Bookkeeping

Bookkeeping glossary

60 bookkeeping and accounting terms explained in plain English, each with a short example and links to the guides that go deeper.

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Accounts payable: Money your business owes to suppliers and vendors for bills it has received but not yet paid.
Accounts receivable: Money customers owe you for goods or services you have already delivered and invoiced.
Accrual basis accounting: A method that records income when it is earned and expenses when they are incurred, not when cash moves.
Accrued expense: A cost you have incurred but not yet paid or been billed for, recorded so the right period carries it.
Accumulated depreciation: The total depreciation recorded on an asset since you started using it, shown as a reduction of the asset's cost.
Aging report: A report that lists unpaid invoices or bills grouped by how long they have been outstanding.
Amortization: Spreading the cost of an intangible asset, or the repayment of a loan, over time.
Asset: Something the business owns or is owed that has value, such as cash, receivables, inventory or equipment.

Bad debt: A receivable you have decided you will not collect, written off as an expense.
Balance sheet: A report showing what a business owns, owes and the owner's stake on a specific date.
Bank reconciliation: Comparing your books to the bank statement so both agree after accounting for timing differences.
Bookkeeping: The ongoing recording and organizing of a business's financial transactions.

Capital contribution: Money or property an owner puts into a business in exchange for an ownership stake, not as a loan.
Cash basis accounting: A method that records income when you receive money and expenses when you pay them.
Cash flow: The movement of money into and out of a business over a period.
Chargeback: A reversal of a card payment forced by the cardholder's bank, usually after a dispute.
Chart of accounts: The list of accounts a business uses to sort its transactions.
Clearing account: A temporary account that holds money or entries until they are matched to the final destination.
Cost of goods sold (COGS): The direct cost of the products or services you sold during a period.
Credit memo: A document that reduces the amount a customer owes, usually for a return, error or discount.
Current assets: Assets expected to be turned into cash or used up within about a year.
Current liabilities: Debts and obligations due within about a year.
Cutoff: The date used to decide which period a transaction belongs to.

Debit and credit: The left and right sides of an accounting entry. Every entry has equal debits and credits.
Deferred revenue: Money received before you have earned it, recorded as a liability until you deliver.
Depreciation: Spreading the cost of a long-lived asset over its useful life as an expense.
Double-entry bookkeeping: A system where every transaction is recorded in at least two accounts so the books stay in balance.

Equity: The owner's stake in the business: what is left after liabilities are subtracted from assets.
Expense: A cost of running the business, subtracted from revenue to find profit.

Fixed asset: A long-lived item the business uses, such as equipment, vehicles or buildings.
Form 1099-NEC: An IRS information return reporting payments to non-employee contractors above a threshold.
Form W-9: The form a contractor gives you with their name, tax classification and taxpayer ID before you pay them.

General ledger: The complete record of every account and transaction in a business's books.
Gross margin: Gross profit as a percentage of revenue.
Gross profit: Revenue minus cost of goods sold, before operating expenses.

Income statement (profit and loss): A report of revenue and expenses over a period that shows net profit or loss.
Inventory: Goods held for sale or materials used to make them, recorded as an asset until sold.
Invoice: A bill sent to a customer for goods or services, with the amount due and terms.

Journal entry: A manual accounting entry with equal debits and credits, used for items software does not create.

Materiality: The size at which an error or omission would change a reader's decisions.

Net income: What is left of revenue after all expenses, including cost of goods sold and taxes where recorded.
Net margin: Net income as a percentage of revenue.

Operating expenses: The regular costs of running a business that are not part of cost of goods sold.
Owner's draw: Money a sole proprietor or partner takes out of the business for personal use.

Payroll liabilities: Amounts withheld from pay or owed by the employer that have not yet been remitted.
Petty cash: A small cash fund for minor expenses, kept with receipts and replenished to a fixed amount.
Prepaid expense: A cost paid in advance that is recorded as an asset and expensed over the period it covers.
Purchase discount: A price reduction a vendor gives for paying early, such as 2/10 net 30.

Retainage: A percentage of a construction or project payment held back until work is complete.
Retained earnings: The profit a business has kept over time, after distributions, rather than paid out.
Revenue: The money a business earns from selling goods or services before expenses.

Sales tax payable: Sales tax collected from customers that you owe to the state.
Shareholder loan: Money an owner lends to the business or the business lends to an owner, tracked as a loan.
Shrinkage: Inventory lost to theft, damage, error or spoilage, found by comparing counts to the books.
Suspense account: A temporary account for transactions you cannot yet classify.

Trial balance: A list of all account balances at a date, used to check that debits equal credits.

Undeposited funds: A QuickBooks holding account for payments received but not yet deposited.

Working capital: Current assets minus current liabilities, a rough measure of short-term cushion.
Write-off: Removing an amount from the books because it will not be collected or has no value.

General information, not tax, legal or accounting advice. Confirm rules with the IRS, the NJ Division of Taxation or a licensed professional.