Providing the best accounting and bookkeeping services in Dubai, we understand that the accounting world can be intimidating, but you don’t need to understand every term. In fact, knowing just a few basic terms will help you understand the basic accounting of your business. So here are 10 basic accounting terms that every business owner should know, even if you have outsourced it:
Accounting
Accounting is a process of recording financial transactions and summarizing them in financial statements. Financial statements help make business decisions, such as whether or not to invest in a particular business opportunity. Accounting refers to the broader concept of management information systems that includes all functions involved in recording, processing and reporting financial data from a business operations perspective.
Bookkeeping
Bookkeeping is the process of recording financial transactions day-to-day. It’s not accounting, as it’s an ongoing process and not a one-time thing.
Assets
Assets are the economic resources that help a business run daily. They include cash, inventory and equipment. Assets are used to make the company money, and they’re listed on the balance sheet.
Liabilities
Liabilities are the company’s debts or obligations. This means that they will have to be paid back at some point in the future.
Expenses
Expenses are outflows of cash resulting from the operating activities of a business. They can be classified as either functional or nonoperating.
Operating expenses can be directly associated with running your business, including rent, utilities, insurance and wages. Nonoperating expenses include advertising costs or legal fees that do not directly impact how much you make each month but still help keep your company running smoothly.
Inflows
Inflows are incoming cash payments resulting from the operating activities of a business that increase equity in your business account. Inflows are cash that comes into a business, like income from sales or money received from other sources.
Break-even point
The break-even point is where your company’s revenue equals the cost of running your business. It’s critical because it shows how much money you need to make before you break even on your investments.
Cash flow
Cash flow is the amount of money being transferred into and out of business at any time. It measures how well your company is doing financially, positive or negative. The cash flow statement shows how much cash is coming in and going out each month concerning expenses.
Accounts payable
Accounts payable refer to money owed to another company for goods or services rendered, usually within 30 days of the invoice date.
Accounts receivable
Accounts receivable is the money owed to a company for goods or services rendered and is usually due within 30 days. The accounts receivable balance is the total amount of money all its customers owe, less any payments made on those debts.
If you’re starting a business, know these terms before you start!
If you’re starting a business, knowing the accounting basics will help you make better decisions and reduce the risk of mistakes. It’ll also give you an idea of what’s going on with your finances and how much money is being spent each month. Knowing this information can be beneficial for running your business smoothly!
Entrepreneurs need to understand how these terms are used to keep track of all the information required for financial records. Undoubtedly, you will take the better path and outsource the accounting for your business. But, even in this situation, you must know these basic terms to understand what your accounting outsourcing companies in Dubai are trying to make you know.
Conclusion
We hope this list of accounting terms has helped you understand what they mean and that it will be helpful when you’re starting your own business, understanding the reports of your finances made by your accounting company or during tax consultancy Dubai.