Basic Accounting Terminologies You Should Know to Guide Your Business Operations

Posted on: 20 April 2017

As a business owner, don't just be green and stay in the dark about accounting and financial operations that take place in your company. Having some basics of accounting principles and terminologies will help you a great deal in handling your company's growth and finances. These comprise of general concepts and rules that govern accounting as a profession. Income statements, balance sheets, statement of cash flows and sample transactions are some encounters you will meet when dealing with accounting operations in your company. Below is a clear introduction of the basic accounting principles, accounting terminologies you could master, and accounting concepts mainly used by accountants.

Revenues

Revenue generated for direct deliveries is the fees earned after delivering services or selling a product. Revenues in this case should be recorded when your company earns and not when it receives the money. Revenue recording at the time they are earned in a company comes as a result of the basic principle known as the revenue recognition principle.

Income Statements

Income statements will show you how profitable direct deliveries within your company have been progressing at time intervals displayed in the heading of the statements. The period in this case may be one week, a month, six weeks or on an annual basis. Based on your business operations, you may have to choose a specific time period that deems appropriate for you. Reporting of such profits has two major factors. The revenues that were earned and expenses that are incurred to earn the revenues.

Cash Flow

Your company may go out of business operations, not because of lack of profits or sales, but because of very minimal cash flow. Cash is completely different from revenue. A sale takes place when your company delivers a service or product and collects the payment from the customer. Cash flow is an important factor of your business and acts as the driving engine to keep you moving forward.

Fixed and Variable Expenses

Fixed expenses are constant and remain the same regardless of what is sold within the month in your company. Some fixed expenses could be employees, utilities and the office rent. Variable expenses on the other hand can change basing on the amount of service and product offered by your company in a specified month. Some variable expenses may include sales commissions, inventory and customer shipping. It is advisable to maintain many variable expenses and lower the number of fixed expenses to increase profitability.

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Accountancy: Counting Together

Hello, my name is Stuart and I live in Sydney, Australia and this is my accountancy blog. I have always loved numbers. When I was a little kid, my granddad would sit me on his knee and make me recall the times tables. I also remember counting all the money in my piggy bank and my dad explaining the concept of compound interest to me. Although I didn't enter the accountancy trade, I still keep in close contact with the industry and like to keep up with what is going on. I hope you find this blog very useful and that it helps you to save a little money one way or another!

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