5 Accounting Terms Small Business Owners Should Know
Posted On: 22/06/21 - 0

From A Small Business Accountant

As a small business accountant with many years experience with entrepreneurs, I have come to learn that many business owner’s do like to have a basic knowledge of key accounting terms. This is why many entrepreneurs reach out to us. They value our knowledge and appreciate how we explain accounting so they understand the basic terms. It is important to us that you understand in everyday terms what is going on in your business so you can make important decisions that will allow you to move ahead in a more profitable way. We don’t want to see you just stay in business, we are passionate about you succeeding in business!

 

Receivables and Payables

Firstly, the amount receivable to you is the money that someone owes you. On the other hand, the amount payable refers to the money your small business needs to pay someone else. While this may seem all very simple, it has caused many headaches to small business owners when they try to look after their own books. For instance, some aren’t aware of the fact that they need to approach their customer’s ‘accounts payable’ department when they are to receive money from them.

Secondly, Equity

Equity refers to the amount of all that you’ve invested in your small business.  This includes all the earnings you have successfully generated over the years. Another way to think about it is the difference between a business’s assets and it’s liabilities. Small business owners must strive to maintain a positive equity with assistance from accounting firms that specialize in small business accounting like ours.

Thirdly, Return on Investment

How many times have you scratched your head to understand what exactly people mean when they ask you what ‘Return on investment’ or what ROI stands for? Well, the term is actually quite self-explanatory. Business owners and business accountants assess the ROI to understand whether an investment has paid off. This is an inspection of time and money, and was all this worth the revenue it eventually helped you generate? Each business activity must be compared as per their ROI and must be adjusted accordingly.

Fourthly, Cost of Goods Sold

COGS or ‘Cost of Goods Sold’ refers to all the costs that are to be associated with the production of certain goods or the delivery of certain services you’re generating for the benefit of your customers. COGS is an important metric on your financial statements.  Your cost of goods sold is subtracted from your small business revenues to determine your gross profit. If COGS increases, net income will decrease. A small business accountant will be the first to tell you that COGS will be the first expense you’d encounter while you’re preparing your profit and loss statement.

Finally, General Ledger

Your general ledger is the key to your bookkeeping function. This ledger is the one book that contains all the transactions your business has made since it’s inception to the present day. If you should lose this ledger and have no back-up, you could be in for some serious trouble.

If you’re looking for a small business accountant to handle your books, why not give us a call.  We can provide you with a professional service that will  handle your accounting, bookkeeping, taxation and payroll.  We are here to provide you with sound business advice and business development solutions. Call Cheryl @ 780-482-7297.

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Edmonton, Alberta.
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780.482.7297