10 accounting terms every business owner should know

Haven Accounting | 3 MIN READ February 3, 2019

Although it’s best to leave the accounting to the professionals to make sure that your business is thriving and is compliant with any IRD regulations, it’s a good idea to know at least a little bit about what exactly is going on financially.

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You may have come across some of these terms before, but if not, make sure you familiarise yourself with as many as possible so that you can make sense of your accountant’s emails and requests.

Accounts Payable

These are any outstanding invoices that you’ve received from suppliers but you haven’t paid yet. This is essentially the money you owe for any purchases or expenses.

Accounts Receivable

These are the opposite of accounts payable – accounts receivable are any outstanding invoices that are owed to you from the client but have not been paid yet.

Balance Sheet (Statement of Financial Position)

The official name for this in New Zealand is the Statement of Financial Position. It’s basically a report that shows your assets, liabilities and equities at any point in time.

Cash Flow

Many people mistakenly believe that cash flow is the profit you’re making, the money that’s coming into your business. Cash flow actually includes money coming in AND money coming out of your business – that’s why it’s called a flow.

Cash Flow Forecast

A cash flow forecast is a forward-looking report giving an overview of where your money is coming and going from. It’s an indication of all of the money going in and out of your business and can give you an idea of where you might need to cut back or invest more in.

GST (Goods and Services Tax)

This is a really important term to know because you need to be registered for GST if you supply goods and services in New Zealand with your total sales being $60,000 or more, or if your prices include GST. The GST in NZ is currently set at 15%. When you receive payments from customers, it is important to set aside the GST portion so it can be paid to IRD when it is due.

Income Tax

This is the tax you’ll need to pay on any income. You’ll need to send some information to the IRD each year, including all of your income from all sources so that the IRD can work out your total taxable income and any returns.

PAYE (Pay As You Earn)

PAYE is the tax that is paid on employee’s wages or salary. It comes directly from their pay and as an employer, you’re responsible for deducting and paying this income tax on your employee’s behalf.

Profit and Loss (Statement of Financial Performance)

Officially known as the Statement of Financial Performance in New Zealand, the Profit and Loss report includes the income and expenses that have occurred over a period of time in your business.

Provisional Tax

You may be required to pay your income tax in instalments throughout the year so that it is spread across the period.

If you’re not sure about any of these terms or you’re just after a second opinion on the accounting side of things, contact our fantastic accounting team today!

 


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