For a small or newer business owner, it is important to have a good understanding of business accounting to ensure financial success. With accounts, there are a number of different terms that are used that maybe the smaller or new business owner may not fully understand. To help ensure proper accounting, Mark Dicus & Company would like to share some of the essential accounting terms and their definitions. Click here to read the second part of this email.
Basic Accounting Terms
Accounts Receivable: This is money that is owed by a customer or client as a payment for goods or services. A business balance sheet should include account receivables with the accurate assessment of the cost of the goods and service provided. The customer or client is legally obligated to pay the amount charged.
Accruals: Is a list of expenses that the business incurred but has yet to be paid or it is a list of sales that have been completed but not yet billed. Accruals can either have a positive or negative impact on a balance sheet and income statements. It will often depend on future revenues.
Accrual-Basis Accounting Method: Accrual-basis accounting method is a major component of GAAP (General Accepted Accounting Principle). A company must recognize revenues and expenses at the time of a sale. Accrual-basis accounting method is often confused with cash-basis method which states that the company must realize sales when payment is received.
Assets: Are everything that a company owns that has value and is tangible. Some common examples of tangible assets are equipment, land, property, tools, and cash. Some other types of assets are stocks, copyrights, trademarks, and patents.
Bad Debt Expense: This is when the business makes a sale on credit and there is a chance the business will not receive payment. Bad dept expense should be on the accounts receivable entry and on the income statement which can be written off. Make notes of all bad dept expenses as they will not reflect on net income and cash flow will not be accurate.
Balance Sheet: Is an overview of the company’s or business’s financial status, liabilities, assets, and equity. The proper accounting equation a business must keep in mind is – Assets = Equity + Liability.
Cash-Basis Accounting: Is essentially a straightforward accounting method. Cash-basis accounting is all of the payments that have been received by the company or business. Cash-basis accounting guidelines are under the GAAP standards.
Depreciation: Is defined as the recovery of the cost of items over an extended period of time. Accounting for depreciation is essential for tax purposes, as they can be written off which will reflect on the end of the year tax returns.
Dividends: Is the company or business earnings that are distributed to all shareholders. The corporation’s board of directors is the one who typically divides the business earnings to the various shareholders. The divided earning can be cash, property, or stock market shares.
Expenses: This is the cost of acquiring something for the operation of the business. Expenses can include materials and services. Other expenses such as Fixed-Expenses are the ongoing cost of paying employees, rent, utilities, and needed materials.
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There are many more terms that Mark Dicus & Company will be covering to ensure accounting success for small or newer business owners. For quality account services and more, contact Mark Dicus & Company today.