Business owners commonly employ an accountant to handle the finances. Thus the finance management will be more professional and they can stay focus on other aspects of their business. If you have just started your business, below are accounting terms you need to learn:
1. Net Income: This term is sometimes called as “net profit” or “earnings”. You can obtain net income after subtracting the earning with the expenses you have spent. The remaining amount of money is what so called as net income.
2. Expenses: Expenses are charges that your business spends when selling products or providing services. Salaries, transportation and material costs are considered as expenses.
3. Liability: Liability can be defined as a debt that your company must pay on time. For a business, liabilities include bonds payable, accounts payable and taxes due.
4. Bookkeeping: This is a process of recording your business transaction into the finance book. The transactions that you have to record are income, purchases, sales and payments.
5. Asset: Asset is any item owned by business owner that has value. Business asset commonly lasts for several years such as the machine for production process, cars and office furniture. Company cash and logos are also included as asset.
6. Active Revenue: It is a payment that you receive for a service your business has performed. When your client pays for your service, the money is considered as active revenue.
7. Passive Revenue: This is revenue that your business receives without your direct involvement in the business activity. For example, if you run a business in rental property but you hire a management team to handle the facility then you receive passive revenue.
8. Balance Sheet: A balance sheet shows your business’ financial position in a period of time. A balance sheet commonly summarizes assets, ownership equity and liabilities.
9. Income Statement: Income statement explains about your business’s profits or losses in a period of time. It clearly shows the revenue you have received and the operating expenses during that time.
10. Accounts Receivable: When your customers haven’t paid the goods that you supplied, they owe the money to you and it is called as accounts receivable. The account receivables are noted as current assets on the balance sheet.
11. Accounts Payable: Accounts payable is the bills that you haven’t paid to your vendors or suppliers. The total of your accounts payable is considered as current liability on the balance sheet.
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