Quality small business accounting is by far one of the most complex industries around. You may interact with accountants regularly, or only when tax deadlines are approaching, yet what they do behind the scenes is often not understood.

One of the reasons for this is that the language accountants can use is often inaccessible to small business owners. In the same way scientists have a whole dialect to themselves, accounting is a language in and of itself.

In response, we have set out four key accounting terms that all owners should know about small business finance to ensure they fully understand what is happening behind the scenes.

Accounts payable and Accounts receivable

While this is slightly cheating, as these are two quite distinct terms, in many ways, they can and do act in tandem. The best way to remember the difference between the two is that accounts payable are liabilities, while accounts receivable are assets. 

More specifically, accounts payable are the amounts your company owes another party because it purchased goods or services on credit. On the other hand, accounts receivable is the money or capital owed to you, which you also have the right to collect due to delivering your products on credit. 

The differences are important because they dictate the way the are recorded on the company's financial records. A simple way to think about this is that accounts payable is cash out, while accounts receivable is cash in. 

Net Income

This accounting term refers to a business's total profit or as it is colloquially known, the bottom line. While many people will have a grasp of what net income is, it is not always completely understood. 

The sticking point for many is how it is calculated. Specifically, net income is all revenue adjusted for the costs of doing business, interest, depreciation and a range of other expenses. 

For owners, this number is essential to gauging the financial health of an organisation over a certain period of time. The bottom line for business owners is that this term should become a key part of your vocabulary. 

Cash flow

Cash flow is to small business accounting, what penicillin is to the medical industry; it almost has a magical quality. For business owners that care only about their earnings, their enterprises will not be able to survival in today's volatile economy.

Central to survival is cash inflow, which is readily understood as the lifeblood of a company. It comes from a number of places, including customer payments, loan receipts and interest on savings and investments.

The reason why understanding cash flow is so important is that it allows your business to continue to operate, even if the overall health of your finances is deteriorating. As they say – cash is king. 

Cloud-business software

So cloud computing is not technically the sole prerogative of the accounting world, nor is it simply a term or phrase. Yet, the cloud is having a huge impact on the industry as well as the small businesses it services. 

While accounting software has been computerised in the past, it can be tedious and take up too much time and effort to use. This means it does not add value nor does it save your company money. But using cloud-based software to manage business can help you work smarter and faster, not to mention offering you more up-to-date information.

Through software such as Jiwa Financials, business can ensure they are completely in control of their financial books. However, to ensure that this software is effective, employees will need quality training to leverage all that Jiwa Financials has to offer.

If you are seeking more information about cloud-based software or would like to know more about accounting general, talk to me or one of Austlink's representatives today.