If you’re not a licensed accountant or CPA, accounting terms likely sound a bit Greek to
you. And while no one expects you to be fully familiar with all accounting lingo, there are
several terms that all business owners should familiarize themselves with.
Balance sheet
If you own a business, you should know what a balance sheet is. Your balance sheet is
a final report that provides you with a full summary of your company’s assets and
liabilities. If your business has shareholders, the balance sheet will outline shareholder
equity.
Accounts payable
Simply stated, accounts payable refers to your outstanding debts. Examples of AP
expenses may include utility expenses, lease / rental expenses, licensing renewal fees,
subcontractor services, and office / business equipment, among others.
Accounts receivable
AR expenses are essentially the opposite of AP expenses in that it refers to revenue
that a company is due that it hasn’t yet received. For example, let’s say you own a
company that sells widgets, and you ship your product to several clients on a monthly
basis. If you ship your widgets on the 10th of the month, but the agreement you have
with these clients is that they don’t need to pay you until the last day of the month, the
money that they owe to you between the time you ship the product, and you receive
payment, would be part of your accounts receivable.
Liabilities
A company’s liabilities refer to all monies that are owed or borrowed. Liabilities not only
include AP line items, it also includes short-term debt, wages, taxes, and payroll
expenses.
Assets
Your organization’s assets consist of company-owned items that have monetary value.
For example, if you own a warehouse, your warehouse would be an asset. If your
company owns several million dollars’ worth of farming equipment- that equipment
would also be among your organization’s assets. If an item has liquid value, regardless
as to whether that item is cash, equipment or land, it’s an asset.
Profit and loss statement
P&L statements are used to summarize an organization’s financial position and its
performance. Profit and loss statements are often issued quarterly, semi-annually, or
annually, and contrast a company’s revenues against its costs and expenses.
In closing
Regardless as to whether you need help preparing a P&L statement or you need
assistance filing your company’s tax returns, we can help. Call Hughes, Snell & Co., PA
today to speak with an expert.
