Business language – Talk Business & Politics

with the present case Northwest Arkansas Business Journal As someone who teaches at a business college majoring in accounting and finance — two subjects I hold near and dear to my heart — I thought I’d write about numbers and how they are the language of business.

I don’t think many of our readers would agree with me that numbers are the language of business. Unfortunately, it can be a foreign language to many small and medium business owners alike. What I mean by that is that even the most basic concepts like the income statement and the balance sheet – and the difference between cash flow and accounting – are not understood. This in turn affects the ability of these owners to manage their business.

When I teach my students about income statements, I try to get them to think about their situation. How much money do they bring in each month from their job or their parents? What are their total monthly expenses for rent, utilities, food, etc.? The difference is a positive or negative number.

In business, this is profit or loss. You can do that for a week, a month, a quarter, or a year—any amount of time. Income statements cover a specific period of time. Most people can quickly understand what an income statement is.

Accounting is another matter. To teach this concept, I meet someone who owns a vehicle that makes timely payments. I ask them what the car is worth and how much they owe on it. Their difference is their equality. What does accounting mean for a business? Add the value of all assets and subtract the value of all liabilities or obligations. That is owners’ equity or net worth. This is at a certain time. It is a snapshot of a company’s financial situation. If positive, they are soluble. If negative, they are a loss. If I asked the same question a month later, they would probably get a different answer.

Accrual accounting and cash basis accounting is another area that people struggle with. Accrual accounting deals with revenues and expenses when the money is received or when those expenses are paid. It is a generally accepted accounting principle.Accelerated accounting provides a better view of how a business is performing at any given time.

For example, if a service business sends an invoice to their client or customers after doing something and it takes 90 days for them to get paid, then the revenue would be earned when they did the work and actually got paid 90 days later. For him. It is the same as the labor cost to do this. Labor is considered to be working when the worker is paid to perform the work – for example, it may be after a week. I’ve talked to veteran business owners who don’t understand this.

Financial accounting often seems complicated in the way it is taught. Debits, credits, T-accounts – people struggle with this stuff. But if you first explain the big picture—how this information is used to put metrics on the business by formulating income statements, balance sheets, and cash flows, and why cash and accruals are two different things—the details of where the information is come to make much more sense.

Mark Zweig is the founder of two Fayetteville-based 500/5000 companies. He is also an entrepreneur-in-residence teaching entrepreneur and group chair at the Sam M. Walton College of Business at the University of Arkansas. Northwest Arkansas Chapter of Vistage International. The opinions expressed are those of the author.