Basic Accounting Terms

Accounting Terms For Business Owners

Accounting Terms

Entrepreneurs go into business with a variety of pre-existing skills. Some are natural salespeople, while others have the ability to come up with ideas that sell themselves. But while there may be a handful of entrepreneurs who are truly financially savvy, the majority cringe at the thought of preparing financial statements and managing the books of their small business.

Business owners who struggle with finances should definitely hire an accountant, or utilize accounting software to make things easier. However, while it may be wisest to depend on expert help when it comes to the nitty gritty, it’s still important to have at least a basic understanding of the inner workings of your company’s finances.

As such, there are some basic financial terms every entrepreneur should know as their business grows. These terms may come up in meetings with potential investors, partners, and clients, so it’s important to be aware of them and to understand how they might affect your business.

Here are 10 essential finance terms every entrepreneur needs to know.

1. Assets

First on the list of financial terms, assets are the economic resources a business has. In a broad sense, assets include everything your company owns that has some economic value. These are generally broken down into six different types of assets.

Current assets

In this asset class, you would include things that can be easily converted into cash. Examples of assets in this category include stock holdings, inventory, short-term investments, marketable securities, fixed deposits, the balance in your business’s checking and savings accounts, bills receivable, and prepaid expenses. Because this type of asset can be quickly turned into cash, it’s also often termed “liquid assets.”

Fixed assets

Also known as long-term assets or non-current assets, these are things that are of a fixed nature because they cannot be easily converted into cash and often require complex procedures and a significant amount of time before you can have their cash value in hand. For instance, fixed assets would encompass things like land, real estate, machinery and equipment, and furniture.

Tangible assets

As the name implies, tangible assets are those assets that you can see and touch. This can include items that may also be referred to as current or fixed assets. For instance, cash — a current asset — is a tangible asset because it’s something you can physically touch. Most fixed assets are also tangible assets for the same reason. Land, real estate, machinery, equipment, and furniture are, after all, things you can see and touch.

Intangible assets

These are the opposite of tangible assets, and include any assets that are, well, not tangible. Examples of intangible assets include things like franchise agreements, patents, brands, trademarks, and copyrights.

Although these things might not seem like they provide any economic benefit upon first consideration, business owners can reap monetary rewards from their use. For instance, a company’s trademark or brand can aid in the market and sale of its products. If you’ve ever bought an item strictly because of its brand, that company converted its intangible asset — its brand — into sales revenue.

Operating assets

These assets are those that are required for a business to complete its day-to-day functions. In other words, these are things that a company uses to produce its product or service and can include fixed and current assets, as well as tangible and intangible assets. Some of the most common items included in this category are cash, a company’s bank balance, inventory, and operating machinery.

Non-operating assets

Finally, non-operating assets are those that are not critical for a company to provide its product or service, but which are nevertheless essential to establish and run a business. For example, many intangible assets fall into this category, such as brands, trademarks, and patents.

2. Liabilities

If assets are the resources your company owns that contribute to its economic value, liabilities are its exact opposite. In fact, liabilities are just that — things your company is responsible for by law, especially debts or financial obligations.

For example, any debt accrued by a business in the course of starting, growing, and maintaining its operations is a liability. This could include bank loans, credit card debts, and monies owed to vendors and product manufacturers.

Liabilities, like assets, can be divided into subcategories. The two primary types of liabilities are often referred to as current liabilities and non-current liabilities.

Current liabilities

This type of liability refers to immediate debts that must be repaid within one year. For example, money owed to suppliers or vendors would be a current liability.

Non-current liabilities

Also referred to as long-term liabilities, this category encompasses debts or obligations that your company must repay in over a year’s time. For example, non-current liabilities would include things like business loans, deferred tax liabilities, mortgages, and leases.

Balance sheet

Bringing the two above terms together, we arrive at your company’s balance sheet. This document subtracts your company’s total liabilities from its total assets in order to arrive at your company’s net worth.

Again, assets would include the current and fixed assets your company has on hand. Meanwhile, liabilities would include outstanding debts or obligations. By subtracting what you owe from what you own, you can determine your company’s net worth, and arrive at a comprehensive snapshot of the company’s financial situation at a given moment.

4. Expenses

According to Section 162 of the Internal Revenue Code (IRC), business expenses are any cost that is “ordinary and necessary” to run a business or trade. These expenses are the costs your company incurs each month in order to operate, and include things like rent, utilities, legal costs, employee salaries, contractor pay, and marketing and advertising costs. To remain financially solid, businesses are often encouraged to keep expenses as low as possible.

5. Accounts receivable

Accounts receivable (A/R) is the amount that clients owe to a business. Usually the business notifies the client by invoice of the amount owed, and if not paid, the debt is legally enforceable. On a business’s balance sheet, accounts receivable is logged as an asset.

6. Cash flow

Your cash flow is the overall movement of funds through your business each month, including income and expenses. For instance, cash flows into your business from clients and customers who purchase your goods or services directly, or through the collection of debts in the form of accounts receivable. On the other hand, cash flows out of your business to pay expenses like rent, utilities, taxes, and accounts payable.

7. Cash flow statement

Businesses track general cash flow in a cash flow statement to determine long-term solvency, or their ability to pay their bills. A cash flow statement shows the money that entered and exited a business during a specific period of time, and helps determine whether a company is solvent or insolvent — meaning whether it can pay its bills or not.

Similar to your personal checking account, if more money is coming in than going out, your company is considered cash flow positive. On the other hand, if you have more money going out than coming in, your company might need to cover any cash flow shortage with a loan or line of credit.

8. Profit and loss

To remain financially healthy, a business must regularly generate more revenue from the sale of its product or service than it costs to make that product or service. Say it costs a company $2 to make a T-shirt, but that company sells the T-shirt for $10. In this case, the company’s profit is $8. On the other hand, a loss is money that a company, well, loses. For instance, if a T-shirt is stolen or destroyed and can no longer be sold, it would be counted as a loss.

9. Income statement

The income statement is where you analyze your company’s profits and losses. As such, it should come as no surprise that the income statement is also commonly referred to as the “profit and loss statement.”

This document summarizes the profits and losses incurred during a specified period, which is usually a fiscal quarter or a full calendar year. As such, it provides important information about your company’s ability to generate profit by increasing its revenue, decreasing its losses, or a combination of both.

10. Net profit

In accounting jargon, your net profit might also be referred to as net income or net earnings. And because it’s usually found on the last line of a company’s income statement, it’s often also called the bottom line.

But just what is it? Well, this is the total amount a business has earned or lost at the end of a specified accounting period, usually a month.

To determine your net profit, you would subtract all your business expenses from your total sales revenue in order to determine just how much money your company has earned above and beyond the cost of producing and selling your product or service. Net profit is usually used to determine whether a business’s earnings are increasing or decreasing.

Putting it all together

As an entrepreneur or small business owner, you likely didn’t choose to run your own company solely for the joy of creating and analyzing financial statements. The good news is, there are accountants and special tools available to help you manage your books. However, even if small business accounting isn’t your first love, that doesn’t mean you should ignore it entirely.

It’s important to know at least a few basic financial terms so that you have a grasp on how your company is faring financially. Additionally, being at least a bit financially savvy is always helpful when discussing your company’s past and future growth with colleagues, potential clients, and investors.

By maintaining some oversight of your company’s operations through financial reports and budget maintenance, you can increase its chances of success — and continue doing what you set out to do in the first place: grow your business.

Types of Audits in UAE

types of audit

Types of Audit Engagements

Audit is an appraisal activity undertaken by an independent practitioner (e.g. an external auditor) to provide assurance to a principal (e.g. shareholders) over a subject matter (e.g. financial statements) which is the primary responsibility of another person (e.g. directors) against a given criteria or framework (e.g. IFRS and GAAP).

Main types of audit engagements
and services include:

External Audit

External audit, also known as financial audit and statutory audit, involves the examination of the truth and fairness of the financial statements of an entity by an external auditor who is independent of the organization in accordance with a reporting framework such as the IFRS. Company law in most jurisdictions requires external audit on annual basis for companies above a certain size.

The need for an external audit primarily stems from the separation of ownership and control in large companies in which shareholders nominate directors to run the affairs of the company on their behalf. As the directors report on the financial performance and position of the company, shareholders need assurance over the accuracy of the financial statements before placing any reliance on them. External audit provides reasonable assurance to the owners of the company that the financial statements, as reported by the directors, are free from material misstatements.

External auditors are required to comply with professional auditing standards such as the International Standards on Auditing and ethical guidelines such as those issued by IFAC in order to maintain a level of quality and trust of all stakeholders in the auditing exercise.

Internal Audit

Internal audit, also referred as operational audit, is a voluntary appraisal activity undertaken by an organization to provide assurance over the effectiveness of internal controls, risk management and governance to facilitate the achievement of organizational objectives. Internal audit is performed by employees of the organization who report to the audit committee of the board of directors as opposed to external audit which is carried out by professionals independent of the organization and who report to the shareholders via audit report.

Unlike external audit, whose scope is primarily restricted to matters that concern the financial statements, the scope of work of an internal audit is very broad and can encompass any matters which can affect the achievement of organizational objectives. Internal audit is typically centered around certain key activities which include:

  • Monitoring the effectiveness of internal controls and proposing improvements
  • Investigating instances of fraud and theft
  • Monitoring compliance with laws and regulations
  • Reviewing and verifying where necessary the financial and operating information
  • Evaluating risk management policies and procedures of the company
  • Examining the effectiveness, efficiency and economy of operations and processes

Forensic Audit

Forensic Audit involves the use of auditing and investigative skills to situations that may involve legal implications. Forensic audits may be required in the following instances:

  • Fraud investigations involving misappropriation of funds, money laundering, tax evasion and insider trading
  • Quantification of loss in case of insurance claims
  • Determination of the profit share of business partners in case of a dispute
  • Determination of claims of professional negligence relating to the accountancy profession

Findings of a forensic audit could be used in the court of law as expert opinion on financial matters.

Public Sector

State owned companies and institutions are required by law in several jurisdictions to have their affairs examined by a public sector auditor. In many countries, public sector audits are conducted under the supervision of the auditor general which is an institute responsible for strengthening public sector accountability and governance and promoting transparency.

Public sector audit involves the scrutiny of the financial affairs of the state owned enterprises to assess whether they have been operated in way which is in the best interest of the public and whether standard procedures have been followed to comply with the requirements in place to promote transparency and good governance (e.g. public sector procurement rules). Public sector audit therefore goes a step further than the financial audit of private organizations which primarily focuses on the reliability of financial statements

Audits of public sector companies are becoming increasingly concerned with the efficiency, effectiveness and economy of resources used in state organizations which has given way for the development of value for money audits.


Tax audits are conducted to assess the accuracy of the tax returns filed by a company and are therefore used to determine the amount of any over or under assessment of tax liability towards the tax authorities.

In some jurisdictions, companies above a certain size are required to have tax audits after regular intervals while in other jurisdictions random companies are selected for tax audits through the operation of a balloting system.

Information System

Information system audit involves the assessment of the controls relevant to the IT infrastructure within an organization. Information system audits may be performed as part of the internal control assessment during internal or external audit.

Information system audit generally comprises of the evaluation of the following aspects of information system:

  • Design and internal controls of the system
  • Information security and privacy
  • Operational effectiveness and efficiency
  • Information processing and data integrity
  • System development standards


In many countries, companies are required to conduct specific audit engagements other than the statutory audit to comply with the requirements of particular laws and regulations. Examples of such audits include:

  • Verification of reserves available for distribution to shareholders before the declaration of interim dividend
  • Audit of the statement of assets and liabilities submitted by a company at the time of liquidation
  • Performance of cost audit of manufacturing companies to verify the cost of production in order for a regulator to determine the maximum price to be allowed after allowing a reasonable profit margin to companies operating in a sensitive sector (e.g. pharmaceuticals industry)

Value For Money

Value for money audits involves the assessment of the efficiency, effectiveness and economy of an organization’s use of resources.

Value for money audits are increasingly relevant to sectors which do not have profit as their main objective such as the public sector and charities. They are usually performed as part of internal audit or public sector audit.

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Alya Al Marzooqi Auditing Chartered Accountants is the one. Leading CA Firms in Dubai,With its head office at Business Bay & a branch in SAIF Zone.Approved in all the major free zones including DMCC,SAIF,JAFZA,DWC,Maydan etc providing professional services in the field of Auditing , Accounting ,VAT Consultation , Company Formation & CFO services etc. For More Details Contact Us @ Tel : +971 4 876 9377, Mob: +971 52 975 0690, +971 52 475 4007

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Audit engagement Letter in UAE,Dubai

Audit Engagement Letter in Dubai

Auditor Appointment /Audit Engagement Letter in UAE,Dubai

An audit engagement is an arrangement that an auditor has with a client to perform an audit of the client’s accounting records and financial statements. The term usually applies to the contractual arrangement between the two parties, rather than the full set of auditing tasks that the auditor will perform. To create an engagement, the two parties meet to discuss the services needed by the client. The parties then agree on the services to be provided, along with a price and the period during which the audit will be conducted. This information is stated in an engagement letter, which is prepared by the auditor and sent to the client. If the client agrees with the terms of the letter, a person authorized to do so signs the letter and returns a copy to the auditor. By doing so, the parties indicate that an audit engagement has been initiated. This letter is useful for setting the expectations of both parties to the arrangement.

The term may also indicate all of the work performed by an auditor for a client under the terms of an engagement letter. In this case, an audit engagement spans the full range of audit procedures that may be used, including the examination of the client’s financial statements and the preparation of an audit report.

The engagement letter should cover:

  • the purpose of the engagement;
  • specifically what the CPA “will and won’t do” (the scope);
  • client instructions and responsibilities;
  • reliance on facts the client gives the CPA;
  • known adverse or negative conditions or circumstances;
  • billing rates and estimates;
  • request for the client’s signature; and
  • instructions to return the signed engagement letter.

In addition, engagement letters can include:

  • warnings about inadequate internal control;
  • limitations on distribution of financial statements (what the client intends to do with them);
  • arbitration clause; and
  • record retention policy.

Searching For the best Auditors in UAE ?

Alya Al Marzooqi Auditing Chartered Accountants is the one. Leading CA Firms in Dubai,With its head office at Business Bay & a branch in SAIF Zone.Approved in all the major free zones including DMCC,SAIF,JAFZA,DWC,Maydan etc providing professional services in the field of Auditing , Accounting ,VAT Consultation , Company Formation & CFO services etc. For More Details Contact Us @ Tel : +971 4 876 9377, Mob: +971 52 975 0690, +971 52 475 4007

Alya Auditors assists the registered companies to furnish the annual financial statements . For more information visit us @

How to read an audit report

understanding audit-report-
A better understanding of audit reports will lead to better economic decisions, giving the reader the benefit of an independent opinion on a company’s financial statements.

Imagine wading through pages of information to understand a company’s financial position – and without any knowledge of the nuances of financial reporting! The independent auditor’s report is here to help understand financial statements better. It summarises the scope of the audit, the management and auditors’ responsibilities, and the true and fair view of financial statements to name a few.

Before looking at an audit report, readers should be aware of certain myths associated with it and its inherent limitations.

It is believed that an audit is a guarantee for the management’s efficiency in running the company’s affairs. It is also seen as a guarantee for the company’s future viability. Another common myth is that an unqualified opinion means the company has sound financial health. Further, many people think the objective of an audit is to detect fraud and error, and that it includes commenting on the company’s policy decisions and use of resources. Many also think the auditor decides the accounting policies of the company and prepares its financial statements.

However, the reality is different and there are inherent limitations. For instance, audits are designed to provide only reasonable assurance, not absolute assurance. Examining all the company’s transactions is neither practical nor possible. Moreover, the audit opinion is based on the collected evidence for the amounts and disclosures in the financial statements. Much of the audit evidence is persuasive rather than conclusive in nature. Also, unless the examination reveals evidence of fraud, the auditor is entitled to accept the representations as truthful, and the records and documents as genuine. Further, the auditor’s opinion is based on audit evidence obtained and the existence of an effective internal control system. Undetected factors could result in misstatement.

Readers must pay special attention to certain elements in an audit report, namely the introductory paragraph — especially the managements’ and auditors’ responsibilities, scope paragraph and opinion paragraph.

Management’s responsibility

Contrary to popular perception, only the company’s management is responsible for preparing and presenting its financial statements. This includes selecting accounting policies, exercising judgement in the use of estimates, and preparation and presentation of the financial statements according to the relevant reporting framework. The management is also responsible for designing, implementing and maintaining internal control. It has to ensure that the financial statements give a true and fair view in accordance with the financial reporting framework.

As auditors cannot provide absolute assurance on the financial statements, they plan and perform the audit to obtain reasonable assurance that there is no material misstatement. For this they examine, on a test basis, the evidence supporting the amounts and disclosures in the financial statements.

An auditor also assesses the accounting principles used, the significant estimates made and the management’s overall presentation of the financial statements. The evidence for the amounts and disclosures in the financial statements is the basis for the audito’s opinion.

Auditing standards

The auditing standards issued by the Institute of Chartered Accountants of India contain basic principles, essential procedures and related guidance for carrying out an audit. Departure from these requirements is allowed only under certain circumstances.

Opinion paragraph

An unqualified audit opinion is an independent reasonable assurance that the financial statements give a true and fair view in conformity with the relevant financial reporting framework.

The auditor may modify the report for the effects, or possible effects of

any misstatement that is either material or pervasive or both; or

the auditor’s inability to obtain sufficient and appropriate audit evidence, which could lead to misstatement that is material or pervasive or both.

A better understanding of audit reports will lead to better economic decisions, with the reader ultimately reaping the benefit of an independent opinion on a company’s financial statements.

ALYA Al Marzooqi Auditing Chartered Accountants(Alya Auditors) as one of the best audit firms in the UAE. They analyze the company structure, working and financial statement; prepare a report and share with the management team. Also, they ask us to make tweaks in the working process so as to reduce risks. Along with this, they organize periodic auditing in the UAE so as to analyze the functioning in more depth.

They have an experienced team of accountants in the UAE who works with you and your management team so as to reduce the chances of error. Moreover, the audit report issued comprises of findings, recommendations, areas of improvement and future action areas.

I would definitely advise the people living in the UAE to consider ALYA UAE for best accounting in the UAE.

Searching For Professional Audit Firms in Dubai ?

Alya Al Marzooqi Auditing Chartered Accountants is the one. Leading CA Firms in Dubai,With its head office at Business Bay & a branch in SAIF Zone.Approved in all the major free zones including DMCC,SAIF,JAFZA,DWC,Maydan etc providing professional services in the field of Auditing , Accounting ,VAT Consultation , Company Formation & CFO services etc. For More Details Contact Us @ Tel : +971 4 876 9377, Mob: +971 52 975 0690, +971 52 475 4007

Alya Auditors assists the registered companies to furnish the annual financial statements . For more information visit us @

Accounting & its characteristic features

accounting_ firms in dubai

Accounting and its Features

Accounting is the process in which business transactions are recorded systematically in the various books of accounts maintained by the organization in order to prepare financial statements. These financial statements are basically of two types: First is Profitability Statement or Profit and Loss Account and second is Balance Sheet.

Following are the characteristics features of Financial Accounting:

1) Monetary Transactions:
In financial accounting only transactions in monetary terms are considered. Transactions not expressed in monetary terms do not find any place in financial accounting, howsoever important they may be from business point of view.

2) Historical Nature:
Financial accounting considers only those transactions which are of historical nature i.e the transaction which have already taken place. No futuristic transactions find any place in financial accounting, howsoever important they may be from business point of view.

3) Legal Requirement:
Financial accounting is a legal requirement. It is necessary to maintain the financial accounting and prepare financial statements there from. It is also obligatory to get these financial statements audited.

4) External Use:
Financial accounting is for those people who are not part of decision making process regarding the organization like investors, customers, suppliers, financial institutions etc. Thus, it is for external use.

5) Disclosure of Financial Status:
It discloses the financial status and financial performance of the business as a whole.

6) Interim Reports:
Financial statements which are based on financial accounting are interim reports and cannot be the final ones.

7) Financial Accounting Process:
The process of financial accounting gets affected due to the different accounting policies followed by the accountants. These accounting policies differ mainly in two areas: Valuation of inventory and Calculation of depreciation.

Get Professional Help

One cannot hope to continue business for very long without using basic accounting and bookkeeping. If you are starting with your company, it may be possible for you that you do all the accounting and bookkeeping yourself, but as your company shall  grow, the need for proper and professional accounting will gradually increase.

Thus it is advisable that you should hire an excellent team of accountants. It is entirely understandable that a start-up will not have enough funds to hire an accountant and in such a case, they can hire a part-time accountant who would suit the needs of the company and also keep the finances in check.

“ALYA” is one of the reputed chartered accountant firms in Dubai which will understand your business needs and will provide you with financial advice accordingly. At “ALYA”, we strive to help you by providing accounting and bookkeeping services, both traditional in-house accounting and outsourced accounting and also offer solutions for your business. For more information, do contact us today – we’d be happy to help.

How can ALYA Auditors Chartered Accountants help to take the Role of Accounting in business?

The vast expansion of businesses in the UAE has been taking place at a rapid pace and the legal requirement to maintain proper books of accounts make the Role of Accounting in Business more competent. To keep up with this rapid pace of expansion of your businesses in the UAE, it is sometimes difficult to manage the accounting activities of their businesses on their own especially for SMEs. Hence, to take up the role of accounting in business and serving the business in UAE, we provide the below Accounting Services in the UAE


Audit Report


An audit results in a report which gives an ‘audit opinion’ about whether the financial statements give a ‘true and fair’ view of the state of affairs of the organisation and operations for the period.

  • ‘True’ means that the transaction did take place and that an asset exists.
  • ‘Fair’ means that a transaction is fairly valued and that assets and liabilities are fairly stated.

If the auditors do not agree that the accounts give a true and fair view, they can give a variety of other opinions…

 Auditor OpinionComment
1Unqualified‘The accounts give a true and fair view’The opinion everyone wants to see
2Qualified – disagreementExcept for the effects of …., the accounts give a true and fair view’There are specific misstatements, such as an incorrect accounting policy, debtors which are not recoverable, an undisclosed fraud or insider loan.
3Qualified – limited scopeExcept for the possible effects of …., the accounts give a true and fair viewThere are specific issues which are uncertain, such as particular documents not being available for review, an internal control flaw that could result in income not being recorded.
4Adverse‘These accounts do not give a true and fair view’There are so many misstatements in the accounts that they are overall wrong.
5Disclaimer‘We are not able to express an opinion’There are so many missing documents or explanations that we do not have enough information to form an opinion.

The auditor may only sign his report, after the Board has signed and approved the financial statements.

Audit Firms in Dubai

Alya Almarzooqi Auditing is a dynamic & innovative medium sized firm (leading chartered accountants firm) lead by a team of professionals and  with a staff compliment of more than 15 , listed in DMCC  and approved by all the major free zones including DWC,JAFZA,Maydan etc.with the head office at Business Bay and a branch at SAIF . A network of national offices provides clients with value-added services focused on business improvement and growth within specialist sectors.

Alya Almarzooqi’s diversity of professional skills, resources and experience can be leveraged across a wide range of client engagement situations.