Thinking About Starting a Business? Here’s What You Need to Know About Accounting Terms
Have you ever thought about starting your own business, but found yourself unsure about what to do with your money? You’re not alone. In fact, many aspiring entrepreneurs feel stuck when it comes to understanding the financial side of things.
Let’s face it—accounting terms can sound intimidating. And when you’re launching a new business, that confusion can slow you down or even stop you from moving forward.
But here’s the good news: you don’t have to figure it all out alone.
At EBS, we make accounting simple. We handle the financial heavy lifting, so you can focus on growing your business with confidence. To get you started, let’s break down a few of the most commonly used accounting terms—so you can understand what they mean and why they matter.
✅ Accounts Payable
Let’s start with what you owe.
Accounts payable refers to the money your business needs to pay out—typically in the near future. For example, if you hire a freelancer to complete a $100 project, you now have a $100 accounts payable.
This category includes everything from vendor bills to payroll and utilities. In short, it tracks the outgoing money your business is responsible for.
✅ Accounts Receivable
Now, let’s flip the script.
Accounts receivable is the money others owe you. Suppose another company hires your business for a $1,000 job. That amount becomes an account receivable until the client pays you.
It’s important to keep tabs on these incoming payments because they represent future cash that helps your business stay afloat.
🔄 Accrual
Next up: income and expenses that haven’t hit your bank account—yet.
Accruals reflect revenue or costs that your business has earned or incurred, even if the money hasn’t exchanged hands. For instance, if you finish a job in June but get paid in July, the revenue is still recorded in June.
Using accrual accounting gives you a more accurate view of how your business is performing month to month.
💼 Assets
So, what does your business actually own?
Assets are all the valuable things your company owns—from big items like buildings to small items like computers or office chairs. These assets appear on your balance sheet and help show the overall value of your business.
📊 Balance Sheet
Speaking of balance sheets—this is where you get the full financial picture.
A balance sheet lists your business’s assets, liabilities (what you owe), and equity (what you own outright). It’s a snapshot of your financial health at a specific point in time and is essential for investors, lenders, and decision-makers.
💵 Cash Flow
Next, let’s talk about the movement of money.
Cash flow tracks how much money is coming into your business and how much is going out. Unlike a balance sheet, which shows assets, a cash flow statement only deals with cold, hard cash (and equivalents).
When cash flow is positive, your business is running smoothly. If it turns negative, it’s a sign to dig deeper and make adjustments.
💳 Credit
Here’s where things can get technical—but stick with us!
In accounting, a credit doesn’t mean money you borrow. Instead, it’s an entry that increases liabilities, equity, or revenue and decreases assets or expenses.
Each credit entry in your books must match a corresponding debit to keep your finances balanced.
📉 Depreciation
Let’s say you buy something for your business—it won’t keep the same value forever.
Depreciation is how accountants track the decline in value of a long-term asset, like a TV or a laptop, over time. For example, if you buy a $1,000 TV for your office in 2020, it might only be worth $920 in 2021. That $80 drop becomes a recorded expense.
And here’s the bonus: depreciation can help reduce your taxable income.
💸 Dividends
What happens when your company earns a profit?
Sometimes, it shares the success. Dividends are payouts to shareholders from company earnings. For publicly traded companies, the board of directors decides how much to pay out—and when.
💼 Expenses
Last but definitely not least—expenses are the costs of doing business.
They include anything from salaries and rent to internet bills and office supplies. Tracking your expenses consistently helps you manage your budget and understand how efficiently your business is operating.
🚀 Ready to Simplify Your Accounting?
Understanding these terms is a great first step—but you don’t need to become an accountant to succeed in business. That’s where EBS comes in. We take the stress out of your books, so you can keep your focus on what really matters: running and growing your business.
Let’s make accounting the easiest part of your journey. Contact EBS today and let’s get started.