Running a business requires you to have a proper understanding of various fields. Amongst all, there are specific accounting terms that you must be aware of as a business owner to manage your finances better. If you run a small-scale business or a large enterprise, these basic accounting terms by a CPA in San Mateo, CA, will help you better understand them. In this article, we discuss some of the most critical accounting terms you must know as a business owner. Let’s dive in! 

Important Accounting Terms In A Small Business 

1. Asset

Anything that is owned by a business is referred to as an asset. These are tangible items that can be converted into cash if required. Common examples of assets in a business are office space, cars, computers, fixtures, office furniture, cash, equipment, and more. 

2. Capital

Capital is referred to as money or any other assets in a business that is used to pay everyday expenses and help fulfill needs. Capital is available from investors, profits, personal savings, and loans. In a business, there are four major types of capital: Working capital, Trading capital, Debt, and Equity.

3. Liability

When a business owes any money or asset to another company or a person, it is referred to as a liability. A liability is an obligation or a debt that includes loans, bonds, warranties, mortgages, accounts payable, etc. There are three major types of liabilities in a business: current, non-current, or contingent liabilities. 

4. Expenses 

When you conduct a business, you spend on several things. These spending are referred to as business expenses. In other words, expenses are the total cost of running and managing a business and conducting various business operations. Some common business expenses are employees’ salaries, supplies, utilities, marketing, and travel expenses. 

5. Cashflow 

Cash flow is referred to as the total amount of cash available in a business. The major aim of every business owner is to increase cash flow in a business to conduct everyday operations. Additionally, it determines the overall health of your business. 

6. Inventory 

Inventories are tangible products in a business used to produce actual goods and services. In all, it is known to be the most critical asset of a business. 

Wrapping Up 

Starting a business is a daunting process; however, understanding these accounting terms allows you to run a business like a professional.