The love language of business numbers. A quick guide to each key accounting term and what they really mean.
The process of recording, organizing, and interpreting financial transactions and information of a business or organization.
Read moreThe amount of money a company owes to its suppliers or creditors for goods or services received on credit.
Read moreThe amount of money owed to a company by its customers for goods or services sold on credit.
Read moreAn accounting method in which revenues and expenses are recognized and recorded when they are earned or incurred, regardless of when cash is exchanged.
Read moreExpenses that have been incurred but not yet paid for or recorded in the books of accounts.
Read moreAmortization is the process of expensing the cost of an asset or loan over time.
Read moreAn individual who provides capital to startups or small businesses in exchange for ownership equity or convertible debt.
Read moreEconomic resources owned by a company or individual that have measurable value and can be used to generate future benefits.
Read moreA systematic examination and verification of financial records, transactions, and statements to ensure accuracy, compliance, and reliability.
Read moreA financial statement that provides a snapshot of a company's financial position, showing its assets, liabilities, and shareholders' equity at a specific point in time.
Read moreThe process of comparing and reconciling a company's internal financial records with the bank statement to ensure consistency and accuracy.
Read moreThe process of accurately recording and organizing all financial transactions of a business, including income, expenses, and payments. It provides a clear picture of your business's financial performance, helps you analyze trends, and enables informed decision-making regarding investments, expansions, or cost-cutting measures
Read moreThe level of sales or revenue at which total costs equal total revenue, resulting in neither profit nor loss.
Read moreA financial plan that outlines estimated revenues, expenses, and cash flows for a specific period, serving as a guideline for financial decision-making and control.
Read moreThe act of generating consistent profits and increasing the financial sustainability of a business over time.
Read moreYour company’s burn rate describes how quickly it’s losing (burning) money. Many venture-backed startups need time and money to build their customer base and improve their products or services before becoming profitable.
Read moreA C corporation, or C corp, is a type of legal business entity. C corps are the default corporation type and a popular choice for startup founders. Other options include S corporations and limited liability companies (LLCs).
Read moreCapital expenditures (CapEx) are when you spend money to buy, maintain, or improve assets that you plan to use for longer than a year. These can include tangible assets, such as equipment and property, and intangible assets, like patents or licenses.
Read moreThe profit earned from the sale of an investment or asset that has increased in value.
Read moreAn accounting method in which revenues and expenses are recognized and recorded only when cash is received or paid.
Read moreThe rate at which a company depletes its cash reserves to cover operating expenses before it generates positive cash flow or profitability.
Read moreThe movement of cash into and out of a business, including cash inflows from revenues and financing and cash outflows for expenses and investments.
Read moreA financial statement that shows the inflows and outflows of cash during a specific period, providing insights into a company's liquidity.
Read moreA financial metric that compares a company's cash and cash equivalents to its current liabilities, measuring its ability to cover short-term obligations with cash.
Read moreA systematic listing of all the individual accounts used in a company's accounting system. It provides a standardized framework for organizing and classifying financial transactions, making it easier to record, track, and report on various financial activities.
Read moreThe rate at which customers or subscribers discontinue their relationship with a company or stop using its products or services.
Read moreThe percentage of revenue consumed by the cost of goods sold, indicating the profitability of a product or service.
Read moreCost of goods sold (COGS) — sometimes called cost of revenue (COR) or cost of sales (COS) — is the costs that are directly associated with making a company’s products or services.
Read moreAn accounting entry that represents an increase in assets or a decrease in liabilities or equity.
Read moreAn accounting entry that represents a decrease in assets or an increase in liabilities or equity.
Read moreObtaining funds by borrowing money, often from banks or other financial institutions.
Read moreDeferred revenue, also called unearned revenue or customer deposits, is money that you received for products or services you haven’t delivered yet. With accrual-based accounting, you don’t recognize the revenue until you’ve fulfilled your side of the transaction.
Read moreDepreciation is how a company writes off the value of fixed assets over their useful life. It can apply to tangible assets, such as office equipment, computers, and buildings.
Read moreA doing business as (DBA or d/b/a) name is a pseudonym that you can use for your business. DBAs are also called trade names, fictitious names, or assumed names. You can register a DBA if you don’t want to use your personal name or legal business entity name with customers and clients.
Read moreDouble-entry bookkeeping is a system of recording financial transactions where each transaction is entered twice, once as a debit and once as a credit, ensuring accurate and balanced financial records.
Read moreEarnings before interest, taxes, depreciation, and amortization (EBITDA) is a financial metric that can help you understand your company’s cash flow from its core activities.
Read moreThe ownership interest in a company or the residual claim on assets after deducting liabilities.
Read moreA formal record of a company's financial activities, including the balance sheet, income statement, and cash flow statement.
Read moreTangible assets that are held for long-term use, such as buildings, machinery, vehicles, or equipment.
Read moreA forecast is a data-backed estimate of your company’s future financial performance. It can be important for making educated investment decisions, creating realistic budgets, and avoiding a cash flow crunch.
Read moreThe value of an investment or asset at a specified future date, considering the effects of compound interest or investment returns.
Read moreGAAP stands for Generally Accepted Accounting Principles and refers to the standard guidelines and rules that businesses use to prepare and present their financial statements, ensuring accuracy, consistency, and comparability.
Read moreYour gross margin is how much you make, as a percentage, after you pay the cost directly associated with making your products or services. Gross margins tend to vary by industry, so a high or low gross margin isn’t necessarily good or bad. But software as a service (SaaS) companies tend to have low direct costs and high gross margins.
Read moreThe difference between a company's total sales revenue and its cost of goods sold, representing the profit generated from core operations before deducting expenses.
Read moreThe total sales revenue generated by a company before deducting any discounts, returns, or allowances.
Read moreA financial statement that summarizes a company's revenues, expenses, and net income over a specific period, also known as a profit and loss statement.
Read moreNon-physical assets that lack a physical presence but hold value for a company, such as patents, trademarks, copyrights, or brand reputation.
Read moreThe discount rate at which the net present value of an investment becomes zero, indicating the expected return on an investment.
Read moreThe goods or products that a company holds for sale or raw materials used in the production process.
Read moreThe allocation of money or resources with the expectation of generating income or appreciation in value over time.
Read moreThe recordings of financial transactions in chronological order using double-entry bookkeeping, involving debits and credits to maintain the accounting equation.
Read moreKey performance indicators (KPIs) are the core metrics that you and your investors can measure to determine if your business is financially healthy and on track to meet its goals. Tracking KPIs can also give you insight into what’s driving or hindering your business.
Read moreThe financial obligations or debts that a company or individual owes to other parties, such as loans, accounts payable, or accrued expenses.
Read moreA limited liability company (LLC) is a type of business entity that’s popular for small business owners who want to create a legal separation between their business and personal assets. However, a C corporation is often a better option for startup founders.
Read moreA pre-approved borrowing limit provided by a bank or financial institution that allows a company or individual to access funds as needed.
Read moreThe ability of an asset or investment to be easily converted into cash without significant loss of value.
Read moreA financial transaction in which money is borrowed from a lender with an agreement to repay the principal amount plus interest over a specified period.
Read moreThe current price at which an asset or investment can be bought or sold in the market.
Read moreMonth-over-month (MoM) measures, such as monthly changes in recurring revenue, are commonly used to analyze software as a service (SaaS) companies.
Read moreThe total revenue generated by a company after deducting all expenses, taxes, and costs associated with doing business.
Read moreNet profit is also known as your bottom line since it appears at the very end of your profit and loss statement.
Read moreThe difference between a person's or company's total assets and total liabilities, representing their overall financial value.
Read moreThe cash generated or consumed by a company's core operations, excluding financing or investment activities.
Read moreThe profit generated from a company's core operations, excluding non-operating expenses or revenue.
Read moreA percentage of a companys revenue that is left over after deducting its operating expenses
Read moreThe ongoing expenses of running a business that are not directly attributed to the production of goods or services.
Read moreThe residual interest in the assets of a company after deducting liabilities, representing the owner's or shareholders' claim on the business.
Read moreThe length of time required for an investment to recover its initial cost through generated cash flows.
Read moreThe total amount of wages, salaries, bonuses, and deductions paid to employees of a company within a specific period.
Read moreA class of stock that usually pays a fixed dividend and has priority over common stock in the event of liquidation.
Read moreAn expenditure paid in advance but not yet incurred, representing an asset on the balance sheet until the related benefit is received.
Read moreThe current value of a future cash flow or sum of money, adjusted for the time value of money and potential interest or investment returns.
Read moreThe amount of money borrowed (principal) and the additional cost paid for borrowing (interest) in a loan or credit agreement.
Read moreThe percentage of each sales dollar that represents profit after deducting all expenses, indicating the profitability of a company.
Read moreA comparison of financial or business performance between consecutive quarters of the same year.
Read moreThe accumulated profits of a company that are reinvested or retained for future use.
Read moreA measure of profitability that calculates the return on an investment relative to its cost.
Read moreAn S corporation, or S corp, is a corporation that elects to be treated as a pass-through entity. It’s a popular option for small business owners, but might not be a good fit for startups.
Read moreA SEP IRA, or Simplified Employee Pension Individual Retirement Account, is a retirement plan option for small business owners that allows them to make tax-deductible contributions to their own retirement account and their employees' retirement accounts.
Read moreAn individual or group with a vested interest in the activities, operations, or success of a company, including shareholders, employees, customers, suppliers, and the community.
Read moreA compulsory financial charge or levy imposed by the government on individuals or businesses to fund public expenditures or projects.
Read moreAn expense or allowance that reduces the amount of taxable income, resulting in lower tax liability.
Read moreInvestment capital provided by firms or investors to support early-stage, high-potential, and high-risk businesses.
Read moreA form provided by employers to employees, summarizing their annual wages, taxes withheld, and other relevant information for income tax purposes.
Read moreThe W-9 form is a document used by small business owners to collect the necessary taxpayer information from independent contractors and freelancers for tax reporting purposes.
Read moreThe difference between a company's current assets and current liabilities, representing its short-term liquidity and ability to meet short-term obligations.
Read moreA measure of a company's short-term liquidity, calculated by dividing current assets by current liabilities.
Read moreThe removal of an asset or liability from a company's financial records, typically due to it being deemed uncollectible or of no value.
Read moreA comparison of financial or business performance between the same period in consecutive years.
Read moreA budgeting approach where all expenses must be justified from scratch for each budgeting period, regardless of previous spending levels.
Read more