear of the asset over time. For example, if you purchase a piece of machinery for your business, your accountant can help you understand how that asset depreciates over time, and whether the depreciation value can be used as a deduction on your federal tax return.
Expenses: Expenses refer to all of the costs incurred by a business in the process of generating revenue. Examples include salaries, rent, utilities, and advertising expenses, among others.
Liabilities: Liabilities are the debts or obligations owed by a business to external parties. Examples of common liabilities include bank and/or mortgage debt, accounts payable items, and taxes and wages that are still owed, among others.
Net Income: Net income, also known as net profit or net earnings, is the amount of money left after deducting all expenses, including taxes, from a company’s revenue. It represents the overall profitability of a business.
Revenue: Revenue refers to the income earned by a business from its primary operations, such as sales of goods or services.
If your accounting tasks make you feel overwhelmed and you’d like to learn more about the benefits of outsourcing your company’s accountancy functions to a dedicated CPA firm, we can help. Call our office today to get started.