Not quite sure where to start with accounting terms and definitions? Or just need a refresher? Please see below our list of the most used accounting terms and their meanings.
Profit and Loss
The profit and loss report shows how much money you have made and how much money you have spent over a specific time frame (i.e. a month or a year).
The profit and loss reports on your revenue, expenses and profit.
Revenue
Simply put – revenue is income, or the amount of money that you earn.
Revenue is commonly broken up into Trading Revenue which is the money you earn from your main business activities and Other Income, which is from all other sources including investments, government grants, etc.
Expenses
Expenses is the opposite of income. This is the amount that you spend, and expenses are classified as either fixed or variable.
Fixed expenses (also known as operating expenses) are the same amount every month and are not based on the amount of money that you earn (i.e. your telephone bill).
Variable expenses (also known as Direct Costs or Cost of Goods Sold) are the amounts spent that directly relate to income coming in (e.g. materials, subcontractors, etc.). These expenses will change based on the level of sales.
Gross Profit
Gross Profit is the amount of money left after you take the Variable Expenses off the total sales.
Net Profit
The amount of money left after you add other income and take off all other expenses from your Gross Profit.
Balance Sheet
The Balance Sheet is a report that shows you a snapshot of what the business is worth at any given time.
If the profit and loss is how much you have earned, the balance sheet is what you have done with this profit. It is read at a point in time (i.e. 30th June) and is most useful when comparing to a previous period to see how much the assets and/or liabilities have moved.
Assets
Assets are the items that are OWNED by the business.
Assets are broken down into current and non-current based on the amount of time and the fluidity of the item (i.e. cash changes daily whereas a property keeps roughly the same value for a long period of time).
Assets can also be classified as Fixed which refers mainly to Plant & Equipment and Intangible which means it is not a physical item (i.e. a patent).
Liabilities
The liabilities are the items OWED by the business.
Liabilities can be broken down into current and non-current like assets.
Equity
Basically, the net worth of the business. Equity is normally made up of the share capital of a business as well as the historic earnings.
How does ABA help you with accounting terms and definitions?
The team at ABA. Advice Beyond Accounting are passionate about helping you achieve your business and personal goals. As experienced accountants, bookkeepers, and business advisors we are committed to helping you master your finances and improve your business processes. We offer various service packages with regular meetings and ongoing coaching that will help you take your business to the next level.
When you join forces with ABA. Advice Beyond Accounting we become your dedicated partner, and will consistently deliver:
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