Small business owner reading about accounting terms

What Are Accounting Terms Small Business Owners Should Know?

You should know a few accounting terms, whether you’re doing the accounting yourself or outsourcing your accounting. Knowing what things are can help you change the direction of your small business based on the financial numbers you’re seeing.

If you’re doing the accounting in-house, you’ll need to know how things are done. And if you’re outsourcing your accounting, then it’s helpful to know these terms so you can talk about the direction of your company. So, here are ten accounting terms you should know for your small business.

What Accounting Terms Should You Know?

The following terms are great for knowing the status of your business and how you can use that to properly implement changes in your business that will help you grow. The numbers will show you which products or services are paying off and which investments could be a good payoff.

Some terms to know consist of:

  • Accrual Accounting: This method tracks revenues and expenses based on when they occur rather than when they are paid (cash basis accounting).
  • Income Sheet: This details your income statement for a particular period based on all revenues minus all expenses.
  • Financial Statement: A collection of reports including the balance sheet, profits and loss (P&L) or income statements, and cash-flow statements.
  • Balance Sheet: The balance sheet documents your business’s assets, liabilities, and shareholder’s equity.
  • Cash Flow: This shows a glimpse of the timing and amount of cash coming in and out of your business.
  • Cash-Flow Forecast: Analyze your projected income and expenses to see the potential amount of money that will go through your business.
  • Gross and Net Profit: Gross profit is the profit you make after subtracting your direct costs of production, while your net is everything after your company has paid all operating expenses.
  • Marginal Costs: This is the difference in profit you make by selling more than one unit of goods.
  • Burn Rate: This is how long you can cover your operating costs using your cash on hand without generating positive revenue.
  • Break-Even Analysis: This is when an analysis takes place when the income matches the expenses of the business or specific product or services.