06 June 2024
Editor: ET
Understanding accounting terminology is crucial for entrepreneurs to manage their business finances effectively. In Singapore, grasping these terms can help you navigate the local business environment, ensure compliance with regulations, and make informed financial decisions.
Here’s a guide to the essential accounting terms every entrepreneur should know, with insights from Expede.com.sg.
1. Assets
Assets are resources owned by a company that have economic value and can be converted into cash. They are classified into:
Current Assets: Cash or assets that can be converted to cash within a year (e.g., inventory, accounts receivable).
Non-Current Assets: Long-term investments or assets that cannot be converted into cash quickly (e.g., property, equipment).
2. Liabilities
Liabilities are financial obligations or debts that a company owes to others. They are divided into:
Current Liabilities: Debts or obligations due within a year (e.g., accounts payable, short-term loans).
Non-Current Liabilities: Long-term debts or obligations (e.g., long-term loans, bonds payable).
3. Equity
Equity represents the owner's interest in the company. It is calculated as:
Equity=Assets−LiabilitiesEquity=Assets−Liabilities
Equity includes common stock, retained earnings, and additional paid-in capital.
4. Revenue
Revenue, also known as sales or turnover, is the income generated from normal business operations, such as selling products or services. It is crucial to distinguish between gross revenue (total sales) and net revenue (total sales minus returns, allowances, and discounts).
5. Expenses
Expenses are the costs incurred to generate revenue. They are categorized into:
Operating Expenses: Costs related to day-to-day business operations (e.g., rent, utilities, salaries).
Non-Operating Expenses: Costs not related to core business activities (e.g., interest expenses, loss on asset disposal).
6. Profit and Loss Statement (P&L)
The Profit and Loss Statement, also known as the Income Statement, summarizes the revenues, costs, and expenses incurred during a specific period. It helps in assessing the company’s financial performance.
7. Balance Sheet
The Balance Sheet provides a snapshot of a company’s financial position at a specific point in time. It lists assets, liabilities, and equity, showing the company’s net worth.
8. Cash Flow Statement
The Cash Flow Statement shows the inflows and outflows of cash within a company over a specific period. It is divided into three sections:
Operating Activities: Cash flow from primary business operations.
Investing Activities: Cash flow from buying or selling assets.
Financing Activities: Cash flow from issuing or repurchasing equity, and from borrowing or repaying debt.
9. Accounts Receivable (AR)
Accounts Receivable is the money owed to a company by its customers for goods or services delivered on credit. Efficient AR management ensures timely cash flow.
10. Accounts Payable (AP)
Accounts Payable is the money a company owes to its suppliers for goods or services received on credit. Managing AP is vital for maintaining good supplier relationships and creditworthiness.
Further Reading: The Role of an Accountant in Business Growth and Success
For entrepreneurs in Singapore, understanding these essential accounting terms is fundamental to managing business finances, ensuring compliance, and driving growth. Regularly reviewing financial statements and maintaining accurate records are key practices for financial health.
For more insights on accounting and business management in Singapore, visit Expede.com.sg.
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