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Ten Accounting Jargons that Small Businesses Must Know

April 16, 2020
Long Lee

1. Accounts Receivable – Also known as AR, this refers to the amount of money that is owed by your customers to your company for all the goods and services that you have provided.

2. Bad Debt Expense – Accounts receivable that cannot be collected is ultimately written off the books and referred to as a bad debt.

3. Cash Basis Accounting – This is a straightforward method of accounting that is useful for new or small businesses. Expenditures and revenues are recorded in the general ledger whenever you send and receive payments.

4. Equity – This refers to the amount of money that the owners have invested in the company. If your company is small and has only a few owners, this is referred to as “owner’s equity”. If your company on the other hand has a lot of owners, or if you have parsed out the ownership through stocks, then the term refers to the ownership that is collectively held by all the shareholders.

5. Variable Expenses – These are expenses that are not fixed and are tied to your company’s operations. A few examples include the cost of goods sold, contract labor, travel related expenses and other operating expenses that vary in amounts.

6. Fiscal year – This refers to the period of time that your company has to prepare its financial statements. Most companies match their fiscal year with a calendar year while other companies end their fiscal year during the middle of the calendar year mostly for tax purposes.

7. Forecasting – This refers to the process of using historical data to predict future business trends. It is generally used by companies when budgeting and also used to determine how their business is going to behave in future months or years.

8. General ledger – This is a ledger that is typically used by accountants to record a company’s financial transactions over its lifetime. All the financial statements are prepared based on the information provided by the general ledger.

9. Liabilities – These are debts/obligations that your company needs to settle over time.

10. Trial balance – This is a financial report that is used to confirm the final account balances prior to generating financial statements. It involves placing the credits and debits on a worksheet to make sure that the current balances are accurate.

Whether you want to calculate your cash flow or your net income after tax, balancing your books at the end of your financial year does not have to be the notoriously difficult. You just need to speak the language or have an accountant who can break it down for you.