22 Basic Accounting Terms to Know for a Small Business Success
Why accounting terms matter
Running a business in Brisbane means juggling sales, staff, suppliers, the ATO and cash flow and every one of these shows up in your numbers. When owners do not understand basic accounting terms, they often confuse profit with cash, miss tax deadlines, or make decisions based on gut feel rather than facts.
With a working knowledge of basic accounting terms, you can:
- Spot cash flow problems before they become a crisis.
- Talk confidently with your accountant, lender or advisor.
- Stay compliant with ATO reporting and record-keeping rules.
Core financial statements to know
Every Brisbane SME should understand three core reports: the Profit and Loss Statement, the Balance Sheet, and the Cash Flow Statement.
Profit and Loss statement (P&L)
A Profit and Loss statement shows your income, expenses and profit within a period, for example, a month or financial year. It helps you see whether your business model is actually profitable, not just busy.
Key questions it answers:
- Are sales growing or flat?
- Are expenses creeping up?
- Is gross profit high enough to cover overheads?
Balance Sheet
The Balance Sheet is a snapshot of what your business owns and owes at a point in time. It lists assets (cash, stock, equipment), liabilities (loans, credit cards, ATO debts) and owner’s equity.
Why it matters for small businesses:
- Shows whether the business is solvent.
- Helps banks and investors evaluate financial condition.
Cash Flow Statement
A Cash Flow Statement shows how cash moves in and out of your business, grouped into operating, investing and financing activities. Unlike the P&L, it focuses purely on cash, not invoices raised or bills entered.
For Brisbane SMEs, healthy cash flow is often more critical for survival than reported profit. It helps you plan for BAS payments, wages and supplier bills without nasty surprises.
Basic accounting terms explained simply
Revenue and income
Revenue is the total amount your business earns from sales before any expenses are deducted. Profit, on the other hand, is what remains after costs are deducted. For example, a tradie might invoice $200,000 in revenue but have much lower profit after materials, wages and overheads.
Grasping this difference stops owners from spending “revenue” that is already needed for business expenses and taxes.
Expenses: fixed and variable
Expenses are the costs you incur to run the business, such as rent, software, wages and fuel.
- Fixed expenses stay relatively stable (e.g. rent, insurance).
- Variable expenses change with sales volume (e.g. materials, freight).
- Knowing which costs are fixed versus variable helps determine prices and plan for slower seasons.
Gross profit and net profit
Gross profit = Revenue – Cost of Goods Sold (COGS). For product-based businesses, COGS includes items such as stock, freight, and direct labour. Strong gross profit margins give you room to pay overheads and still make a return.
Net profit is what remains after all expenses, including overheads, interest and tax. This is the figure that ultimately impacts your ability to reinvest, pay dividends or build reserves.
Cost of Goods Sold (COGS)
COGS is the direct cost of producing what you sell. For a cafe, it is food and drink inputs. For a tradie, it is the materials used on jobs. For a consultant, it may be minimal or nil.
Cash flow and working capital terms
Cash flow
Cash flow refers to the net amount of cash moving in and out of the business.
Positive cash flow means more cash is coming in than going out.
Negative cash flow means outgoings are higher than incoming cash.
Even profitable Brisbane firms can fail if cash flow is consistently negative and there is not enough buffer for BAS, super or wages.
Working capital
Working capital is current assets minus current liabilities. In practical terms, it is the money available to cover day-to-day operations, such as paying suppliers, staff, and the ATO. Low or negative working capital can signal cash pressure and may limit growth. Working capital is the short-term capacity to operate.
Accounts receivable (AR) and accounts payable (AP)
Accounts Receivable (AR) are customer invoices you have issued but have not yet been paid for.
Accounts Payable (AP) are bills from suppliers that you owe but have not yet paid.
Tightening AR (e.g., clearer terms, follow-up processes) and managing AP (e.g., planned payment cycles) are simple levers to improve small-business cash flow.
Tax and compliance terms SMEs should know
Australian small businesses must meet several tax and reporting obligations.
Key terms include:
GST: Goods and Services Tax, generally 10% on most sales and purchases, reported on your Business Activity Statement (BAS).
- The ATO explains GST obligations here: GST.
BAS: is how many businesses report GST and other amounts. It can also include PAYG withholding and other items.
- If you want the official BAS overview: BAS
PAYG: Pay As You Go withholding and instalments for employees and, in some cases, business income.
- The ATO guide is here: PAYG instalments
Tax deductions: A tax deduction is a business cost you can claim. However, the expense must relate to earning income. Legitimate business expenses that decrease taxable income, such as training, motor vehicle costs and bank fees. Also, records matter, because claims must be supported.
- For record-keeping obligations, see the ATO guidance on keeping records for your business.
The ATO requires businesses to keep proper records for at least five years to support income, expenses and BAS reporting. Good records support claims for deductions and reduce the risk of penalties or audits.
Accounting methods and bookkeeping basics
Cash vs accrual accounting
- Cash accounting recognises income when you are paid and expenses when you pay them.
- Accrual accounting recognises income when you issue an invoice and expenses when a bill is received, regardless of when cash moves.
Many smaller Brisbane businesses start on cash accounting because it aligns with cash flow, while growing SMEs often move to accrual to get a clearer picture of performance.
Depreciation and reconciliation
Depreciation spreads the cost of assets such as vehicles, equipment, and fit-outs over their useful lives, rather than expensing them all at once. Reconciliation is the process of comparing your accounting records to bank statements to ensure all transactions are captured and correctly coded.
Regular reconciliations are a core part of small business accounting basics and help catch inaccuracies at the outset.
When to seek professional support?
While learning basic accounting knowledge for SMEs is powerful, you do not need to do everything yourself. A registered tax or BAS agent can help with BAS, tax returns, payroll and structuring while you focus on running the business.
Acctivate Business Accountants in Brisbane work with local SMEs to turn financial data into practical advice from cash flow planning to tax strategy and software setup. If you are ready to feel more confident with your numbers, consider booking a chat with the Acctivate team.
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