The core vocabulary and formulas every small business owner and Quicken user should have on hand — no accounting degree required.
You don’t need a degree in accounting to run your finances well — but a handful of terms and formulas come up constantly, and knowing them cold saves you from re-Googling the same question every quarter. Bookmark this page as your quick-reference guide.
The Accounting Equation
Every financial statement traces back to one formula. If you only remember one thing from this page, remember this:
Assets = Liabilities + Equity
What you own (assets) is always financed by either what you owe (liabilities) or what you or your investors have put in and kept in the business (equity). If the equation doesn’t balance, something in the books is wrong — which is exactly why it’s called double-entry bookkeeping.
Key Terms to Know
|
Term |
What It Means |
|
Assets |
Anything the business or you own that has value — cash, inventory, equipment, property, accounts receivable. |
|
Liabilities |
What you owe to others — loans, credit card balances, unpaid bills (accounts payable). |
|
Equity |
The owner’s stake in the business: assets minus liabilities. For a household, this is your net worth. |
|
Revenue |
Money earned from sales or services, before any expenses are subtracted. |
|
Expenses |
The costs of running the business or household — rent, payroll, utilities, supplies. |
|
Net Income |
Revenue minus expenses. If it’s negative, it’s called a net loss. |
|
Accounts Receivable |
Money customers owe you for goods or services already delivered. |
|
Accounts Payable |
Money you owe to vendors or suppliers for goods or services already received. |
|
Cash Flow |
The actual movement of cash in and out — different from net income, which can include non-cash items. |
|
Depreciation |
Spreading the cost of a large asset (like a vehicle or equipment) over its useful life instead of expensing it all at once. |
|
Accrual vs. Cash Basis |
Accrual records income/expenses when earned or incurred; cash basis records them only when money actually changes hands. |
Formulas Worth Memorizing
|
Metric |
Formula |
|
Gross Profit |
Revenue − Cost of Goods Sold |
|
Gross Profit Margin |
Gross Profit ÷ Revenue × 100 |
|
Net Profit Margin |
Net Income ÷ Revenue × 100 |
|
Current Ratio |
Current Assets ÷ Current Liabilities |
|
Working Capital |
Current Assets − Current Liabilities |
|
Break-Even Point |
Fixed Costs ÷ (Price per Unit − Variable Cost per Unit) |
|
Net Worth (personal) |
Total Assets − Total Liabilities |
The Three Core Financial Statements
- Income Statement (Profit & Loss): shows revenue, expenses, and net income over a period of time — this month, this quarter, this year.
- Balance Sheet: a snapshot of assets, liabilities, and equity at a single point in time.
- Cash Flow Statement: tracks actual cash moving in and out, broken into operating, investing, and financing activities.
Together, these three answer three different questions: Are we profitable? What do we own and owe? And do we actually have the cash to cover it?
A Note for Quicken and QuickBooks Users
Quicken and QuickBooks calculate every one of these numbers for you automatically — but the output is only as good as the setup behind it. Categories that aren’t mapped correctly, accounts that aren’t reconciled, or transactions filed under the wrong type can quietly throw off your gross margin, your net worth, or your cash flow picture without any obvious error message.
Want These Numbers Set Up Right the First Time?
If you’d rather have your Quicken or QuickBooks file set up, cleaned up, or reconciled by someone who knows exactly where these numbers come from, see our Quicken services or our QuickBooks services, or get in touch with questions.