Bookkeeping Made Simple: Breaking Down the Basics for Small Businesses

As a business owner, you didn’t start your journey to become an accounting expert—but suddenly, you’re surrounded by terms that can feel overwhelming. You might think ‘money is money,’ right? Well, in accounting, it’s a bit more complex! The financial side of running a business quickly becomes one of the most important aspects to understand.

At Simplified Bookkeeping, we believe there are no ‘stupid questions.’ Our goal is to simplify accounting concepts so you can feel confident and empowered. Below, we’ve broken down some essential accounting terms every small business owner should know.

• ACCOUNTS PAYABLE

  Money your business owes to suppliers or vendors for goods or services you’ve already received. It’s a liability because you need to pay it.

• ACCOUNTS RECEIVABLE

  Money that customers owe your business for services or products you’ve already delivered. It’s an asset because you’re expecting to get paid.

• ASSETS

  Things your business owns that have value, like cash, equipment, and inventory. Assets can help run the business or be sold for cash if needed.

• CASH FLOW

  The movement of money into (income) and out of (expenses) your business. Positive cash flow means more money is coming in than going out.

• DEPRECIATION

  The decrease in value of things like equipment or machinery over time. This loss in value is recorded as an expense, even though you don’t pay for it directly.

• EQUITY

  The value left in your business after paying off liabilities. It’s what you, as the owner, actually own.

• EXPENSES

  Money your business spends to operate, such as rent, salaries, and utilities. These are the costs of running the business.

• LIABILITIES

  Debts or money your business owes to others, like loans, unpaid bills, or credit card balances.

• PROFIT & LOSS STATMENT (P&L)

  A financial report showing how much your business earned (revenue) and spent (expenses) over a period of time, showing whether you made a profit or loss.

• REVENUE

  The total money your business earns from selling products or services before subtracting any costs.

Understanding these key accounting terms is a crucial step in running a successful business. While the financial side may seem daunting at first, having a grasp of the basics will help you make more informed decisions and stay on top of your business’s health. And remember, at Simplified Bookkeeping, we're here to support you every step of the way.

Want to learn more? Check out our free downloadable resources and content here.