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Accounting is the language of business. For anyone in a managerial or ownership role, it’s important that basic small business accounting principles are understood. The people making important business decisions must understand how to evaluate and discuss business financial information with an accountant in order to guide the company into the future.
Accounting Tips From The CPA
Accounting is the word used to describe the methodical process for recording values for expenses, revenues, assets, accounts receivable and accounts payable. Documenting financial activity and categorizing it to generate financial statements is the main purpose of business accountants.
Income statements, cash flow statements and balance sheets are the three main financial statements used to determine a business’s health at any point in time.
Lenders, government officials and business executives use these statements routinely to evaluate business health and determine taxes owed.
Before an executive can analyze important numbers, he must first understand the definitions of the terms used.
Fortunately, a person can quickly learn the definitions necessary to have an intelligent conversation about financial matters.
Below are some accounting terms that should be learned by every professional in a decision-making role in a company:
- Accounts receivable figures reflect the debt owed to the company as the result of extending credit to customers.
- Assets represent the things owned by a company such as equipment, offices and stock to name a few.
- Liabilities represent everything that is owed to others.
- An invoice is a bill showing transaction details that are often sent to customers that owe the company money for products or services sold.
- Accounts payable figures represent the amount a company owes.
- Receipts are a written record of a specific sales transaction.
- Equity represents the difference between assets and liabilities. This gap defines how much of the company is owned by stockholders, partners or a sole proprietor.
– Chris C.
What Different Accounting Statements Mean
A balance sheet is divided into assets, liabilities and owner’s equity. The reason it is called a balance sheet is that a company’s total amount of assets equals the total amount of liabilities plus owner’s (or stockholders’) equity. A balance sheet offers an excellent picture of a company’s health.
An income statement is divided into revenues and expenses. Revenues represent the sales the company made during a given period. The expenses are listed below revenues and are subtracted from revenues to leave the difference, which is income at the bottom of the statement. Income statements are prepared monthly, quarterly or annually, depending on the company.
A cash flow statement details how a business spends its cash. Since cash flow is critical for business operations, the amount of cash a business has available is a major factor that determines a company’s ability to function. Individual cash expenditures, such as payroll, rent, utilities, supplies and taxes must be paid to keep the doors open.
Why have a small business accountant?
Companies rely on accurate financial information to change course as needed. Setting company goals requires sound financial data. Hiring a competent CPA firm to compile specific statements or help interpret economic changes from one period to another is a good way to gain an outside perspective to aid in making management decisions.
We can help. Speak with an accountant at (702) 471-7223 for a free consultation or contact us through the form on our contact page.