Key Accounting Terms & Concepts Every Entrepreneur Should Know
The accounting team of your business quietly does its work taking care of your company’s financial processes, which allows you to focus on your core competencies. Entrepreneurs must be like Swiss Army Knife or a jack of all trades. This means you must know at least the basic accounting terms instead of blindly relying on your accountants or accounting firms in Dubai.
Understanding accounting terms and concepts enable you to communicate the state of your company with those who run the numbers. Furthermore, potential investors and lenders will feel more at ease to know their investment is going to someone who understands the bottom line of the company. To help you out, we have listed here some of the key business accounting terms that every small business entrepreneur must know.
Assets are anything of economic value that can be converted into cash. Assets can generate cash flows in the future such as a piece of machinery, financial security or patents. Some of these assets are tangible such as machinery, a vehicle or a real estate property. The assets can also be intangible such as trademarks and patents. Assets can have tax implications and can be sold for cash.
A balance sheet is a financial statement that reports your company’s financial situation including assets, liabilities, shareholder equity etc. The balance sheet is one of the major financial statements used to evaluate a business. It is often used to determine the worth of your company and your obligations to others.
Cash flow is the net amount of cash that moves into and out of your business. It is typically characterised as cash flows from operations, investing and financing. Cash flow is important to determine a company’s liquidity, flexibility and total financial performance. Cash flows are analysed using a Cash Flow Statement that reports a company’s sources and use of cash over a specific period.
Financial statements are financial records that outline the business activities and financial performance of your company. Financial statements are often audited by accounting firms in Dubai to be submitted to the government, free zone and other license issuing authorities, banks etc. The three financial statements are the balance sheet, income statement and cash flow statement.
Investors, lenders, government bodies and financial analysts rely upon audited financial statements to analyse a company’s financial performance and its future direction. The audited financial statement also helps the stakeholders to determine if any fraud or embezzlement is involved.
Profit and Loss Statement
A profit and loss statement (P&L Statement) essentially summarises the revenues, costs and expenses incurred by the company over a specified period. A P&L statement sheds light on a company’s ability to generate profit by reducing costs, increasing revenue or by doing both. P&L statements are often presented on a cash or accrual basis. A P&L statement is often called an Income Statement in the accounting or business jargon.
Return on investment
Return on investment (RoI) is a performance metric used to determine what profit was generated from an investment. It is a popular form of metric used to evaluate how good a particular investment performed. RoI is calculated by dividing the return of an investment by the cost of investment. The result is expressed as a percentage or ratio.
Whatever you pay to keep your business running and operational on a day-to-day basis is termed as an expense. The wages that pay your staff is an expense and so is the rent you pay for the office space. When you buy ink for your printer from a store it would also be counted as an expense. You can have the advice of accounting firms in Dubai to keep an eye on the expenses.
Liabilities of a Company
Liabilities are a company’s outstanding debts. Usually, loans constitute the liabilities of a company but they can include anything from accounts payable to credit card dues or tax amount that is yet to be paid.
Value Added Tax
Value Added Tax (VAT) is a tax levied on the consumption or use of goods and services. The VAT is the only form of tax (other than excise tax) imposed on the entities operating in the UAE. In the UAE, the VAT is imposed at a standard rate of a mere 5%. A company must register for VAT in the UAE if its taxable supplies, purchases or imports exceed the threshold of AED 375,000 per year. Companies can opt for voluntary VAT registration in the UAE if their taxable supplies, imports or purchases exceed AED 187,500 per annum. Accounting firms in Dubai can help the companies with VAT registration, VAT returns filing records keeping etc.
Jitendra Chartered Accountants: Your Reliable Source for Accounting Know-How
Some small business owners are excited to take part in their company’s accounting functions and some don’t. While the first group of entrepreneurs may find it easier to tackle financial challenges, the latter may struggle due to their lack of accounting knowledge. Such entrepreneurs need not worry as the assistance of accounting firms in Dubai such as Jitendra Chartered Accountants (JCA) will come in handy for you.
JCA can help you with a wide range of accounting services in Dubai including creating financial statements, maintaining records, performing annual audits, filing tax returns etc. However, our services are not limited to that. We have 20 years of experience in the UAE and we provide efficient solutions to complex requirements such as Economic Substance Regulation (ESR), Anti-Money Laundering and Combatting Financing of Terrorism (AML-CFT) and Ultimate Beneficial Ownership (UBO) etc. We are happy to support your way up the ladder in the UAE’s highly competitive business landscape.