Ever wanted to understand what accounting jargon means? Below are the 11 core accounting terms with an explantion. We hope you find it useful
Turnover / Revenue
Turnover is the money your business earns from selling goods or services. For example, if your bakery sells £500 worth of cakes, that’s your turnover.
Cost of Sales
Cost of Sales are the costs to produce your goods or services. For example, if you sell cakes the costs would be the ingredients to make and cook the cake.
Gross Profit
Gross profit is the difference between your turnover and the cost of sales. It shows how profitable your product or service is performing. For example, if you sell products for £1,000 and the cost to produce them is £600, the gross profit is £400.
Expenses / Direct Costs
Expenses are the costs incurred to run your business. These include rent, salaries, utilities, software, advertising and stationery. For example, paying for electricity in your office is an expense.
Net Profit
Net profit is what’s left after all expenses are deducted from your gross profit. It’s your actual profit. For example, if your company has gross profit of £1,000 and has £700 in expenses, the net profit is £300.
Profit & Loss Report
A profit and loss report, shows your business's turnover, cost of sales and expenses over a specific period. It highlights how profitable your business is.
Liabilities
Liabilities are the amounts your business owes to others. This could be loans, invoices to pay, or mortgages. Think of it as your business's financial responsibilities.
Assets
Assets are what your business owns that have value, like cash, equipment, or property. For example, the computers in your office are assets.
Equity
Equity is what’s left after subtracting all liabilities from assets. It’s often called the owner's stake in the business. For example, if your company has assets of £100,000 and owes £60,000, the equity is £40,000.
Balance Sheet
A balance sheet shows your business's financial position at a specific point in time, including assets, liabilities, and equity. It’s like a snapshot of your company’s financial health.
Cash Flow Statement
A cash flow statement shows the inflows and outflows of cash in your business over a period. It helps you track liquidity, and cover of expenses and taxes.
