Building your own small medium business or growing a business from home is very common nowadays. With the cost of living getting higher by the second, we all need to come up with ways in making our personal finances more stable. This may mean getting second jobs, or better yet creating your own business.
The process of building and keeping a business should not be underestimated though. Most small medium businesses and home based businesses fail because of one thing – failure of the business owner to truly understand what he is getting into.
The first step in building a business is to create a study or a plan on how your business will work. This includes plans for where to get the capital or who to tap as investors. Another, more daunting task, is to keep track of the capital, the working capital, and the expenditures the business will have.
To understand your business procedures better, it is best to understand terms associated with the business industry’s prime mover – the money.
Accounting will need you to understand the following vocabulary:
Account payables – these are the purchases your business made against credit (via a business credit card, or loans).
Accounts receivables – these are the payments your business expects from customers that purchased from you via credit.
Accrued expenses – these are the expenses that your business has gotten for which it has not received an invoice, and are yet to be paid.
Accumulated depreciation- this is the report on the depreciation in value of the company’s fixed assets such as cars, computers, and such.
Acquisition cost – this is the total amount your business paid for fixed assets including the installment fees, freight, or sales taxes.
Actual – these are financial statements describing the actual operations of the business, will include the period before the start of a “forecast” report.
Additional Paid-in capital- this pertains to the amount paid by investors above the initial stock payments.
After tax income – is another term for net income, meaning how much the profit is after all expenses and taxes have been subtracted.
Amortization – is the recognition of part of an intangible asset’s cost as an expense during each year of its useful life such as start up expenses, and maybe purchased patents
Asset – is anything that has future economic or monetary value, can include intangibles such as “goodwill”.
Average annual return- this is the expected annual return on an investment, including interest
Average cost – is a method of inventory evaluation where the total cost of all products bought or produced is divided by the number of products.
These are just some terms that a business person needs to get acquainted with before engaging in any business. It will be easier to create feasibility studies and business plans if armed with a better understanding of terms that are used in the business industry. Most terminologies used in business are quite technical and may require extensive study so you may want to include the cost of business class or seminar in your list of expenses.
Tags: a vital tool in your success, Understanding business accounting vocabulary