7 Accounting Terms You Should Know for Your Small Business

July 2nd, 2013 by

Getting started in small business can be tricky enough as it is. You’ll need business savvy, leadership skills and the ability to perform well in your chosen business field. On top of all these tasks, you’ll need to have a basic understanding of how your company’s accounts work. Without this information, you may find that you get stuck with no understanding of how your books work. Before you can start working with a professional Pittsburgh small business accountant, you’ll want to have a basic understanding of a few terms your accountant may use:

Bookkeeping. Bookkeeping is different from accounting, which is a more general term for keeping track of the expenditures of your business. As we’ve explained before, a bookkeeper is responsible for the actual keeping of the books. In your company, this might be you or you might delegate the responsibility to another person. It’s important that your small business’s bookkeeper keeps accurate records of how much money comes in and how much is spent. This will help you determine whether or not you’re profitable, among other things.

Accounting. Accounting is a more general term that refers to compiling information from the data you’ve been tracking about your company. Accounting gives you insight into your company instead of just looking at numbers, accountants offer up information based on these insights. They may be able to help you understand information about taxes, profitability, forecasting and other information.

Accounts payable. Your accounts payable can include things like credit you’ve taken out and unpaid bills. This information shows who you owe money to. If you’ve purchased something, but haven’t paid for it, it belongs in your accounts payable. You’ll want to make sure that you have all this information entered accurately to help you determine how much you owe. This is a critical measure for profitability.

Accounts receivable. Accounts receivable is like inverse of accounts payable. This is money that other people owe you. In general, other companies don’t pay right as soon as services are rendered. Sometimes, it may take them quite awhile to pay and might even become “bad debt” if it can’t be collected.

Net income. The amount of money your company brings in may have some relation to how profitable you are, but it’s not the total picture. Net income, sometimes called “earnings”, shows how much money you’ve made after you subtract the cost of doing business. For example, you may need to purchase supplies or pay for subcontractors in order to complete a job. You’ll subtract these costs from what you made in order to determine your net income.

Assets. An asset is anything of value that your company owns. A stapler might not be an asset, but a copy machine would be. Assets generally have long-term value for your company. They can also include things like cash, company cars or property. Some assets can be intangible, such as patents that you have a right to.

Liabilities. Liabilities are the opposite of assets, in general. Liabilities would generally reside in your accounts payable, since they represent money that you owe in some form or another. For example, a small business loan that you took out is considered a liability, since you’ll need to repay it.

At its most basic, accounting isn’t challenging. It’s when you add layers of complexity, like tax codes and forecasting, that you’ll want to hire a professional small business accountant. If you’re running a small business and need help, consider contacting a professional accountant in Pittsburgh.