Assets
Resources owned by a business that have monetary value and can be converted into cash.
Example: A bakery's assets include its ovens, cash register, flour inventory, and the building it operates in.
Balance Sheet
A financial statement showing a company's assets, liabilities, and equity at a specific point in time.
Example: A snapshot showing XYZ Corp has $500K in assets, $200K in liabilities, and $300K in equity on December 31st.
Cash Flow
The movement of money in and out of a business during a specific period.
Example: In January, a freelancer received $5K from clients but paid $2K in rent and $1K in software subscriptions.
Liability
A financial obligation or debt that a business owes to outside parties.
Example: A small business owes $50K on a bank loan, which is a liability on their balance sheet.
Equity
The owner's stake in the business; what remains after subtracting liabilities from assets.
Example: If a business has $100K in assets and $40K in liabilities, equity is $60K.
Income Statement
A financial statement showing revenues, expenses, and profits/losses over a period.
Example: Q3 income statement shows $200K revenue, $120K expenses, and $80K profit.
Revenue
The total income generated by the sale of goods or services related to the business's primary operations.
Example: A consulting firm generates $150K in revenue by providing strategic advisory services.
Expense
The cost incurred to generate revenue or operate the business.
Example: Salaries, office rent, utilities, and supplies are common business expenses.
Depreciation
The decrease in value of an asset over time due to wear and tear or obsolescence.
Example: A $50K company vehicle might depreciate by $5K per year over a 10-year lifespan.
Accounts Receivable
Money owed to a business by customers who have purchased goods/services on credit.
Example: An advertising agency completed a $25K project but hasn't received payment yet—it's accounts receivable.
Accounts Payable
Money a business owes to suppliers for goods or services purchased on credit.
Example: A retailer owes $30K to suppliers for inventory it received but hasn't paid for yet.
Profit Margin
The percentage of revenue that becomes profit after expenses are deducted.
Example: If a business has $100K revenue and $30K profit, the profit margin is 30%.
Break-Even Point
The point where total revenue equals total costs, resulting in zero profit or loss.
Example: A SaaS startup needs 500 customers to break even on monthly operational costs.
Cash Accounting
Recording transactions only when cash is received or paid out.
Example: A small bakery records revenue only when customers pay in cash or via card at checkout.
Accrual Accounting
Recording transactions when they occur, regardless of when money is exchanged.
Example: An agency records client revenue when a project is completed, even if payment arrives 30 days later.
General Ledger
The master record of all financial transactions organized by account.
Example: The general ledger contains separate accounts for cash, inventory, payroll, and revenue.
Journal Entry
A record of a business transaction showing debits and credits to specific accounts.
Example: Receiving a $1K payment is recorded as: Debit Cash $1K, Credit Accounts Receivable $1K.
Reconciliation
Comparing account balances to ensure internal records match external sources (like bank statements).
Example: A business compares its accounting records to its bank statement to ensure all transactions match.
Audit
An independent examination of financial records to verify accuracy and compliance.
Example: An external auditor reviewed Company A's records and confirmed all transactions were properly recorded.
Tax Deduction
A business expense that can be subtracted from gross income to reduce taxable income.
Example: A freelancer deducts $5K in home office expenses and $2K in software costs from their taxable income.
