Balance Sheet

The balance sheet is a comprehensive snapshot of your business's financial position at a specific time. It outlines your assets, liabilities, and equity. Regularly reviewing your balance sheet provides insights into your business's financial health and helps you make strategic decisions.

Income Statement

The income statement (profit and loss statement) summarizes your business's revenue, expenses, and profit or loss over a specific period. Analyzing the income statement allows you to identify areas of strength and weakness in your business operations.

Cash Basis vs. Accrual Basis

Choosing between cash-basis and accrual-basis accounting methods is crucial for small businesses. The cash basis recognizes transactions when money changes hands, while the accrual basis recognizes revenue and expenses when they are incurred. Understanding these methods helps you accurately report financial information and comply with accounting standards.

Depreciation

Depreciation is the systematic allocation of the cost of an asset over its useful life. While it doesn't involve cash flow, depreciation affects profitability and taxes. Understanding how depreciation impacts your financial statements is vital for accurate financial reporting and tax planning.

Equity

Equity represents the residual interest in the business's assets after deducting liabilities. Understanding equity is essential for assessing the actual value of your business and attracting potential investors.

Working Capital

Working capital is the difference between a company's assets and liabilities. Maintaining positive working capital ensures your business can meet its short-term obligations and take advantage of growth opportunities.

Break-Even Point

The break-even point is the level of sales at which a business covers its costs and neither makes a profit nor incurs a loss. Understanding your break-even point helps you set realistic sales targets and pricing strategies.

Tax Deductions

Identifying eligible tax deductions can significantly reduce your taxable income. Familiarize yourself with allowable deductions to optimize your tax position and maximize savings.

Profit Margin

Profit margin, expressed as a percentage, represents the portion of revenue that becomes profit. Monitoring your profit margin helps you assess pricing strategies, cost management, and profitability.

GAAP (Generally Accepted Accounting Principles)

Adhering to Generally Accepted Accounting Principles (GAAP) ensures consistency and transparency in financial reporting. Understanding GAAP is essential for maintaining accurate financial records and complying with regulatory standards.

Liquidity

Liquidity measures your business's ability to meet short-term obligations with its current assets. Striking the right balance between assets and liabilities ensures your business remains financially flexible.

Amortization

Amortization involves spreading out the cost of an intangible asset over its useful life. Understanding amortization is crucial for accurate financial reporting and tax planning.

Work With N.E.W. Accounting

Financial literacy is a powerful tool for success. By familiarizing yourself with these essential financial terms, you're better equipped to make informed decisions, manage your business's finances effectively, and lay the foundation for long-term growth. Keep learning, adapting, and leveraging your financial understanding to build a resilient and prosperous small business.

Even with increasing your financial literacy, every small business can benefit from a strong accounting team. Our team at N.E.W. Accounting is ready to handle all your accounting and bookkeeping needs – and we have experience working with small to medium-sized businesses. Let's work together!