• Quill Team

Accounting Jargon

According to as study performed by Quickbooks in 2005, only 40% of small business owners considered themselves to be “very knowledgeable” about accounting and finance. A business of any size needs to make sure their accounting is in line with national and international standards. Different countries have adopted varying GAAPs (Generally Accepted Accounting Practices) but we can generally tackle some of the more basic accounting terms in this article:

Accounts Receivable: The amount of money owed by clients/customers to a business are a product or service has been delivered

Accounts Payable: The amount of money a company owes creditors (i.e. suppliers) for a product/service they delivered

Balance Sheet: A financial statement that reports the assets, liabilities, and equity of a company

Liabilities: the debt a company has yet to pay (i.e. accounts payable, payroll, loans, etc)

Costs of Goods Sold (COGS): expenses (costs) that come directly from the creation of a good or service (this does not include costs needed to run the business)

Business Entity (legal entity): the legal structure, or type, of a business (i.e. Sole Proprietor, Partnership, Limited Liability Corporation (LLC))

Cash Flow: measures the inflow and outflow of cash in a business (positive cash flow indicates more money flowed in than out, and vice versa)

Certified Public Accountant (CPA): professional designation that accountants can earn by passing the CPA exam and fulfilling the required work and education requirements

Enrolled Agent (EA): professional designation that accountants can earn if they successfully pass tests demonstrating expertise in business and personal taxes (businesses hire EAs to complete tax filings to ensure compliance with the IRS)

General Ledger (GL): complete record of a company’s financial transactions

Journal Entry (JE): how changes are made to a company’s books

Liquidity: a term for how quickly something can be converted into cash

Overhead: expenses that come directly from running the business (i.e. rent, payroll)

Working Capital: the amount of money you have available to run your business after you subtract current liabilities from current assets

By Amanda Huang

Image source: https://www.edupristine.com/blog/basic-accounting

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