Accounting Jargon: A Simplified Reference Guide

The language that financial professionals use can be confusing. It is difficult to receive advice when you can’t understand their terminology. We’re here to translate the complex accounting dialect into plain English. Whether you’re a seasoned entrepreneur or have owned several businesses, this guide will decipher some of the most common (and essential) terms. Let’s break down those barriers and make accounting language something you can handle, not just something you hear during tax season or in board meetings.

Terms Related to the Balance Sheet

  • Assets: Assets are what the business owns. These resources power your venture, from the cash in the bank to the computers your team uses.
  • Liabilities: These are the IOUs your business has. Whether it is a loan you’ve taken out to spruce up your storefront or the credit card bill for your latest marketing drive, liabilities remind us of our financial responsibilities to others. This could be as simple as a loan you took out to renovate your office or store. 
  • Equity: This is what is left for the business owners after all the debts are paid off. It’s your piece of the pie, representing your claim on the business’s assets. If you have $100,000 in assets and $90,000 in liabilities (debts), you have $10,000 in equity. 

Terms Related to the Income Statement

  • Revenue: Imagine every time you make a sale, the money is going straight into your bank account. Revenue is the total income your business earns. If you own a software company, your revenue may come from licensing and subscription fees. 
  • Expenses: To make money, you’ve got to spend money. Expenses cover everything from the rent for your shop to the salaries of your team, who make it all happen.
  • Net Income: This remains after you’ve settled all your bills. It’s the profit your business makes; ideally, it’s a positive number that shows you’re on the right track.
  • COGS (Cost of Goods Sold): These are the direct costs tied to what you’re selling. It’s the cumulative cost of the materials and labor required to produce a product or to deliver a service. 
  • Gross Margin: This metric tells you how much you make on each sale before other expenses are considered. It’s a key indicator of your business’s health and profitability. If you’re selling bags of coffee beans for $10 and it takes $4 to produce each one, then your gross margin is $6.
  • Overhead Expenses: These costs aren’t directly linked to making sales but are necessary to keep the business running, like internet service or utility bills. Think of the rent and utility bills you must pay regardless of how much you produce or sell. 

Other General Terms

  • Cash Flow: It’s all about the cash coming in and going out. Positive cash flow means your business is liquid, keeping you in a solid position to cover your bills and invest in growth.
  • Debit and Credit: The backbone of double-entry bookkeeping. Debits and credits keep the books balanced, with each transaction affecting two accounts to keep everything in check. Debiting and asset accounts increase their value, and crediting decreases it. 
  • Accrual Basis Accounting: This method records income and expenses when earned or incurred, not necessarily when cash changes hands. It gives a more accurate picture of your business’s financial health. If you provided a service in January but are paid for it in February, it counts as January revenue. 
  • Balance Sheet: A snapshot of your business’s financial condition at a specific moment, showing what you own (assets(, what you owe (liabilities), and your equity.
  • Income Statement: This is commonly called a profit and loss statement. It details your revenue, expenses, and profits over a period, highlighting the financial performance of your business. If you earned $200 in revenue but had $160,000 in expenses, your net income would be $40,000.
  • General Ledger: It’s the primary record of any company that uses double-entry bookkeeping. Think of it as the master document of your company’s financial transactions and the foundation of your accounting.
  • Accounts Receivable/Payable: Money expected to come into your business from customers (receivable) and money your company owes to suppliers or vendors (payable).


Understanding financial language helps you communicate with your accountant and provides you with an understanding of key concepts. With this simplified guide, we hope you feel more confident discussing your company’s financials and making informed decisions.Remember, finance isn’t just about numbers; it’s about the story those numbers tell about your business’s past, present, and future. Let’s keep the conversation going and turn those financial statements into strategic tools for growth. Schedule a free business analysis with us today.

Forecasting The Future: How Small Businesses Can Build A Powerful Predictive Financial Model

Predicting your future financial performance is invaluable but also a major challenge for many small businesses. Start by building a simple yet powerful spreadsheet model for forecasting revenues, expenses, and cash flow. 

Even a simple model can be a strategic advantage and an essential tool for making great decisions. Here’s some ideas for the tools you can use, and how to work with a Fractional CFO to create a flexible model that allows you to play ‘What-If’ games and make informed decisions for growth.

Why Bother?

Imagine that you need to decide whether to hire new talent, expand your office space, or invest in new technology. All of these decisions hinge on their financial impact and your company’s ability to afford them in the future.  How can you be sure you’ll make the right choice? A predictive model that considers key variables and KPIs can give you clarity and confidence to allocate resources for growth and stability.

The Basics of Building a Predictive Model

You don’t need an overly complex system. Any small business can chart its financial future with tools as accessible as Excel or Google Sheets. The key is to ground your model in historical data, ensuring it reflects the reality of your business’s past performance. This is your foundation for future predictions.

Key Components of an Effective Model

What drives your business? These variables have the most significant impact on your revenue and expenses. Identifying these drivers requires an understanding of your business’s operations and market. Incorporating scenario analysis into your model allows you to prepare for various possibilities. It gives you the agility to respond to internal and external changes confidently.

Advanced Tools Beyond Spreadsheets

Advanced software options like PlanGuru, Fathom, and Float offer sophisticated features for businesses ready to move beyond the basics. Leverage these tools to provide insights that make your strategic decisions more manageable.

  • PlanGuru includes tools for income statements, balance sheets, and cash flow statements. It can integrate more than 20 forecasting methods. PlanGuru allows you to create custom financial analyses and reports. Additionally, it supports scenario planning and what-if analysis. You can use it to explore different financial outcomes based on varying assumptions.
  • Fathom: Fathom gives you access to dashboards and performance metrics that can be customized to suit different stakeholders. Fathom is excellent for consolidating data from multiple sources, making it ideal for businesses with several entities. It also supports benchmarking, trend analysis, and goal-setting, facilitating strategic planning and decision-making.
  • Float: Float provides detailed cash flow forecasting, allowing users to see what their daily, weekly, and monthly cash positions are. It enables scenario planning, where users can test different financial assumptions and see their potential impact on cash flow. It also includes budgeting features, which can help you track spending against forecasts.

Working with a Fractional CFO

For small businesses, having the added support of a Fractional CFO is transformative. These part-time financial strategists refine your model, offer insights, and guide your company through complex financial decisions. Their experience and knowledge can differentiate between a good and a great model.

Using the Model for Strategic Decisions

A predictive financial model is not just a planning tool; it’s a strategic asset. It can indicate the most opportune moments for investments, hiring, and expansion. You can steer your business towards sustainable growth by aligning your business strategy with the insights derived from your model.

Regular Review and Adaptation

The only constant in business is change. Your predictive model should be a living document, regularly updated to reflect new data and market trends. This adaptability ensures that your model remains a reliable tool for decision-making.

Contact FuseCFOA well-constructed predictive financial model is a powerful tool for any small business. It provides clarity, supports strategic decision-making, and helps identify the optimal timing for investments and growth. You can navigate your business toward success by focusing on key drivers, integrating with tools like QuickBooks Online, and regularly updating your model. To continue this conversation with us, schedule a free business analysis.