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Accounting Terminology 101: A Quick Guide for Startup Owners

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Truth be told, accounting can be quite intimidating. This is especially true if you’re running a small business or a startup. Overseeing day-to-day operations and making sure that the business stays afloat are already enough to fill your plate. However, on top of these, you also have to actively manage the venture’s finances. 

If you’re not a fan of math, dealing with numbers is already challenging on its own. Coming across accounting jargon is another story. 

That said, as a business owner, it pays for you to know and understand at least the basic accounting terms. This familiarity will help you work with your accountant better or get the most out of the accounting software you are using. 

We know that starting is always the hardest part. To give you a kickstart in picking up your must-know accounting terminology, begin with these fundamentals:

1. Accounting Cycle 

This refers to the step-by-step process that a business must employ during a particular accounting period. It includes tasks such as identifying transactions, posting entries to the general ledger, creating trial balances, putting together financial statements, and closing entries. 

All of these steps are done to analyze, record, summarize, and report a business’ financial activities and overall standing.

2. Accrual Accounting 

This accounting method is considered to be the standard practice for most companies, except for very small businesses. In this method, expenses and revenues are recognized when the transactions occur, not when the payment is made or received. 

Accrual accounting can help business owners accurately measure their business’ performance since it recognizes transactions based on when they are made. However, this can be quite complex to implement. If you have an accounting team, make sure to coordinate with them about this matter. 

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Learn the simple steps to prepare cash flow projections to improve your business cash flows.

3. Cash Basis Accounting 

This is the second method of accounting and is the simpler one out of the two. 

What makes cash-based accounting different from accrual accounting is that it recognizes a transaction the moment money is actually paid or received. This will allow owners to get a clear picture of where the business is financially. However, it will not give an accurate image of how the business is performing in general. 

4. “Closing the Books” 

When accountants say that they are closing the book, it means that they are in the final stages of the accounting cycle. They are preparing the financial statements and making sure that all items within a certain period are accounted for.

5. Journal Entry 

As its name suggests, this refers to the records kept every time a business transaction is made. Essential information such as the amounts to be debited or credited, description of the transaction, and the unique reference number are all entered into their corresponding accounts.  

6. Trial Balance 

Creating a trial balance is one step in closing the books. Accountants make trial balances to check their work and ensure that all debits and credits match. Otherwise, this means that there is a mistake somewhere—something that they must find and adjust to balance all accounting entries.

Conclusion 

Getting started with studying new accounting words can be overwhelming. Considering this, starting with the six terms listed above will help you ease into them slowly but surely. 

During the times you feel overwhelmed, remember to hang on and don’t lose heart! The challenge can dishearten you, but always remember that learning these words will empower you to manage your business’ financial standing effectively. Eventually, you will find that reading and using these terms will be a breeze. You will then thank yourself for taking your accounting vocabulary seriously! 

If you have any questions or need help with your accounting, don’t hesitate to reach out to us at FiBrick! We’re a people-centric accounting firm offering a suite of services for startups and SMEs. We can bring clarity, scalability, and growth to your business’ finances; all you have to do is schedule a consultation today

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