Basic Accounting Principles and Concepts

Posted by Aaeesha on July 15th, 2015

When you’re running a small business or a cottage industry, it is very important that you should understand the basic accounting principles and concepts. Yes, you will probably take the advice of an accountant in Adelaide for all the financial decisions. But, it will be definitely be good if you are able to understand the accountant lingo, so you will know the right questions to ask when you consult one of the accountants in Adelaide. Let’s take a look at some of the basic jargon of accounting: 

Income Statement:

It is one of the most important financial statements prepared by the accountants. It is in this document that you will be able to find out the profitability of your enterprise for a specific period of time. This statement will only have the details of the income and expenses, and not all the invoices and bills. In simple words, this document will tell you how much you earned and how much you spent during a particular period of time. 

Cash Flow Statement:

This financial statement will give you a picture of the money and the various sources from where it was generated during a specific time period. The various details of the cash flow statement are listed under various activities such as operating, investing and financing. The remaining details may be clubbed under supplemental information. On the whole, this statement will give you complete details about the income that your business has generated over the period of time. 

Assets:

Another term that accountants use is assets. It refers to all the money and investments that you have in the name of the company. The various assets of the company are cash, petty cash, inventory, supplies, bonds, equipment, prepaid insurance, land, building, accounts receivable and even good will of clients and the general public. 

Balance Sheet:

When you’re talking to your accountant in Adelaide, he or she will probably be telling you about a balance sheet. It is an essential financial statement that will contain all details about your assets, stockholder’s equity and liabilities. Some accountants may also call this document, the statement of financial position. 

Liabilities:

It is another oft-used accounting term that refers to the obligations and other factors that can make you lose your money. Some of the liabilities are accounts payable, salary payable, income tax, unearned revenues, warranty, lawsuits and regular expenses.

When you talk to your accountants in Adelaide, they will use a lot of financial terms. The ones explained here are just the tip of the iceberg.