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Common Accounting Terms Every Small Business Owner Should Know


Word cloud of common accounting terms

As a small business owner, understanding accounting terminology is vital, whether you handle your own bookkeeping or outsource it to professionals. While accounting might seem like a complex realm of numbers and jargon, grasping these fundamental accounting terms will empower you to make informed decisions and significantly impact your ability to manage your finances effectively.


Here are the accounting terms every business owner should know.


Bookkeeping

The recording of financial transactions. It involves maintaining accurate records of income, expenses, assets and liabilities.


Accounting

Includes the interpretation, analysis, and reporting of financial information to assess your business's financial health.


Accounts Payable

The outstanding creditors your business owes to suppliers.


Accounts Receivable

The money customers owe to your business for goods or services, also known as Debtors.


Assets

Everything your business owns, or controls, that holds value, including cash, property, vehicles, machinery, equipment, what people owe you and stock.


Liabilities

Your business’s obligations, such as loans, accounts payable and what you owe HMRC.


Equity

The difference between your business’s total assets and total liabilities. It represents the ownership interest or the net worth of your business.


Revenue (Income/Turnover)

The money your business earns by selling products and services associated with its main operations.


Gross Profit

This is the profit from the selling price of the goods or services your business sells less the costs of producing them.


Expenses (Overheads)

All the costs incurred to run your business, including staff costs, travel, rent, insurance, advertising, office costs and other operational costs.


Profit (Net Income)

The amount of money left over after deducting all expenses and taxes from your revenue.


Cash Flow

The balance of money into and out of your business during a specific accounting period.


Balance Sheet

A financial report summarising the business assets, liabilities, and owner’s equity, providing a view of your business's financial health.


Profit and Loss Statement

A financial report summarising the business revenues, expenses, profits and losses over a specific period, offering a clear overview of your financial performance.


Making Tax Digital (MTD)

A new UK Government initiative requires businesses to keep digital records of their income and expenses and submit their tax returns digitally to HM Revenue and Customs (HMRC).


Being familiar with these accounting terms is the first step in taking control of your finances. At Sense of Numbers, we offer services and training in accountancy and bookkeeping tailored to the needs of your business, whether you operate as a sole trader or a small business that’s limited. Our team is here to support you on your journey to financial success, providing expert guidance in managing your accounts and enhancing your skills.



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