Glossary | Jaha | Online Accountant

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: An accounting period is a specific time period, like a month or a year, when a business keeps track of all its financial transactions, like money coming in and going out. This helps to organise and summarise the business's financial activity so that they can create reports that show how much money they made, how much they spent, and how much profit or loss they had during that time. Accounting periods are important because they help businesses keep track of their finances and make informed decisions about their future plans.
: Accounts payable is the money that a business owes to its suppliers or vendors for the things that they have bought on credit or borrowed but haven't paid for yet. It is like a bill that needs to be paid in the future. For example, if a small business buys office supplies or materials from a supplier and doesn't pay cash immediately, they will have accounts payable for the amount they owe to the supplier. Keeping track of accounts payable is important to make sure that the business pays its bills on time and maintains good relationships with suppliers.
: Accounts receivable is the money that a business is owed by its customers for products or services that they have sold on credit or haven't received payment for yet. It is like a bill that needs to be paid by the customer in the future. For example, if a small business sells products or services to a customer but doesn't receive cash immediately, they will have accounts receivable for the amount the customer owes them. Managing accounts receivable is important to make sure that the business collects payments on time and keeps track of the money it is owed by its customers.
: Accrual accounting is a method of keeping track of a business's finances where the income and expenses are recorded when they are earned or incurred, not when the money is actually received or paid. This means that even if a business hasn't received the money for a service or product yet, they record it as income when the service or product is provided or delivered. The same is true for expenses, even if the business hasn't paid the bill yet, they record it as an expense when they receive the goods or services. Accrual accounting helps businesses to have a more accurate picture of their financial situation, even if they haven't received or paid all the money yet.
: Assets are things that a business owns that have value, such as money, equipment, buildings, inventory, or vehicles. They are things that can be used to generate income or can be sold for money in the future. For example, if a small business owns a delivery truck, that truck is an asset because it can be used to deliver products to customers and can also be sold for money if the business decides to get rid of it. Assets are important to a business because they can be used to help generate revenue or to support the operation of the business.
: A balance sheet is a financial statement that shows a business's assets, liabilities, and equity at a specific point in time. Assets are things that the business owns that have value, like money or equipment, while liabilities are the debts that the business owes to others, like loans or accounts payable. Equity is the remaining value of the business after liabilities have been subtracted from assets. The balance sheet helps the business owner to see a snapshot of their financial position, including how much money they have, how much they owe, and what their net worth is at a specific point in time.
: Capital is the money or assets that a business uses to operate, grow, and invest in its operations. It can include money that the business owner invested in the company, as well as any profits that were reinvested into the business. Capital is important because it provides the resources that a business needs to purchase inventory, equipment, or other assets, to pay for expenses, and to support growth and expansion. In short, capital is the lifeblood of a business, and without it, the business may struggle to survive or grow.
: Cash accounting is a method of keeping track of a business's finances where income and expenses are recorded when money is actually received or paid. This means that if a business sells a product or service and receives payment immediately, they record the income at the time of payment. Similarly, if a business receives a bill for an expense and pays it immediately, they record the expense at the time of payment. Cash accounting is a straightforward way of managing a business's finances, and it can be especially useful for small businesses that do not have complex financial transactions. It allows business owners to see the cash flow in and out of the business in real-time.
: Cash flow is the movement of money in and out of a business over a specific period of time, usually a month, a quarter, or a year. Positive cash flow means that more money is coming into the business than going out, while negative cash flow means that more money is going out than coming in. Cash flow is important because it is what allows a business to pay its bills, purchase inventory or equipment, and make investments in the future. Managing cash flow is essential for the long-term success of a business, and it requires careful planning and monitoring to ensure that the business has enough money to cover its expenses and grow over time.
: Corporations Act 2001
: See 'Accounts Payable'
: See 'Accounts Receivable'
: Depreciation is a term used to describe the gradual decrease in value of an asset over time. When a business purchases an asset, such as a vehicle or a piece of equipment, the value of that asset decreases over time as it is used or as it becomes outdated. Depreciation is a way of accounting for this decrease in value over time, and it is recorded as an expense on the business's income statement. The purpose of depreciation is to ensure that the business's financial statements accurately reflect the value of its assets over time, and it can also help to reduce the business's tax liability by reducing its taxable income.
: Disposal refers to the act of getting rid of an asset that is no longer needed or useful to a business. This can include selling the asset, scrapping it for parts or materials, or simply throwing it away. Disposing of an asset can be a deliberate decision, such as when a business replaces an old piece of equipment with a newer model, or it can be the result of damage or wear and tear that makes the asset unusable. When a business disposes of an asset, it may need to record a gain or loss on its income statement to reflect the difference between the asset's original cost and its selling price or scrap value.
: Direct costs are expenses that can be directly attributed to a specific product, service, or project. These costs are typically associated with the production or delivery of a product or service, and they can include things like materials, labor, and shipping costs. For example, if a business produces a line of handmade candles, the cost of the wax, wicks, and fragrance oils used to make the candles would be considered direct costs. Direct costs are important for businesses to track because they help to determine the profitability of individual products or services, and they can also be used to set prices and make decisions about production and inventory.
: Equity refers to the value of a business's assets minus its liabilities. In other words, it is the portion of a business's value that is owned by its owners or shareholders. Equity is sometimes referred to as "net assets" or "shareholders' equity," and it is an important metric for understanding a business's financial health. As a small business owner, your equity in the business represents your ownership stake or the portion of the business's value that belongs to you. If the business's assets are worth more than its liabilities, then the business has positive equity. If the business's liabilities are greater than its assets, then the business has negative equity, which can be a cause for concern.
: A financial year, also known as a fiscal year, is a period of twelve months that Australian businesses use for accounting and financial reporting purposes. In Australia, the financial year starts on July 1st and ends on June 30th of the following year. During the financial year, the business will record and report all of its financial transactions, including income, expenses, assets, and liabilities. At the end of the financial year, the business will prepare financial statements, such as an income statement and a balance sheet, to summarise its financial performance and position over the course of the year. It is important for Australian small business owners to understand their financial year and keep accurate records to comply with tax laws and make informed financial decisions.
: Income Tax Assessment Act 1997
: Income Tax Assessment Act 1936
: Liability refers to a legal obligation or debt that a business owes to another party. This can include things like loans, bills, and taxes that the business is required to pay. When a business incurs a liability, it is essentially borrowing money or resources from another party, and it will be expected to repay that debt at some point in the future. Liabilities can be short-term, such as accounts payable that must be paid within a few weeks or months, or long-term, such as a mortgage that is paid over many years. As a small business owner, it is important to keep track of your liabilities and ensure that you have the resources to pay them off when they become due, as failure to do so can result in legal consequences and damage to your business's credit.
: A Profit and Loss (P&L), also known as in Income Statement, is a financial report that shows how much money a business made and spent during a certain period, usually a year. It tells you if the business made a profit or a loss during that time. The report starts with the amount of money earned from sales, takes out the costs of making or buying the things sold, and subtracts all other expenses. This gives the business's gross profit, which is how much money it made before subtracting expenses. Next, all other expenses are taken out to calculate the business's net profit or loss. Business owners use P&L statements to manage finances and make decisions to improve profits.
: Working capital is the amount of money that a business has available to cover its day-to-day expenses and operations. It is calculated by subtracting a business's current liabilities (such as bills, rent, and loans due in the short-term) from its current assets (such as cash, inventory, and accounts receivable). The resulting figure represents the amount of capital a business has to invest in its operations, purchase inventory, and meet its financial obligations in the short-term. Having sufficient working capital is important for a small business to continue its operations and grow over time. Small business owners should keep track of their working capital to ensure that they have enough funds to cover their ongoing expenses and invest in future growth opportunities.

Glossary & References

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