The Language of Accounting

Welcome to today’s episode of I Hate Numbers.   Today we’re going to have a peek at some of the language that Accounts, and Finance people use.  It can be an alien language if you are a stranger in the Number’s world.  I am learning the ropes of podcasting, and enjoying the experience and sharing the world of Numbers with you

Buzzwords and Jargon

Buzzwords and Jargon are useful shortcut words.  Let’s be honest, all businesses have them.  However, if we don’t understand the buzzwords, we may miss a trick, become disconnected from the power of numbers, and would rather watch paint dry.  Let me share something with you, once you get to decipher the language, a whole new world of possibility opens.

Financial Statements

In our business, a whole bunch of things are going on which have a financial impact.  Things are bought and sold, money comes into the bank, money leaves the bank, we buy things we don’t want to sell, we borrow money to make it happen.

Through the magic of Numbers filing, all this is put into categories and labelled.  Once we have organized and labelled our Numbers then we can produce Financial Statements.

So, what, you might be thinking?  I can see that, but there is a point.

Personal Connection

I’ll walk through examples of things we engage in in our daily lives and then connect them into the world of business.  I’ll talk you through a story that looks at how much we are worth in financial terms and connect that to your business.

Balance Sheet

What are these?  Why do they matter, and what jargon and buzzwords are used to build this inhabit this statement?

The balance sheets is a mix of your business assets and business debt.  If you not sure what these are, it doesn’t matter I’ll take you through this.  I’ll even a few more buzzwords in, my Numbers language translator was switched on

In This Episode

• What’s a Balance Sheet and Why does it matter
• 
  
• The link between your wealth and your Business Balance Sheet
• 
  
• Buzzwords converted into normal speak
• 
  
• Build your Numbers confidence
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• Realise you know more than you think
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• Take more control of your numbers to help make money

Links

https://podcasts.apple.com/podcast/proactiveresolutionss-podcast/id1500471288

https://play.google.com/music/m/I3pvpztpjvjw6yrw2kctmtyckam?t=I_Hate_Numbers

https://open.spotify.com/show/5lKjqgbYaxnIAoTeK0zins

https://www.stitcher.com/podcast/proactiveresolutionss-podcast

https://tunein.com/podcasts/Business--Economics-Podcasts/I-Hate-Numbers-p1298505/

You are listening to the I Hate Numbers Podcast with Mahmood Reza. The I Hate Numbers podcast mission is to help your business survive and thrive by you better understanding and connecting with your numbers. Number love and care is what it's about. Tune in every week. Now, here's your host, Mahmood Reza.

Hi, folks. I'm Mahmood. Hope you had a brilliant week and welcome to episode number four of I Hate Numbers. Now, today what I'm going to talk to you guys about is about the old wonderful thing that makes us, uh, lose the will to live. The eyes mist over every time we talk with finance people and ask the jargon and the buzzwords that float around.

There's probably good reasons why those jargon and buzzwords float in the minds and the mouths of accounting people, and we'll deal with that at the end of this podcast. Now, I was thinking about this topic because every time I speak to my IT team - love them, they're brilliant at what they do,

they're really technically proficient - but every time I ask for an explanation, every time I ask them to comment on something, those buzzwords come out and I'm thinking, let me just get a pencil. Let me stab my eyes out. Let me effectively run away from here. And I think I'm going to go off and watch paint dry.

And I've come across loads of situations over the years where people are engaged in those conversations and they have the same reaction when they talk to accountants and finance people. So, we're going to talk today about buzzwords and jargon, where we're going to have a drill-down in terms of statements that financial people produce, and we're going to try and strip that official language down into something that's more Englishified and something that's more comprehensible.

Now, the way we're going to look at this today is I'm going to walk you through an example of something that you gained within your sort of regular life away from your business, and then we're going to take that illustration and we're going to then merge it in the world of your business. Now, here's the scenario that I'd like you to think in terms of. So, we're going to talk you through that.

I suddenly decide that I want to take a sabbatical for a 12-month period. I'm going to go and walk about. I'm going to go and explore those places I've never had the chance to do before. And a lot of you may be thinking along the same lines. So, as we sit down at our kitchen table, we are thinking, right, where on Earth are we going to get all this money from?

So, we have a look around, we have a thing, we scratch our heads, and we think about anything that we own in the world that's got some degree of value to it i.e. when we sell it, we can get some money for it. So, we can look at our house, the furniture in that house. We can look at consumables, our phones, all that sort of things

together. We can sell that and that'll bring some money in. Now, because we're all very decent people, honorable people, we're not going to leave to go on this walk-about without settling and paying off any debt that we have. Typically, when it comes to considering things like money that we owe, I always find that this list is much easier to compile than the list of the items that we have that have a value.

So, typical debts that you may have would be mortgages, would be loans, would be higher-purchase or finance agreements. So, if you've got a fancy car, then you may not have had the cash to pay for it completely, and you, therefore, have got some degree of finance. There's obviously credit cards that you might have and effectively any money that you borrow from friends and family.

Now, if we look at those and we scribble those down on a piece of paper, And we think, right, how much is my house? How much is my furniture? How much all my jewelry, my fixtures, my fittings, all my computer equipment worth? This is the value of those items. If I look at the other side of the coin and the other side of the seesaw, if you prefer, and add up all the value of the debt, fingers crossed the items of value

far exceed the items that represent the debt. Perfect. If it does on paper, you are worth something. That in reality is the same as it would be for a business. Now, believe it or not, everybody, what you've just put together, what we've just talked through, is effectively what business people call a balance sheet.

Now, let's take that same idea and let's turn that into the world of your business. Now, if your business is a business that sells things like products, so you might manufacture them, you might be a retailer that buys in those products, sells them onto somebody, you are going to have within your business, if you are a maker of things, you're going to have PCs.

They can keep records, communicate with your customers. You might have a car. You might own your own building. If you are a different sort of business there as well. So, if you're a service business, so you do consulting work, you own workshops, you do training courses. You might be a marketing business. Whatever it is that you do,

all of us and all of your businesses will have these items, some of them, or all of them in your business. So, PCs, vehicles, and you may also have a situation, so that we mentioned our podcast last week, is the idea that you may do work for people and you give them some time before they pay their bill i.e. customers who owe you money. That is your side of the coin, your side of the seesaw of items that equal value i.e. money for your business.

Now, unfortunately, there's debt that typically builds up in any business. So, your business, you may have money that's owed to the banks for loans. If you've got your own building that you own, you may have a mortgage that's outstanding on that building. If you are buying things from your suppliers, so those people who provide the items for you to sell onto your customers, they may cut you some slack and give you some time before they get paid.

So, those are your suppliers that you owe money to. Same idea. If we toss up the value of those PCs, those customers who haven't yet paid their bills, the value of any machinery, equipment, any vehicles that you've got, any cars that you're using in your business. Give it a number. Let's be really crazy and call that X.

We look at the other side of the coin, the other side of the seesaw. We tot up how much money is owed on loans, mortgages, money owed to the suppliers. Try not to get too depressed at this stage. Give that a total, and let's be really crazy and call that Y. Now, if you put X and Y on a seesaw, if the value of your machinery, cars, et cetera, are more than the debt, tick box, and your business is worth something to you.

Now, let's actually revisit that and actually drill some jargon out of those items itself. Now, in the world of finance and accounts, the statement that you've just produced is called a balance sheet. Why it's called a balance sheet is because when you top up one set of numbers i.e. all the money that's on value, take off the debt,

that's how much your business is worth. The balance is the worth of the business. Now, within that, there are certain items that we've talked about that let's now overlay some official terminology. So, pin your earlobes back. Now, within that list that we had of items that had a value, the big umbrella term is assets.

So, when you hear that word assets, assets means something that has a value attached to it. Now, we don't just stop there. If there's anything that finance and accounts people love to do is they like to organise words and language into boxes, into categories. It has a purpose. So, within the list that we've had, and let's visualise one of my favorite industries here, apart from obviously the world of accounting, is in terms if you run a business that delivers or serves food to customers i.e. the hospitality industry, more specifically a restaurant. Now, within that restaurant environment, I need cookers.

I need ovens. I need fridges to store the ingredients. I need a counter. I need a work surface. I also need tables and chairs for customers to sit at, otherwise it's going to be very uncomfortable. I also need lighting. There's going to be some scenery around me. So, that's my restaurant kitted out and all those items, we call them assets, but I'm actually now going to add an extra label to that and I'm going to add the label fixed.

And all those items are generically called fixed assets. And they're called fixed, not because they're bolted to the floor, but because when I'm going to go out and buy those items, my intention is to hang onto those because those are the things that are going to help make money. Now, if I move across and think about a different sector, so if I ran an airline company, my assets that are fixed particularly would be the plane.

The plane that I use to transport customers, my passengers, or cargo. I might also have lots of computing equipment that I need to take the bookings from my customers. Against the other side, that airline company will also have debt, but we'll come to the debt, the depression bit in the moment. Let's dig into one more situation,

one more example. If I was a hospital, my assets that might be classified as fixed - let's think about that hospital - it typically would be the beds where patients go. It'll be all the x-ray equipment in the hospital. It would be all the operating theater equipment that will always be fixed assets. It's how I do what I do now.

We're not content with just with that snapshot - assets. The other bunch of items that we've not mentioned are what are called currents. Now, that's a strange word, if ever I heard one, and current in the world of the finance people means that ultimately it's going to be converted into cash. Now, we're quite relaxed in the world of accounts and finance, and current is typically anything that takes up to 12 months.

So, if I'm a retailer, the items I'm buying to sell onto a customer is an example of a current asset. If I sell things to people and I give them time to pay, those customer accounts would be an example of a current asset. Fingers crossed they turn back into cold hard cash that I can bank within a 12-month period.

So, we've got our assets, which are fixed, and we've also got our assets that are current. When we move on to looking at debt, debt typically comes under two umbrella headings. Now, there's some debt that is owed, that is short term or current, and that means that we've got less than 12 months to pay that money back to whoever we owe it to.

So, if you've got an overdraft, an overdraft is a current debt. If you've got items you bought from a supplier, so the goods that you're selling on, you might have hired some subcontractors who've invoiced you for their time, you've got some freelancers, you've got wages that you owe to your staff, a whole variety of these debts,

those are typically going to be paid back within 12 months. If not, you're going to have a big mess on your hands. And those are called current debts. The things like loans, HP agreements, mortgages, those are typically seen as long-term debts. Now, before we move those behind, let's now replace that word debt, which is a word I don't particularly like, but it exists in the accounting world,

is called liabilities. So, the official posh term for a debt is a liability. Now, before we go to the end of the podcast, it would be useful to revisit some of those items and let's throw a bit more jargon, a bit more language to describe those things that we've done already. So, we've talked about fixed assets. We've talked about machinery. We've talked about PCs. We've talked about property. We've talked about vehicles.

Now, within the other side of the coin, the current assets and our customers, the official terminology that accountants and finance people tend to use is either debtors or receivables. And receivables is the new kid on the block, because typically, most of us now work in an international environment and receivables is that new language.

Now, suppliers. The official term to describe a supplier i.e. somebody that we owe money to is either called accreditor or it's called a payable. Lastly, just to wrap up on the stock side of things, and when we talk about stock, we're talking about something that we buy, something that we wish to sell on to somebody.

Stock is also called inventory. Now, in next week's podcast, we are going to explore some more language, some more terminology, and let's get real here. The bottom line of any business of your business, my business, however big that business is, we want to make a difference. We want to do that because we don't necessarily want to go into the world of work.

But ultimately, if we want to make an impact, we've got to make money. And by money I mean making a profit. If you do not set your business out to make a profit, then you've got a full-time hobby on your hands and you'll never move past first gear. You'll never make that impact. You won't sustain it. It'll be a very depressing thing to do.

So, we've got to make profit at some point, and that's what we're going to explore next week. Thank you very much everybody, for sharing your earlobes today. Loved your company. If you've got some value out the show, give us some feedback. Share it with your friend. Faith in that. Have a fantastic week and I'll speak to you guys next week.

We hope you enjoyed this episode and appreciate you taking the time to listen to the show. We hope you got some value. If you did then we'd love it if you shared the episode. We look forward to you joining us next week for another I Hate Numbers episode.