How frequently do entrepreneurs speak to their accountants and feel even more confused than they have been earlier? This is most likely the case with several entrepreneurs and managers without a background in enterprise or accounting.

To aid business owners through the arduous process of managing their accounting resources, we have come up with a checklist of common accounting terms that most enterprise managers come throughout during their time as entrepreneurs.

Terms in the Balance Sheet 
As we have studied above, the balance sheet is one of the two most common statements produced by all varieties of enterprise vendors. The balance sheet accommodates a set of confusing terms that can be difficult to understand for business owners with limited acumen of accounting terms and what they mean in an economic context. The most frequent phrases used in the stability sheet and their definitions are:

Accounts Payable 

Accounts payable defines all the expenses a business incurs but hasn’t yet paid. The accounts payable balance is recorded as a legal liability in the balance sheet, and the debt owed due to it has to be paid back. Accounts payable include payments to vendors and other lenders, which haven’t but been made.

Accounts Receivable 

Accounts receivable are the exact reverse of accounts payable. These accounts include all the sales that a business has made but haven’t but collected payment on. An example of this from a property manager’s perspective would be uncollected property management fees from a landlord for a period that you have provided your services. This account is listed on the balance sheet as an asset and can easily be converted to cash on a short-term basis since you have already provided the services required.

Accrued Expenses 

An accrued expense contains all expenses that have been incurred by a business but haven’t been paid. Property managers tend to come through a lot of accrued expenses, as they pay for expenses after they have been incurred. An instance of this would be the cost charged by an electrician for working repairs on a property. The expense has been incurred, but if it hasn’t been paid for, it will be recorded as an accrued expense.


Assets are an integral part of the balance sheet and consist of something the business owns and has a monetary value. Assets are listed in the kind of liquidity, with the most liquid assets being mentioned on top and others following. Since cash on hand is the most liquid asset a business can own, it is almost always mentioned near the top of the balance sheet.

Book Value 

Every asset owned by the business is depreciated over time to adjust for the value it loses over its period of use. The associated net publication value of the asset is computed by deducting the accumulated depreciation of the assets from the original value to mark the asset at its original value at a given time. For instance, a property manager purchased a laptop for their workplace 2 years ago. The laptop will be valued at far less now than when the property manager first purchased it. Hence, this depreciation is adjusted for in the balance sheet through an appropriate net book value.


Equity consists of the money invested into the business from interior and exterior sources. Internal sources include capital investments from the owner and shareholders, whereas exterior sources include long-term loans and debentures from personal and recognized lenders. If you can recall the accounting equation, you can tell that equity is what is left after liabilities are deducted from assets. Equity is the portion of the company owned by vendors and investors.


Inventory is the term used to classify all assets purchased by a company to sell to their customers but stay unsold. Inventory can come in three different forms for most manufacturing businesses. The first includes finished goods, which is common for some retailers, the second type includes work in progress, which consists of inventory nonetheless in the manufacturing process at the time of recording these entries; and the final style consists of raw materials, which are but to enter the manufacturing process but are currently in possession of the business.


Legal responsibility is the accumulation of all accounts owed by an organization. Liabilities include accounts payables, loans, payroll loans, and accrued expenses.

Terms in the Income Statement 

The revenue assertion or the revenue and loss assertion is the second of the two most frequent financial statements recorded by organizations today. Some of the terms most commonly used in a revenue assertion include:

Cost of Goods Sold 

The rate of items sold, or COGS, are all expenses immediately associated with manufacturing or procuring a product or service. The cost of goods sold measures the direct costs of manufacturing items ultimately sold for earnings new release. An instance of COGS in most companies would be the rate of supplies incurred or the rate of direct labor done for delivering a service or for manufacturing goods.


Depreciation is recorded as an expense in the revenue assertion and accounts for the value misplaced in an asset over time. Generally, depreciation impacts both the income statement and the balance sheet, so it is recorded as an adjusting entry rather than being mentioned in the trial balance. The depreciation for a period is calculated through either the straight-line method or by reducing the balance method. Both methods use a fixed percentage to calculate the value an asset has lost over a year, which is then recorded in the income statement as an expense. This is a non-cash expense, which is why it does not have an almost immediate impact on the financial standing of an organization.

Gross Profit 

The Gross Profit measures an organization’s direct profitability in dollars without considering the other overhead expenses incurred by the business. The Gross Profit is calculated by subtracting the total cost of goods sold from the revenue generated during the same period.

Gross Margin

Gross margin or GM is a percentage ratio calculated by taking your gross profit for a period and dividing it by the revenue for the same period. The Gross Profit Margin represents the profitability that a company has achieved through revenue.

Net Income or Net Profit 

The net income or net profit of a business is also earned in dollars and is usually the final profit that the owner keeps to themselves, is shared among partners, or is paid as dividends to shareholders – based on the organization’s structure. The net profit is calculated by taking the gross profit (calculated by subtracting COGS from total sales) and subtracting all expenses recorded during the given period, including overheads, wages, energy costs, depreciation, and taxes. A net income is reported if the resulting profit is a positive value, while a loss is reported if the final figure is negative. A loss means that the organization has failed to generate any profit during that period and that expenses are more than the sales generated.

Net Loss 

The net loss of a business is usually the final loss that the owner bears by themselves or shares among partners – based on the organization’s structure. The net loss is calculated by taking the gross profit (calculated by subtracting COGS from total sales) and all expenses recorded during the given period, including overheads, wages, energy costs, depreciation, and taxes. A net income is reported if the resulting profit is a positive value, while a loss is reported if the final figure is negative. A loss means that the organization has failed to generate any profit during the period and that expenses exceed the sales generated.

Net Margin 

The net margin is the percentage of the net profit from its revenue or sales figure. The net margin is calculated by dividing the net income for a period by the net sales for the same period and multiplying it by 100. The final percentage will display the profitability of a business about its sales.

General Terms 

There are several other normal phrases used in accounting apart from the ones pointed out in the two most important financial statements. Some of these important general phrases include:

Accounting Period 

An accounting period is mentioned in all financial statements – balance sheet, statement of profit and loss, and statement of cash flows. The accounting period is usually used to communicate to stakeholders and other readers the period to which the financial statement relates.


The term allocation describes assigning funds and investments to different financial periods and accounts. For instance, a cost can be allocated across several periods or multiple departments. An expense like insurance must be allocated over multiple months, while administrative costs must be assigned across all departments in a multi-department firm.

Business Entity 

A business entity is a legal term used to refer to a business. Business entities can come in all shapes and sizes and feature different legal structures, types, and profit-sharing structures. Common company formations followed in organizations today include partnership, sole proprietorship, S-Corp, C-Corp, and Limited Liability Corporation or LLC. Every one of these entities carries a unique set of laws, requirements, and tax implications.

Cash Flow 

Cash flow is the term used to describe the inflow and outflow of money within a business. The net cash flow for a given period can be calculated by taking the beginning cash balance for a year and subtracting it from the balance reported at the end of the year. A positive cash balance indicates that more cash has flown across a business during a given period. A negative balance indicates the opposite – more cash has flown out of the business than what has come in.

General Ledger 

The general ledger is where an accountant would record all your entries. When recording these entries in your general ledger, all debit entries will be on the left, and all credit entries will be on the right. All of these entries are then summarized in your trial balance, which shows the total of your credit and debit balances. If you have performed the entire double-entry method correctly without any errors, then your debit side of the trial balance should be the same as your credit side.

Recording transactions through the double-entry method gives you a comprehensive and detailed view of your financials. You can use this view to improve your understanding of these entries.


The term bookkeeping dates back to the days before computers were mainstream in accounting management. During this period, books would be used to record statements daily. Bookkeeping is defined as maintaining your day-to-day transactions, regardless of whether they are transcribed in a book or a computer.

Cash Accounting

Cash Accounting is a various methodology of accounting to accrual accounting. In this method, you file funds when you truly pay expenses for them, not when the expense is incurred. Most property managers primarily follow this accounting methodology at this time, and is in play throughout companies in the industry.