Every business owner needs to have a basic understanding of accounting principles and terms in order to manage their finances effectively.
Being knowledgeable about accounting not only helps business owners maintain control and accuracy over their finances but can also prepare them for any unexpected bumps along the way.
Staying on top of accounting helps business owners build more confidence in their financial statements, alleviating stress and making it easier to identify problem areas quickly before they turn into larger issues. Knowing accounting fundamentals is important in order to create a successful business that can stand the test of time!
Here are 8 essential basic accounting terms that every business owner should know:
1. Profit & Loss income statement (P&L)
A profit and loss statement is an incredibly useful tool for any business or individual that wants to know how their finances are doing. It's a way of tracking incoming and outgoing funds over a given period of time, usually a quarter or year so that you can observe both your profits and losses.
This document is essential to gain insights into the financial health of your business so you know where investments should be made or what areas are draining resources. Any business that is looking to be successful needs to understand its profit and loss income statement in order to develop lasting strategies for growth and success.
2. Cash flow
Cash flow is the total amount of money moving into and out of a company over a set period. This includes cash from sales, taxes paid, investments made, loans received and other sources.
Being able to track your cash flow is important for managing your budget and ensuring you have enough cash on hand to cover expenses each month.