If you’re not financially savvy, you came to the right place.

Whether you want to save, invest, start a business, or track expenses; knowing where to start can seem impossible. At A.P. Accounting & Tax Services, we understand first-hand how complicated financial terms can be. That’s why we’ve taken the time to highlight five common financial phrases that everyone should understand.

Cash Flow

Understanding the term ‘cash flow’ shouldn’t just be reserved for business owners. That’s because this term can apply to an individual’s financial situation. In general, the term is used to describe any amount of money coming in at a given time (regardless if it is for a person or business).

In a personal sense, knowing how much is coming in during a given month should give an understanding of your overall income for the year. In turn, it helps to better track and plan for expenses throughout the year.

Assets

An asset is defined as anything that has current or future economic value. This term can be used to describe wealth earned in a business or at a personal level. Some examples of assets are things like investments, equipment, products, and properties.

It is important to note that an asset’s value can fluctuate over time so it is always best to regularly review them or have a financial professional keep an eye on them to ensure everything is tracking correctly.

Balance Sheet

Another financial term that everyone should be familiar with is a balance sheet. A balance sheet is a document that is designed to provide a comprehensive financial summary of a business or person’s financial situation.

In the sheet, all assets, accounts, liabilities, and equity will need to be outlined in order for it to be useful. Otherwise, the sheet won’t be accurate and will be useless for tracking expenses and revenue.

Revenue

When it comes to revenue, the term specifically refers to the amount earned during a sale for a business. Some companies also receive revenue from things like interest, royalties, or other fees. So, if you are a business owner, know that it’s important to discuss your financial situation with a professional who can better advise what you should be listing as such.

It is important to note that revenue and income tend to be used interchangeably when dealing with finances, so it can confuse people if they are not aware that the terms tend to mean the same thing.

Accrual Accounting

Accrual accounting describes the practice of tracking expenses and revenue in real time (or as it is incurred). This is opposed to the term cash accounting which is used to describe tracking expenses only when they are paid.

The accrual method can be a helpful tracking method for businesses that sell products and tend to carry an inventory. This is because the ‘cash accounting’ method won’t properly track the cost of goods sold.

Accrual accounting is not recommended for personal finances or for small business owners who only have a few employees. This is because the method relies on predicting what is owed and what is being paid. This tends to increase the likelihood of incorrect tracking. In turn, this increases the possibility of errors, false reports, and poor planning.

Ultimately, we understand how stressful finances can be. Whether you’re a small business owner or someone trying to save for the future; financial planning is not a task you should do alone. For advice or a free consultation on what you could be doing to improve your situation, call us today at 407-328-5001. 

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