Become a more empowered business owner by familiarizing yourself with these accounting terms:
1. Financial statements: Are records of your business’s financial situation. When you apply for a business loan, most lenders will want to see four financial statements: the balance sheet, income statement, cash flow statement and statement of owners’ or shareholders’ equity.
2. Balance sheet: A document that outlines your business’s financial status at a point in time. It reports assets, liabilities and equity.
3. Income statement: Shows revenues, expenses and profit or loss for a specific period of time. Profit or loss is determined by subtracting expenses from revenue.
4. Cash flow statement: Describes the sources of your business’s money and shows how that money was spent over a period of time.
5. Asset: Anything owned by your business that’s of monetary value. An asset can be tangible like land, equipment or cash, or it can be intangible like a patent or franchise agreement. Assets are shown in terms of cash value on the balance sheet.
6. Liability: A debt your business owes such as a loan, salary, income tax or rent. On the balance sheet, liabilities are classified by current and long-term liabilities.
7. Equity: The value of your business’s assets minus any liabilities. If your business is a sole proprietorship or partnership, equity is also known as “owner’s equity.”
8. Draw: Also known as an “owner’s draw,” this is money you take out of your business for personal use. Business owners can do this by writing a check to themselves from a business checking account.
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