5 Accounting Terminologies to Learn if You’re a Rookie Entrepreneur

In order to succeed in any form of business, it’s crucial to practice accurate accounting.  Unfortunately, many startup-level entrepreneurs are unfamiliar with the best practices of bookkeeping.  Bookkeeping isn’t just beneficial for operations, it’s also part and parcel of tax compliance.  Familiarity with bookkeeping empowers entrepreneurs to make fiscal decisions.

You Can’t Make Bread Without Bookkeeping:

Business Writer Cynthia Uzialko explains that “Bookkeeping consists of creating and maintaining an organization's financial records. It involves consistently recording a company's transactions, as well as archiving financial documentation. When bookkeeping is handled properly, business owners can make key financial decisions involving the company.” Here are a few foundational terminologies connect to bookkeeping:

1.    Assets:

An asset is any material that adds financial value to a company.  Cash is the most obvious example of assets in a business, but there are other resources that qualify.  For example, raw materials, property/equipment, finished inventory, and many other elements of a business are considered assets.

2.    Liabilities:

Liability refers to any obligation which detracts value from a company.  For the most part, liabilities in a business are usually represented by debts.  Debts tend to be substantial when companies borrow capital, but debts can also be incurred through regular operations.

3.    Income:

Income refers to cash that flows into an enterprise, specifically because of its operations or business model.  Income is different from capital injections because capital injections don’t originate from sales.

4.    Expenses:

Expenses refer to cash that flows out of an enterprise, in order to support operations or a business model.  The most prominent expenses in a business are usually related to manufacturing/production costs.

5.    Equity:

Equity refers to residual financial value that exists when a company’s liabilities are subtracted from its assets.  If a company has more liabilities than assets, then the business has zero equity.  It has what is known as a deficit.  However, if a company has more assets than liabilities, then the business has a surplus of equity.  Otherwise known as a profit.

Conclusion:

If you’ve never had any exposure to standardized bookkeeping, it’s a good idea to learn the ropes.  Especially if you’re someone who takes entrepreneurship seriously.  Bookkeeping becomes more and more important as companies broaden in scale. If you like what you just read from our blog, you’ll love the various informative courses, workshops, and events listed on our websites and social media. Whether you’re interested in personal development, health and wellness, bettering your relationships, or the overall improvement of your business, give us a call at 1 (800) 913-0222 to find out how Richard Martinez can help you break past your daily struggles and start soaring in success.