OVERLAND PARK, KANSAS, USA, June 27, 2022 /EINPresswire.com/ — Financial Optics has released a guide to accounting terms every small business owner should know. Whether the owner does the accounting in-house or outsources it, he needs to know some accounting terms that he can use when discussing business strategy with his financial advisor.
Owners who know and understand accounting terms can use them to their advantage when reviewing the financial condition of their business. They can analyze their financial statements to understand which investments are paying off and which items need to be adjusted. This can help them understand which products or services are working well and use them to invest in other projects that may be of interest to their customer base.
Here are ten accounting terms small business owners should know:
• Accrual Accounting: A method of tracking income and expenses as they occur rather than when paid.
• Income statement: details the company’s net profit for a period, less all expenses.
• Financial Statement: A collection of reports for tracking financial transactions, including Balance Sheet, Profit & Loss (P&L) or Income Statement, and Cash Flow Statement.
• Balance sheet: it documents all assets, liabilities and equity.
• Cash Flow: Indicates the timing and amount of cash inflows and outflows from the business.
• Cash Flow Forecasts: These statements analyze projected income and expenses to see the potential amount of money that will flow through the business.
• Gross and net profit: Gross profit is the profit earned after subtracting the direct cost of production, while net profit is the profit after payment of all operating expenses.
• Marginal Costs: This shows the difference in profit made by selling more than one unit.
• Burn Rate: This is the length of time the business can cover operating costs using cash inflows and without generating positive cash flow from operations.
• Break-Even Analysis: This is when an analysis takes place when the revenue matches the expenses of the business or of a specific product or service.
Financial Optics positions small businesses for sustainable growth. This virtual accounting firm offers outsourced accounting and bookkeeping for small businesses to minimize costs and achieve the best results. They provide financial advice and virtual CFOs to small business owners looking to grow.
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