There Are Some Basic Terms Of Accounting That People Must Know

When plunging to build a business, then everything including finance must be handled by yourself. When managing your own business finances, you will often meet with several accounting terms. On the other hand, if you also need some help in bookkeeping, we recommend you hire Irenas Bookkeeping Services in Parramatta.

We have summarized several financial terms that you must know, such as:

A. Gross Revenue / Turnover

All money you receive from the sale of goods or services, before deducting the cost of goods sold, business capital, taxes, etc.

B. Net Profit / Income / Net Income

Net income is basically the remainder of total sales minus expenses.

When this number is positive, it means your income is greater than your expenses, and your business is profitable.

C. Expenditures

Expenditures are all costs required for the company’s operational activities and sales of merchandise. These expenses are divided into 2 types, they are Expenses and Costs.

The two types of expenses above can be in the form of rent, payroll, material costs for goods sold, taxes, debt interest, and utilities and other operational costs.

D. Cash Flow

Cash Flow is cash inflows and outflows. Inflows from sales, loan results, investments, and asset sales. Then Flow out to pay operating costs, loan payments, and asset purchases.

The cash flow statement is a summary of the company’s cash receipts and disbursements during a certain period (usually one financial year).

Understanding cash flow statements provide the following benefits:

– You know where your money goes. Expanding the warehouse, buying office supplies, transportation costs, all of which are not detailed in the income statement. However, you can find out on the cash flow statement.
– You can focus on keeping cash.
– Understand the importance of KPI (Key Performance Indicator). Besides the amount of profit, a positive cash flow statement is an indicator that you have a healthy business.
– Simplify decision making.

E. Break-Even Point

In simple terms, the meaning of Break-Even Point is a break-even point. At the time the business or business was built, usually for several months or even several years did not get a profit (Expenses greater than profits).

Break-Even Point is a point/time when total expenditure equals income. This is where the turning point is usually towards profitability (the company earns profit).

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