Cash flow reports reflect activity for a specified period of time, usually one accounting period or one month. The business finance term and definition cash flow refers to the amount of operating cash that “flows” through the business and affects the business’s liquidity. Cash FlowĮvery business needs cash to operate. Working capital, by definition, is the business’s cash on hand or instruments that you can convert to cash quickly. It consists of the financial resources necessary for maintaining the day-to-day operation of the business. Not to be confused with fixed capital, working capital is another business finance 101 term. Capital can be tangible, like durable goods, buildings, and equipment, or intangible such as intellectual property. Often called “fixed capital,” it refers to the long-term worth of the business. Refers to the overall wealth of a business as demonstrated by its cash accounts, assets, and investments. BookkeepingĪ method of accounting that involves the timely recording of all financial transactions for the business. The report is a summary of the business assets and liabilities. Balance SheetĪlong with three other reports relating to the financial health of your small business, the balance sheet is essential information that gives a “snapshot” of the company’s net worth at any given time. Typical items listed as business assets are cash on hand, accounts receivable, buildings, equipment, inventory, and anything else that can be turned into cash. This business finance key term is anything that has value-whether tangible or intangible-and is owned by the business is considered an asset. Wages and payroll taxes are common examples. AccrualsĪ business finance term and definition referring to expenses that have been incurred but haven’t yet been recorded in the business books. Accrual basis accounting is the most common approach used by larger businesses to record and maintain financial transactions. The accrual basis of accounting is an accounting method of recording income when it’s actually earned and expenses when they actually occur. These accounts are labeled as assets because they represent a legal obligation for the customer to pay you cash for their short-term debt. Accounts ReceivableĪlso known as A/R (or AR, good guess), accounts receivables is another business finance 101 term that means the money owed to your small business by others for goods or services rendered. Sometimes referred to as A/P or AP for short, accounts payable can be short or long term depending upon the type of credit provided to the business by the lender. This represents your small business’s obligations to pay debts owed to lenders, suppliers, and creditors. Accounts PayableĪccounts payable is a business finance 101 term. Here are some business terms and finance terms that will help you find your way to successful small business funding.įrom accounting, to business loans, to general business financial operations, here’s the ultimate list to all the business finance terms and definitions you need to know: 1. The good news is that you don’t have to be an accountant or a financial planner to negotiate in the world of business finance. So knowing the “language” of business finance is an integral part of your job as the owner. After all, you represent the heart and soul of your business in the marketplace. For instance, feeling confident when discussing the business’s financial needs should be a priority for every small business owner. In order to not get totally overwhelmed, it’s helpful to take things one segment at a time. You should always be learning as a business owner, no matter where you are in your career-there’s always a new tool to master, new problems to solve, and new vocabulary to understand. And that applies whether you’re a rookie entrepreneur just starting out with a great idea for a new business or a more established small business owner with a quickly growing business that needs to expand. Running a business involves a constant learning curve. The Most Important Business and Finance Terms
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