We know financial jargon can be confusing, which is why we do our best to stick to plain English. But there’s no escaping some terms.
Here are our top ten and what they really mean.
1. Assets:
Anything of value owned by a business. Think of it as the resources that help generate income, from cash, to goods and products, property and equipment.
2. Liabilities:
The debts or obligations a company has. This includes loans, accounts payable, mortgages, and any other financial commitments.
3. Equity:
This is the value that would be returned to a company’s shareholders if all the assets were liquidated and all the debts paid off. It's what the owners "own" in the business.
4. Revenue:
Total income from normal business operations. It’s the top line from which costs are subtracted to determine net income.
5. Expenses:
The costs of generating revenue. This can range from rent and salaries to utilities and supplies.
6. Profit:
The financial gain when the revenue from business activities exceeds your expenses, costs, and taxes. It's what's left over for the owners or shareholders after all expenses are paid.
7. Cash Flow:
How much cash (and cash-equivalents) are going in and out of a business. Positive cash flow means your liquid assets are increasing.
8. Balance Sheet:
A financial statement that reports a company's assets, liabilities, and shareholders' equity at a specific point in time.
9. Income Statement:
Also known as a profit and loss statement, this shows your company’s revenues and expenses during a particular period. It illustrates how those revenues are transformed into net income or net profit.
10. Accrual Accounting:
An accounting method where revenue and expenses are recorded when they are earned or incurred, regardless of when the cash is actually received or paid.
Still struggling with jargon?
Talk to our team. They’ll be happy to help.
