10 Basic Accounting Terms You Must Know To Drive A Business Successfully

Even in our high school days, accounting never sounded like a fun subject to talk about or be excited to study about. But who knew that one day the same monotonous subject will make us run on our heels when the tax season approaches.

No one can deny the importance of accounting in our daily lives. Whether it is to run a household or a huge enterprise, basic knowledge of accounting is always required and is always good to have. It helps us understand the nuisances of dealing with business finances. 

When we say” basic understanding” or “basic knowledge”, what part of accounting does it cover?

Well, if are aware of some commonly used terms, definitions and acronyms used in accounting, it can go a long way in comprehending the financial requirements of our businesses.

For the complex part, we can always hire a tax agent in Nunawading to sail our money boats smoothly.

Here, we have curated a list of 10 basic terminologies used in the field of accounting.

1. Assets: Items whose value depreciates over time and goods sold to the customers are called assets as they are owned by the company. Other wealth components like buildings, property cash, investments, warehouse inventory, equipment, supplies and account receivables that a business owns without a loan or lieu are considered as assets. 

2. Balance Sheet: A balance sheet is the diagnostic centre of any business’s health. It contains the basic accounting method of assets which is the sum of liabilities and stockholder equity/capital at a certain point in time either quarterly, monthly or yearly. Balance sheets are examined to tell the current financial status of the company, whether good or bad. 

3. General ledger: The general ledger, also known as the nominal ledger is a part of bookkeeping, which contains balance sheet and income accounts statements. Business transactions like sales, credit purchases, office expenses, income losses are recorded. It also has other accounting details like accounts payable, accounts receivable, cash management, fixed assets, and projects. Talk to your accountant in Nunawading for hiring their bookkeeping services.

4. Gross Margin: To put it simply, it is the profit made by the business after deducting associated costs like manufacturing cost, wholesale cost, materials and supplies from the overall sales generated.

5. Loss: When a service or a product sells for less than its cost of supply and manufacture, it’s a loss. When the expenses are more than the revenue generated by an asset, a loss is experienced.

6. On credit/On account: On credit or on account means when you purchase goods or services on credit without making immediate payments. In such a situation, there are certain terms and conditions on which the deal is made and it may incur interest charges for that time period.

7. Receipts: It is only the total amount of cash collected through every business transaction in one day of business. It does not include other revenue types. An experienced tax agent in Nunawading can be contacted for more information on this.

8. Revenue: Revenue is the umbrella term for all kinds of income collected by the business at one point in time. It includes cash sales, credit purchases, subscription fees and income from interest. Monies are collected instead of receipts.

9. Trade discounts:  A trade discount is a percentage discounted from the actual purchase price. It depends on the volume of goods ordered. A large order may be eligible for a higher discount and less discount on small orders.

 

10. Trial balance: A trial balance includes details of debits and credits of an account and is recorded in a general ledger. Debits must be equal to the credits.

Good accounting is the backbone of any business. Looking at the account books, past, present and future aspects of a business is determined and accordingly further business is carried out. Hence, acquiring basic accounting knowledge will aid you in deciphering the data written in account ledgers. And for other bookkeeping services where profound subject knowledge is needed, you must hire an accountant in Nunawading.

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