The Plain-English Bookkeeping Glossary
Forty-two bookkeeping and small-business accounting terms, defined the way we'd explain them on a call — no jargon defining jargon. Every term links, so you can send one to whoever needs it.
A–Z: A · B · C · D · E · F · G · J · L · N · O · P · R · S · T · W. Educational definitions, not tax or legal advice.
Accounts payable (AP)
Money your business owes to vendors for goods or services already received. A liability on the balance sheet until paid.
Accounts receivable (AR)
Money customers owe you for work already delivered or invoiced. An asset — but only as good as your collections.
Accrual basis
Accounting method that records income when earned and expenses when incurred, regardless of when cash moves. Contrast with cash basis.
Asset
Anything the business owns with value: cash, equipment, inventory, receivables. Lives on the balance sheet.
Balance sheet
The statement showing what you own (assets), what you owe (liabilities), and the difference (equity) at a single point in time.
Bank feed
The automatic connection that pulls bank and card transactions into your accounting software. Convenient — but it categorizes nothing by itself.
Bank reconciliation
Matching the books against the bank statement so every difference is explained. The single most important monthly discipline in bookkeeping.
Bookkeeping
The ongoing recording, categorizing, and reconciling of every business transaction — the layer of record-keeping underneath accounting.
Burn rate
How fast a business spends cash, usually per month. Reserves divided by burn rate = your runway.
Cash basis
Accounting method that records income when received and expenses when paid. Simpler than accrual; most very small businesses start here.
Cash flow statement
The report showing where cash actually moved during a period — operations, investing, financing. Profit and cash are not the same thing.
Catch-up bookkeeping
A one-time project that records and reconciles past months (or years) that were never entered, ending in tax-ready financials.
Chart of accounts
The master list of categories every transaction lands in. A good one is short, consistent, and matched to how you run the business.
Cleanup bookkeeping
Fixing months that were recorded incorrectly — miscategorizations, duplicates, unreconciled differences — as opposed to never recorded (catch-up).
COGS (cost of goods sold)
The direct cost of the products or materials you sold in a period. Revenue minus COGS = gross profit.
Credit / debit
The two sides of every double-entry transaction. Every entry has equal debits and credits — that balance is what makes errors findable.
Deferred revenue
Money received for work not yet performed — a deposit, a retainer, a prepaid year. A liability until earned, not income on arrival.
Depreciation
Spreading an asset's cost over its useful life instead of expensing it at purchase. Section 179 and bonus depreciation accelerate this.
Double-entry bookkeeping
The system where every transaction records both sides (the expense AND the account it paid from). What makes balance sheets possible.
Draw (owner's draw)
Money an owner takes out of a sole proprietorship or LLC. Reduces equity — it is not a business expense and doesn't lower taxable profit.
Equity
What's left of the business for the owners: assets minus liabilities. Contributions increase it; draws and losses decrease it.
Expense
A cost of running the business — rent, software, wages, fuel. Reduces profit in the period it belongs to.
Fiscal year
The 12-month period a business reports on. For most small businesses it's simply the calendar year.
General ledger
The complete record of every transaction in every account — the raw material every report is built from.
Gross profit
Revenue minus cost of goods sold. What's left to cover overhead before net profit exists.
Journal entry
A manual accounting entry, used for things bank feeds can't capture: depreciation, accruals, corrections, owner contributions.
Liability
Anything the business owes: credit card balances, loans, unpaid bills, collected sales tax, deferred revenue.
Net profit (net income)
What remains after all expenses: the bottom line of the P&L. The number tax is largely built on.
Overhead
Costs that keep the business running but aren't tied to a specific sale or job: rent, insurance, admin, software.
P&L (profit and loss statement)
The report of income and expenses over a period — also called the income statement. The document owners should read monthly.
Payroll liabilities
Taxes and withholdings collected from wages that belong to the government, not the business, until deposited.
Prepaid expense
Something paid for before it's used (annual insurance, software). Technically an asset consumed over time.
Prime cost
Restaurant metric: COGS plus total labor, as a share of sales. The controllable core of restaurant profitability.
Reasonable compensation
The salary the IRS requires an S-Corp owner-employee to take before distributions. Set it defensibly, document it.
Reconciled
An account whose book balance has been matched, item by item, to its statement — with every difference explained.
Retainage
In construction: the contract percentage held back until job completion. Earned but unpaid — its own receivable.
Revenue (income)
Money earned from what the business sells. Gross, before any costs — and not the same as the deposits that land in the bank.
Sales tax liability
Tax collected from customers that belongs to the state. It should sit visibly on the balance sheet, never mixed into revenue.
Trial balance
A listing of all account balances proving debits equal credits. The bookkeeper's pre-flight check before reports.
W-9 / 1099-NEC
The intake form (W-9) you collect from each contractor before paying them, and the form (1099-NEC) you file each January reporting what you paid.
Working capital
Current assets minus current liabilities — the cash cushion the business operates on day to day.
Write-off
Removing an uncollectible receivable or worthless asset from the books, with documentation for the tax treatment.
Want the concepts in action? Our bookkeeping examples walk through a real transaction, a full month, and a reconciliation — and What Is Bookkeeping? ties the whole picture together.
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