A
Account
An account is a record that groups similar business transactions together. Each account tracks one kind of thing — such as cash, equipment, or rent expense — so the business can see how much of it exists or how much activity happened in a period.
Accounting Equation
The accounting equation says that Assets = Liabilities + Equity. Everything a business owns (assets) was paid for either by owing someone (liabilities) or by the owner's own money and profit (equity).
Accounts Payable
Accounts Payable (A/P) is money the business owes to vendors or suppliers for goods or services it has already received but not yet paid for. It is a liability on the Balance Sheet.
Accounts Receivable
Accounts Receivable (A/R) is money customers owe the business for work or products the business has already provided. It is an asset on the Balance Sheet.
Accrual
An accrual is recording an expense or revenue in the period it happens, even if cash has not yet moved. Accruals match income and costs to the right time period.
Accrual Basis
Accrual basis accounting records revenue when it is earned and expenses when they are incurred — not when cash moves. This gives a more complete picture of a business's financial activity.
Accrued Expense
An accrued expense is a cost the business has incurred but has not yet paid or recorded. At period-end, the bookkeeper records it so the books reflect what is actually owed.
Accrued Revenue
Accrued revenue is income the business has earned but has not yet invoiced or received. At period-end, the bookkeeper records it so the books reflect work already completed.
Adjusting Entry
An adjusting entry is a journal entry made at the end of a period to update accounts so the books reflect what actually happened. Adjusting entries handle accruals, prepaids, depreciation, and other timing differences.
Aging Report
An aging report groups outstanding invoices or bills by how long they have been unpaid. Common buckets are Current, 1–30 days past due, 31–60 days past due, and 61–90 days past due.
Asset
An asset is something the business owns or has a right to that has value. Cash, equipment, inventory, and money owed by customers are all assets.
Audit Trail
An audit trail is the record of who entered, changed, or approved a transaction and when. Most accounting software keeps this automatically.
B
Balance Sheet
The Balance Sheet shows what a business owns (assets), what it owes (liabilities), and what is left for the owner (equity) on a single date. It must always balance: Assets = Liabilities + Equity.
Bank Reconciliation
Bank reconciliation is the process of comparing the bank statement to the books and explaining why the two balances differ. The goal is to confirm that the difference is made up of legitimate items like outstanding checks and deposits in transit.
Bill
A bill is a document from a vendor showing that the business owes money for goods or services received. Entering a bill records the expense or asset and creates an Accounts Payable liability.
Bill Payment
A bill payment is the act of paying a previously entered bill. It reduces the Accounts Payable liability and reduces cash. It should not create a new expense.
Book Balance
The book balance is the balance shown in the business's accounting records for a bank or credit card account. It may differ from the statement balance because of items that have not yet cleared.
Book Value
Book value is the original cost of a fixed asset minus its accumulated depreciation. It represents the asset's remaining value on the books.
C
Capitalization
Capitalization means recording a purchase as a fixed asset on the Balance Sheet instead of as an expense on the P&L. This happens when the item has a long useful life and significant cost.
Cash Basis
Cash basis accounting records revenue when cash is received and expenses when cash is paid. It is simpler than accrual but can show a misleading picture of profit.
Chart of Accounts
The chart of accounts is the complete list of accounts a business uses to organize transactions. Accounts are usually grouped by type: assets, liabilities, equity, income, and expenses.
Clearing Account
A clearing account is a temporary holding account used to park money until it is moved to its final destination. The balance should return toward zero once the activity is resolved.
Closing the Books
Closing the books means finalizing the accounting records for a period so no further changes can be made. This locks the period and provides a clean starting point for the next one.
Contra Account
A contra account is an account that offsets another account. Accumulated Depreciation is a contra asset because it reduces the Equipment account.
Cost of Goods Sold
Cost of Goods Sold (COGS) is the direct cost of the products a business sells. It includes the cost of the inventory items that were sold, not the cost of inventory still on hand.
Credit
A credit is an entry on the right side of a journal entry. Credits increase liability, equity, and revenue accounts, and decrease asset and expense accounts.
Credit Card Liability
A business credit card is a liability. When the card is used, the credit card balance increases. When the card is paid, the liability decreases. Paying the card does not create a new expense.
Credit Memo
A credit memo is a document that reduces the amount a customer owes. It may be issued for a refund, a discount, or a correction to an original invoice.
Current Asset
A current asset is an asset expected to be used or converted to cash within one year. Cash, Accounts Receivable, and inventory are common current assets.
Current Liability
A current liability is a debt or obligation the business expects to pay within one year. Accounts Payable, credit card balances, and payroll liabilities are common current liabilities.
Customer Deposit
A customer deposit is money received from a customer before the work or product has been delivered. It is a liability, not revenue, because the business still owes the customer something.
D
Debit
A debit is an entry on the left side of a journal entry. Debits increase asset and expense accounts, and decrease liability, equity, and revenue accounts.
Deferred Revenue
Deferred revenue (also called unearned revenue) is money received before the business has earned it. It is a liability until the work is completed or the product is delivered.
Deposit in Transit
A deposit in transit is money the business has recorded in the books but has not yet appeared on the bank statement. It is a legitimate timing difference in a bank reconciliation.
Depreciation
Depreciation is the process of spreading the cost of a fixed asset over its useful life. Each period, a portion of the cost is recorded as depreciation expense.
Double-Entry Bookkeeping
Double-entry bookkeeping means every transaction affects at least two accounts, and total debits always equal total credits. This keeps the books balanced.
E
F
Financial Statements
Financial statements are reports that summarize the business's financial activity. The three main statements are the Profit & Loss, Balance Sheet, and Statement of Cash Flows.
Fixed Asset
A fixed asset is a long-term asset the business uses to operate, such as equipment, furniture, or a vehicle. Fixed assets are depreciated over their useful life.
G
General Ledger
The general ledger is the complete record of all accounts and their balances. It is built from all the journal entries the business has recorded.
Gross Profit
Gross profit is revenue minus cost of goods sold. It shows how much the business earns from selling products before operating expenses like rent and payroll.
Gross Wages
Gross wages are the total amount earned by employees before any taxes or deductions are taken out. Gross wages are the payroll expense, not the amount employees receive.
Gross Sales
Gross sales is total sales before any returns, discounts, or allowances are subtracted. Net sales is gross sales minus those reductions.
I
Income
Income is another word for revenue or profit, depending on context. Net income means profit (revenue minus expenses). In everyday bookkeeping, income often means revenue.
Internal Control
An internal control is a process or rule that reduces risk in the business. Controls can prevent problems (like requiring approval before a payment) or detect them (like a bank reconciliation).
Inventory
Inventory is goods a business holds to sell. It is an asset on the Balance Sheet. The cost of inventory becomes Cost of Goods Sold when the items are sold.
Invoice
An invoice is a document sent to a customer showing how much they owe for goods or services. Recording an invoice creates revenue and Accounts Receivable.
J
Journal
A journal is where transactions are first recorded in chronological order. Each journal entry shows the date, accounts, and debit and credit amounts.
Journal Entry
A journal entry is the record of a single transaction, showing which accounts are debited and credited and by how much. Total debits must equal total credits.
L
Liability
A liability is money the business owes. Loans, Accounts Payable, credit card balances, and payroll taxes owed are all liabilities.
Loan Payable
A loan payable is a liability representing money the business has borrowed and must repay. Each loan payment has two parts: principal (reduces the loan balance) and interest (an expense).
Line of Credit
A line of credit is a loan the business can draw from as needed, up to a limit. Interest is charged only on the amount used. It is a liability.
N
Net Income
Net income is profit — total revenue minus total expenses. It is the bottom line of the Profit & Loss statement.
Net Pay
Net pay is the amount an employee actually receives after taxes and deductions are taken out of gross wages. Net pay is not the full payroll expense.
Normal Balance
The normal balance of an account is whether it normally has a debit or credit balance. Assets and expenses normally have debit balances. Liabilities, equity, and revenue normally have credit balances.
O
Outstanding Check
An outstanding check is a check the business has written and recorded in the books but has not yet cleared the bank. It is a legitimate timing difference in a bank reconciliation.
Owner Contribution
An owner contribution is money or property the owner puts into the business. It increases equity and is not revenue.
Owner Draw
An owner draw (or distribution) is money the owner takes out of the business for personal use. It reduces equity and is not an expense.
Operating Income
Operating income is profit from the business's normal operations — revenue minus operating expenses like rent, payroll, and supplies. It excludes interest, taxes, and non-operating items.
P
Payroll Liability
A payroll liability is money withheld from employees or owed by the employer for payroll taxes that has not yet been paid to the tax agency. It is a current liability.
Prepaid Expense
A prepaid expense is a cost paid in advance for goods or services the business will use in future periods. It is an asset until the benefit is used up.
Profit & Loss Statement
The Profit & Loss statement (P&L, also called the income statement) shows revenue, expenses, and profit over a period of time, such as a month or a year.
R
Reconciliation
Reconciliation is the process of comparing two sets of records to confirm they agree or to explain why they differ. Bank and credit card reconciliations are the most common.
Retained Earnings
Retained earnings is the cumulative profit a business has earned and kept, minus any distributions to the owner. It is part of equity on the Balance Sheet.
Revenue
Revenue is income the business earns from selling goods or services. Revenue is recorded when it is earned, which is not always the same as when cash is received.
S
Sales Receipt
A sales receipt is used when a customer pays at the time of the sale. It records both the revenue and the cash received in one step.
Sales Tax Payable
Sales Tax Payable is a liability account for sales tax collected from customers that has not yet been remitted to the tax agency. It is not revenue.
Source Document
A source document is the original evidence of a transaction — an invoice, receipt, bill, or bank statement. Source documents support what was recorded in the books.
Statement of Cash Flows
The Statement of Cash Flows shows how cash changed during a period, organized into operating, investing, and financing activities. It explains why profit and cash are different.
Separation of Duties
Separation of duties means no single person controls every step of a process. For example, the person who enters bills should not be the same person who approves and sends payments.
Suspense Account
A suspense account is a temporary account used when the bookkeeper does not yet know where a transaction belongs. It should be cleared as soon as the correct account is determined.
T
Trial Balance
A trial balance is a list of all accounts and their balances at a point in time. Total debits should equal total credits. If they do not, there is an error in the entries.
Three-Way Matching
Three-way matching is comparing the purchase order, the vendor bill, and the receiving record before paying a bill. All three should agree on what was ordered, received, and billed.
U
Undeposited Funds
Undeposited Funds is a clearing account that holds customer payments until they are grouped and deposited to the bank. It should return toward zero once deposits are made.
Unearned Revenue
Unearned revenue (also called deferred revenue) is money received before the business has earned it. It is a liability until the work is completed or the product is delivered.
V
Vendor
A vendor is a person or business that sells goods or services to the business. Vendors are tracked so the bookkeeper can manage bills, payments, and vendor balances.
Vendor Credit
A vendor credit reduces the amount the business owes a vendor. It may be issued for a refund, a discount, or a correction to an original bill.
W
Working Papers
Working papers are the documents, notes, and calculations a bookkeeper uses to support the books. They show how figures were determined and what was reviewed.
Write-Off
A write-off is removing an amount from the books because it will not be collected or is no longer valid. In A/R, a write-off removes a customer balance that will not be paid.