Accounting Terms that Seem like a Foreign Language

To those without a CPA license, accounting terms can seem like a foreign language. It's even more confusing because some accounting words and phrases can have different definitions based on the context or situations they're used! In corporate accounting, banking, traditional finance, and other settings, these terms can vary widely based on who is using them. Here are a list of some of the terms that small business owners should be familiar with:

Balance Sheet: Used to report what the business owns, what it owes, and other financial matters related to the company’s profitability.

Capital: Cash and other assets that business owners can put into the company to help it succeed and grow.

Chart of Accounts: All the financial accounts where a business will categorize their financial activity.

Cost of Goods Sold: The direct production costs involved in making a product or service that is intended for purchase.

Depreciation: A planned-for reduction in the value of a tangible fixed asset over its useful life.

Equity: The business owner’s interest in a company and how much it is worth.

Fixed Assets: Equipment, property, and other tangible property that are used in your business.

Liabilities: How much a business owes, also referred to as its debts.

Liquid Assets: Assets that can be converted into cash in a short time period without losing market value, such as cash, stocks, bonds, money market account funds.

Operating Expenses: Expenses associated with the business's regular activities and operations to make a product, provide a service, and conduct business.

Profit & Loss Statement: A financial document that shows the expenses, costs, and revenues for a company during a specific time period.

Of course, this isn't an exhaustive list of common accounting terms. We could go way more into detail, but we know we'd lose your attention very quickly. At Havig Tax, we understand that our business owners may not be experts in accounting. That's why you come to us! We'd be happy to explain any of these to you and show you how each and every one is important to understanding the health of your small business.