Bookkeeping
The work of recording every dollar that moves through your business, then organizing those records so your reports are accurate.
Why it matters to youEverything else on this page depends on this being done right.
Plain-English definitions for business owners
Bookkeeping Glossary: Accounting Terms Explained in Plain English
You are the one making the decisions in your business, and you should not need an accounting degree to read the reports behind them. Below are the bookkeeping, accounting, payroll and tax terms that come up most often, defined the way we would explain them to you on a call.
Search a term, or browse by topic. Where a word changes how you run the business, we say why.
95 terms, grouped by topic
Bookkeeping basics
The words behind the day-to-day work that keeps your records accurate.
Accounting
The wider practice built on top of your bookkeeping: preparing financial statements, analyzing what the reports show, and advising on what to do next.
Chart of Accounts
Also called COA
The list of categories your business uses to sort income, expenses, assets, liabilities, and equity.
Why it matters to youA chart of accounts built for your business is why your reports answer real questions instead of lumping half your spending into Miscellaneous.
General Ledger
Also called GL
The complete record of every transaction in your business, organized by account. Every report you read is built from it.
Journal Entry
A dated record that moves an amount between accounts in your books. Adjusting entries at month-end fix timing and correct errors.
Double-Entry Bookkeeping
A method where every transaction is recorded in two places, one debit and one credit, so the books always balance.
Why it matters to youIt is the built-in check that catches mistakes before they reach your reports.
Debit and Credit
The two sides of every entry. A debit increases assets and expenses. A credit increases liabilities, equity, and income. For each transaction, the two sides must be equal.
Trial Balance
A report listing the balance of every account, used to confirm total debits equal total credits before a period is closed.
Bank Reconciliation
Also called reconciling, reconciled
Matching your books to your bank and credit card statements, line by line, until the two agree.
Why it matters to youUntil an account is reconciled, no report built from it can be trusted.
Cash Basis Accounting
Income is counted when the money arrives and expenses when the money leaves. Simple, and common for small service businesses.
Accrual Basis Accounting
Income is counted when you earn it and expenses when you incur them, no matter when cash moves.
Why it matters to youIt shows what a month actually produced, which matters more as your business grows.
Month-End Close
Also called closing the books
The monthly routine of reconciling accounts, posting adjusting entries, and locking the period so your reports stop changing after you read them.
Fiscal Year
The 12-month period your business uses for reporting and taxes. Often January through December, though it does not have to be.
Audit Trail
The record inside your accounting software of who entered or changed a transaction, what changed, and when.
Catch-Up Bookkeeping
Recording months or years of transactions that were never entered, so your books are current again.
Clean-Up Bookkeeping
Also called QuickBooks cleanup
Correcting books that exist but are wrong: miscategorized transactions, duplicates, unreconciled accounts, and balances that do not match reality.
Vendor
Also called supplier, payee
Any person or business you pay for goods or services: your software subscriptions, your materials suppliers, your landlord, your subcontractors. In your accounting software, each one gets a vendor record so every payment is tied to who received it.
Why it matters to youTracking spending by vendor is how you see what you actually pay each one over a year, and it is what makes 1099 filings straightforward in January.
Bank Feed
The connection that imports transactions from your bank into your accounting software.
Why it matters to youImported is not the same as categorized, and neither one means reconciled.
Undeposited Funds
A holding account in QuickBooks for payments you have received but not yet deposited as part of a bank deposit.
Why it matters to youA growing balance here is one of the most common reasons income looks overstated.
Opening Balance Equity
A temporary QuickBooks account that holds beginning balances when a file is first set up.
Why it matters to youA balance still sitting here usually means the setup was never finished.
Suspense Account
Also called clearing account
A temporary account used to park a transaction until it is understood well enough to record correctly. It should be emptied before the books are closed.
Your financial reports
What each report tells you, and what each line on it means.
Balance Sheet
A snapshot on one specific date of what your business owns, what it owes, and what is left over for you.
Why it matters to youIt is where you look to see whether the business is getting stronger or just busier.
Profit and Loss Statement
Also called P&L, income statement
Your income minus your expenses across a period of time, ending in a profit or a loss.
Statement of Cash Flows
A report showing where cash actually came from and where it went, split into operations, investing, and financing.
Why it matters to youIt explains the gap between the profit on your P&L and the balance in your bank account.
Assets
Everything your business owns that carries value: cash, money customers owe you, equipment, vehicles.
Fixed Assets
Long-lived property such as equipment, vehicles, and buildings. Recorded at what you paid and written down over the years you use them.
Liabilities
Everything your business owes: credit cards, loans, unpaid bills, and payroll taxes you are holding.
Equity
Also called owner’s equity
What would be left for you after every liability is paid. Your contributions, your draws, and accumulated profit all land here.
Retained Earnings
Profit from prior years that stayed in the business instead of being distributed to the owners.
Revenue
Also called income, sales, top line
The total your business earned from the work it delivered, before a single expense is subtracted.
Cost of Goods Sold
Also called COGS, cost of services
The direct cost of delivering what you sell: materials, subcontractors, and labor tied to the job.
Why it matters to youSeparating direct costs from overhead is what makes job profitability visible.
Gross Profit
Revenue minus cost of goods sold. The money left to cover overhead and pay you.
Operating Expenses
Also called overhead, OpEx
The costs of running the business that are not tied to one job: rent, software, insurance, administrative pay.
Net Income
Also called net profit, bottom line
What remains after every expense is subtracted from revenue.
Depreciation
Spreading the cost of a large purchase across the years you use it, instead of expensing it all in one month.
Amortization
The same idea as depreciation, applied to costs without physical form, such as loan fees or a purchased customer list.
Accounts Receivable
Also called A/R
Money customers owe you for work you have already invoiced.
A/R Aging
A report that groups your unpaid invoices by how long they have been outstanding.
Why it matters to youIt tells you which calls to make this week.
Accounts Payable
Also called A/P
Bills you have received but not yet paid.
Prepaid Expense
Something you paid for in advance, such as annual insurance or software. Held as an asset, then expensed across the months it covers.
Accrued Expense
A cost you have incurred but not yet paid, recorded so the month carries its true expense.
Working Capital
Current assets minus current liabilities. A quick read on what you have available to cover the near term.
Numbers that show business health
The measures worth watching every month, and what each one is telling you.
Key Performance Indicator
Also called KPI
A small number of measures you track on purpose because they move with the health of your business.
Gross Profit Margin
Gross profit divided by revenue, shown as a percentage. It tells you how much of every dollar of work survives the direct cost of doing it.
Net Profit Margin
Net income divided by revenue, shown as a percentage. How much of every dollar you keep.
Break-Even Point
The amount of revenue that covers all of your costs exactly. Below it you lose money, above it you make money.
Current Ratio
Current assets divided by current liabilities. A reading below 1 means near-term obligations are larger than the resources on hand to meet them.
Debt-to-Asset Ratio
Total debt divided by total assets. It shows how much of your business is funded by borrowing.
Burn Rate
How much cash your business uses up in a month beyond what it brings in.
Runway
How many months your current cash will last at your current burn rate.
Budget vs Actual
Also called variance report
A comparison of what you planned to earn and spend against what actually happened. The difference is the variance.
Cash Flow Forecast
A forward look at the cash you expect to come in and go out, week by week or month by month.
Why it matters to youIt is how you see a shortfall early enough to do something about it.
Profitability Analysis
Looking past total profit to see which services, clients, or jobs actually earn their keep.
Payroll and contractors
What you withhold, what you owe, and how the people you pay are classified.
Payroll
The full process of paying your team: calculating pay, withholding the right amounts, sending the money, and keeping the records that support it.
Gross Pay
What an employee earns before anything is withheld.
Net Pay
Also called take-home pay
What lands in the employee’s account after taxes and other deductions come out of gross pay.
Withholding
The portion of an employee’s pay you hold back and send to tax agencies on their behalf.
Payroll Taxes
The taxes tied to wages. Some are withheld from the employee, and some the business pays on top of wages as an employer.
Payroll Liability
Money you have withheld or owe from payroll that has not yet been paid out.
Why it matters to youThis is cash in your account that is not yours to spend.
Worker Classification
Also called employee vs independent contractor
Whether a person you pay is an employee or an independent contractor, decided by the facts of the working relationship rather than by preference.
Why it matters to youGetting it wrong is one of the more expensive corrections a small business can face.
Form W-2
The annual wage statement you give each employee and file with the government.
Form W-9
The form you collect from a contractor or vendor to capture their legal name and taxpayer ID before you pay them.
Why it matters to youCollecting it up front is what makes January straightforward.
Form 1099-NEC
The annual form reporting what you paid an unincorporated contractor for services.
Taxes and staying clean
The terms that come up when your books meet the IRS, your state, and your CPA.
Tax-Ready Books
Books that are reconciled, complete, and supported by documentation, so the professional who prepares your return can work straight from them instead of rebuilding your year.
Employer Identification Number
Also called EIN
The federal tax ID number that identifies your business, used on payroll filings, tax returns, and most bank accounts.
Deductible Business Expense
A cost that is ordinary and necessary for your line of work, which reduces your taxable income.
Substantiation
The documentation that proves an expense happened and was for business: receipts, invoices, contracts, mileage logs.
Why it matters to youA transaction recorded in QuickBooks is not proof on its own.
Estimated Tax Payments
Tax paid in during the year rather than all at filing, because a business owner has no employer withholding it for them.
Sales Tax
Tax you collect from a customer on a taxable sale and forward to the state. It passes through your business and is never your income.
Nexus
The connection to a state, through physical presence or sales activity, that obligates you to register and file there.
Schedule C
The form a sole proprietor or single-member LLC uses to report business income and expenses on a personal tax return.
S Corporation Election
Also called S corp
A tax election that lets an eligible business pass profit through to its owners, who then take part of their money as wages and part as distributions.
Owner’s Draw
Money an owner takes out of a business that is not payroll. It reduces equity rather than showing up as an expense.
Distribution
A payment of profit to an owner of a partnership or S corporation. Recorded against equity, not as wages.
Reasonable Compensation
The wage an S corporation owner-employee must pay themselves for the work they do, before taking profit as distributions.
Schedule K-1
The statement that reports each owner’s share of a partnership or S corporation’s income, deductions, and credits.
Commingling
Running personal and business money through the same account.
Why it matters to youIt makes your reports harder to trust and your deductions harder to defend.
Internal Controls
The routines that catch errors and prevent fraud: approvals before payment, someone other than the preparer reviewing, and a monthly look at the numbers.
Segregation of Duties
Splitting money tasks so no one person can both spend and record. In a small business, this often means the owner reviews what the bookkeeper records.
GAAP
Also called Generally Accepted Accounting Principles
The standard rules for how financial statements are prepared in the United States, so an outside reader can compare one business to another.
Your financial team and their roles
Who does what across bookkeeping, accounting, advisory and tax, and which credential means what.
Outsourced Bookkeeping
Hiring an outside firm to handle your books instead of staffing the role yourself.
Bookkeeper
The professional who records and reconciles your transactions and produces your monthly reports.
Accountant
A professional who works from your records to prepare financial statements, analyze results, and advise. Not every accountant handles day-to-day bookkeeping.
Certified Public Accountant
Also called CPA
A state-licensed accountant. The license is what allows them to perform audits, prepare and sign tax returns, and represent you before the IRS. Most owners work with a CPA at tax time and a bookkeeper every month.
Certified Bookkeeper
Also called CB, AIPB certification
A national credential from the American Institute of Professional Bookkeepers, earned by passing exams and meeting an experience requirement.
QuickBooks ProAdvisor
A bookkeeper or accountant certified by Intuit on QuickBooks. Advanced and Elite tiers reflect further testing and volume of work.
Business Advisory
Ongoing work that goes past recording history: reviewing your numbers with you, planning ahead, and thinking through decisions together.
Fractional CFO
A Chief Financial Officer you share instead of employ, working a set number of hours each month. They own the forward-looking side of your finances: cash flow forecasting, pricing, budgets, financing decisions, and the plan behind your growth.
Why it matters to youIt gives a small business senior financial leadership at a fraction of a full-time salary.
Fractional Advisor
Any senior specialist you engage part-time for their expertise rather than hiring into a full-time seat. On the financial side that often means a controller or CFO who joins your monthly rhythm and leaves when the need is met.
Why it matters to youYou buy the judgment you need for a specific stretch, without adding permanent payroll.
Controller
The role that owns the accuracy of your financial reporting: supervising the bookkeeping, running the monthly close, and enforcing internal controls. A controller looks at what happened. A CFO looks at what happens next.
Why it matters to youMost growing businesses need this layer before they need a CFO.
Tax Advisor
A professional who plans your tax position before the year closes, so that decisions on entity structure, timing, and compensation are made while they can still change the outcome. Often a CPA or an Enrolled Agent.
Why it matters to youPlanning happens during the year. A return only reports what already happened.
Enrolled Agent
Also called EA
A tax specialist licensed federally by the IRS rather than by a state. Enrolled Agents can prepare returns and represent taxpayers before the IRS in any state.
Tax Attorney
A licensed lawyer who specializes in tax law. You bring one in for disputes, liens, audits that have escalated, and transactions where the legal exposure matters as much as the tax.
Why it matters to youConversations with an attorney carry attorney-client privilege, which is why serious disputes go to them.
Diagnostic Review
A structured inspection of your existing books that reports what is accurate, what is not, and what it will take to fix.
Monthly Financial Review
A recurring meeting where your statements are walked through with you, so the reports turn into decisions instead of attachments.
Know your numbers. Then decide with confidence.
You already know your work. When the reports behind it are accurate and easy to read, the next decision gets easier. Our 75-point Diagnostic Review shows you exactly where your books stand today, and what it takes to trust them.