• Home
  • Services
    • Accounting Services
    • Bookkeeping
    • Payroll
    • Cash Flow Forecast
    • Consulting for QuickBooks®
    • Training for QuickBooks®
    • Xero Cloud Accounting
    • Cloud Accounting
    • Sales Document Automation
  • Resources
    • Resources
    • Mobile Accounting
  • Blog
  • About
    • About
    • Send Us Your Referrals
  • Contact
1 (760) 573-1038
info@strategic-ba.com
December 10, 2015

Get Finance-Savvy with 10 Accounting Terms

Ken Aurigemma Accounting

Tweet
Share
Share
Pin

It’s good to know some basic accounting terms, and here are ten terms with friendly definitions for your review.

Asset:  Essentially, assets are what you own.   These include your bank accounts, business equipment, and even the amounts that customers owe you.

Revenue:  Revenue is what you make.  Another word for it is Sales.  You generate revenue in your business when you make a sale to a customer.  The amount of the sale is included in revenue.

Expense:  An expense is what you spend in your business on items that are not expected to benefit you in the long term.  Expenses include credit card fees, office supplies, insurance, rent, payroll expense, and similar items that you need to incur to keep your business running.

COGS:  COGS stands for Cost of Goods Sold.  It’s a form of expense that directly relates to the product or service being sold.  For example, if shoes are being sold, the cost of purchasing those shoes are consider COGS, while something like rent or insurance is simply an expense.  COGS is more important in manufacturing, retail, and distribution companies.

Net Income:  Another word for net income is profit.  It’s calculated by subtracting expenses from revenue.  If what’s left over is a positive number, it’s net income and if it’s negative, it’s a net loss.  Besides your salary, it’s the amount of money you can either keep or re-invest into your business.

Debit:  A debit is a term that tells you whether money is being increased or decreased.  The hard part is that it’s opposite depending on the account and the company.  Here are some examples:

  • A debit to cash increases it, so that’s good.
  • A debit to a loan you owe decreases it, so that’s good too because you are paying it off.
  • When you talk to a bank teller and they want to debit your account, it means they are taking money away, because your account is a liability to them.  So it’s opposite.

Credit:  A credit is a term that tells you whether money is being increased or decreased.  The hard part is that it’s opposite depending on the account and the company.  Here are some examples:

  • A credit to cash decreases it, as in writing a check to someone.
  • A credit to a loan you owe increases it, so you owe more money.
  • When you talk to a bank teller and they want to credit your account, it means they are putting money in, because your account is a liability to them.  So it’s opposite.

 

GAAP: GAAP stands for Generally Accepted Accounting Principles.  It refers to the set of standards that must be followed by accountants when creating accounting reports for people like bankers and investors who rely on them.

Liabilities:  Liabilities are what you owe.  If you have loans taken out for your business or owe vendors money for invoices of purchases they sent you, those are liabilities.  Common liabilities include sales tax that you’ve collected but not paid, unpaid vendors’ invoices, credit cards that are not paid off each month, mortgages on buildings, and any bank loans you’ve taken out.

Equity:  In mathematical terms, equity is the net of your assets less your liabilities.  In more philosophical terms, it’s the net amount you and your fellow business owners have invested in your business adjusted by the years of net income you’ve made less what you’ve taken out of the business.

How many terms did you already know?  Do you feel smarter already?  Knowing accounting terms will help you understand this aspect of your business a bit better.

Tweet
Share
Share
Pin
Cool Tech Tools: Automate Your To-Do List Is Your Website Mobile-Friendly?

Related Posts

Accounting, Blog, Business Tips, News

PPP January 2021 Update

Accounting, Business Development, Business Growth, Business Tips, Decision-Making Tips

The Entrepreneur’s Guide to Starting a Business in 12 Easy Steps

Accounting, Bookkeeping Tips, Business Development, Business Growth, Decision-Making Tips

The Entrepreneur’s Guide to Starting a Business in 12 Easy Steps

Recent Posts

  • 5 Tips to Spice Up Working from Home
    April 8, 2021
  • Mix Up Your Revenues for More Profits
    March 25, 2021
  • Tax Deadline Extended for SOME but NOT ALL Tax Returns and Payments
    March 22, 2021

Latest Tweets

→ Follow me
  • Home
  • Services
  • Resources
  • Blog
  • About
  • Contact

Contact Us

Payroll Services, Accounting Services and Services for QuickBooks®

Strategic Business Alliance, LLC

6790 Embarcadero Lane, #100
Carlsbad, CA 92011

1 (760) 573-1038

info@strategic-ba.com

Client Login


Intuit, QuickBooks, and QuickBooks ProAdvisor are registered trademarks of Intuit Inc. Used with permission under the QuickBooks ProAdvisor Agreement.
Copyright Strategic Business Alliance 2021 | Site Design by Accelerator Websites