Being an entrepreneur is more than having a great idea and working hard. Its also about constantly educating yourself on the technicalities of how to make the company run efficiently. As a business owner, you may hire an accountant to do your bookkeeping but it is still up to you to make the effort to comprehend how it all works.
Below are basic terms that can help you understand your business\\\' income statement and balance sheet:
Accounting Equation: Assets = Liabilities + Owner’s Equity
Accounts Payable: Short-term liabilities that reflect the amount owed to vendors and suppliers
Accounts Receivable: Short-term assets reflecting the amount owed by customers from the sale of product or services on credit
Accrual Accounting: The process of recognizing, in financial statements, revenue when it is earned and expenses as they are incurred, regardless of when the cash changes hands
Accumulative Depreciation: The total cumulative amount of depreciation expense that had been recorded since the fixed asset was acquired.
Assets: Anything of economic value owned by the business, including accounts receivable, inventory, equipment, buildings and land that could be converted to cash
Balance Sheet: A summary of the assets, liabilities and owner equity at a defined moment in time
Bottom Line: The last line on the income statement, or the final amount of profit (or loss) for the accounting period after all expenses and adjustments are made
Capital Expenditure: Expenditures for fixed assets
Cash Accounting: A method of accounting in which sales are recorded when the money is actually received, not when the services are delivered. Expenses are recognized when paid, not at the time they are incurred
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