Have you ever felt puzzled during a conversation with us? Especially when we get into topics like accruals, FBT, or your profit and loss statement? The world of accounting has its own specialised language, which can be confusing for those not familiar with it.

If these terms leave you scratching your head, you're not alone— according to the QuickBooks 2022 Small Business Insights Report, around 60% of small business owners feel they lack sufficient financial and accounting knowledge.

To make things easier, we’ve put together a guide to help clarify some of the common jargon and acronyms you might encounter. Let’s break down these terms together:

Accounts receivable
These are assets to your business. They represent money owed to you by clients that are legally obligated to pay.

Accruals
Expenses that have been incurred but not yet paid. Accrual accounting records income and expenses as they are invoiced or billed, not necessarily when money changes hands.

Accrual basis
This method records income when it is invoiced and expenses when bills are received. It contrasts with the "Cash basis" method, where transactions are only recorded when money is received or paid.

Acid test (Quick ratio)
A stringent measure of a company’s ability to pay its short-term debts. It involves the ratio of liquid assets (e.g., cash) to current liabilities.

Assets
Physical items of value owned by your business, such as cash, stock, equipment, or property. Assets include both physical items and intangible items (such as patents, trademarks, or goodwill) of value owned by the business.

Bad Debt
Accounts receivable that cannot be collected, often due to client bankruptcy or non-responsiveness. In New Zealand, bad debts that are proven to be uncollectible and have been written off are generally tax-deductible.

Balance sheet
A snapshot of your assets, liabilities, and equity at a given time, essential for understanding your business's financial health.

Capital (Working capital)
The money readily accessible for business operations and investments. This includes funds for unexpected purchases like new equipment.

Cashflow statement
Shows the movement and availability of cash over a period, crucial for monitoring and predicting cash availability for paying suppliers and staff.

Depreciation
Measures the decrease in the value of an asset over time. For instance, a piece of equipment valued at $12k depreciating at $3k per year will be valued at $9k after one year.

Equity
The amount of money invested in the business by its owners, also known as "owner equity" or "shareholder equity."

Expenses
Divided into fixed (e.g., rent), variable (e.g., direct wages), and operational (e.g., office supplies).

Forecasting
Using past financial data to predict future trends, essential for planning and strategy.

General ledger
A complete record of the current years transactions by account code.

Liabilities
Debts your business is responsible for, in both short and long terms.

Net profit
Revenue minus expenses, providing insight into profitability before taxes.

Profit and loss statement
A crucial document that summarizes your business’s earnings, expenses, gross profits, and net profits, reflecting overall performance.

Revenue
Total money brought in from sales before expenses are deducted.

Working capital
Funds available for daily operations after subtracting current liabilities from current assets.

GST (Goods and services tax)
GST in New Zealand is 15% and is added to most goods and services. Businesses must report GST collections and payments to the Inland Revenue Department (IRD).

Tax returns
Businesses must file annual tax returns, detailing income and expenses for the fiscal year (April 1 to March 31).

PAYE (Pay as you earn)
A system where tax is deducted from employees' wages and paid directly to the IRD.

FBT (Fringe benefit tax)
Employers must pay FBT on non-cash benefits provided to employees, such as company cars or subsidised loans.

Superannuation (KiwiSaver)
Must contribute a minimum percentage of a Kiwisaver members earnings to their Kiwisaver account. The employee also contributes from their wages to this.

Understanding accounting terms can significantly impact your business's financial health and compliance. Familiarity with these terms will enhance your ability to manage your finances and communicate more effectively with us.