Bookkeeping Glossary

A–B

Accounts Payable (AP)

Bills you owe but haven't paid yet — money going out soon.

Accounts Receivable (AR)

Invoices you've sent that customers haven't paid yet — money coming in, eventually.

Accrual Accounting

Recording revenue when it's earned and expenses when they're incurred, regardless of when cash moves. See our full guide.

AR Aging Report

A list of who owes you money and how overdue each invoice is, usually grouped in 30-day buckets. The report where "profitable but broke" shows up first.

Assets

Everything the business owns: cash, receivables, inventory, equipment, property.

Balance Sheet

A snapshot of what you own, what you owe, and what's left for the owner at a single moment. See The Balance Sheet, Decoded.

Bank Reconciliation

Matching your books against the bank statement, transaction by transaction, until they agree. The foundation of books you can trust.

Burn Rate

How fast a business spends cash, usually per month. Paired with your bank balance, it tells you your runway.

C–D

Cash Basis Accounting

Recording revenue when payment arrives and expenses when you pay them. Simple, but blind to money you're owed and bills you owe.

Cash Flow

The actual money moving in and out of your accounts. Not the same as profit — see Profit vs. Cash Flow.

Cash Flow Statement

The report showing where cash came from and where it went during a period — operations, investing, and financing.

Chart of Accounts

The organized list of categories every transaction gets filed into. A well-designed chart of accounts is why reports make sense.

COGS (Cost of Goods Sold)

The direct costs of delivering what you sold — materials, subcontractors, direct labor. Rises and falls with sales.

Current Assets / Current Liabilities

Assets that become cash within a year, and debts due within a year. Comparing the two tells you if the next twelve months are funded.

Depreciation

Spreading the cost of a long-lived purchase (truck, machine) across the years it's used, instead of expensing it all at once. An expense on paper that doesn't take cash out of the bank.

Distribution / Owner Draw

Money the owner takes out of the business. Not an expense — it reduces equity, not profit.

Double-Entry Bookkeeping

The system where every transaction touches two accounts (money comes from somewhere and goes somewhere). It's why books can be checked for errors.

E–J

EBITDA

Earnings before interest, taxes, depreciation, and amortization — a rough measure of operating performance that buyers and lenders use to compare businesses.

Equity

What's left for the owner after subtracting everything the business owes from everything it owns.

Fixed Assets

Long-lived property the business uses to operate — vehicles, equipment, buildings — carried at cost minus depreciation.

Fixed Costs

Costs that don't change with sales volume: rent, insurance, admin salaries. What you must cover even in a slow month — see our break-even calculator.

General Ledger

The master record of every transaction in the business, organized by account. Every report is built from it.

Gross Margin / Gross Profit

Revenue minus direct costs (dollars = gross profit; percentage = gross margin). Whether the work itself makes money — see our margin guide.

Journal Entry

A manual entry recording something that doesn't come through the bank feed — depreciation, accruals, corrections.

L–P

Liabilities

Everything the business owes: unpaid bills, credit card balances, loans, taxes collected but not yet remitted.

Liquidity

How quickly assets can become cash to pay obligations. Cash is perfectly liquid; a paving machine is not.

Net Income

The bottom line: revenue minus all costs and expenses for the period. Profit.

Net Margin

Net income as a percentage of revenue — how much of each sales dollar the whole company keeps.

Operating Expenses (Overhead)

The costs of existing rather than delivering: rent, utilities, insurance, software, admin payroll, marketing.

P&L (Profit and Loss Statement)

The report showing revenue, costs, and profit over a period. Also called the income statement. See how to read yours in 10 minutes.

Payroll Liabilities

Taxes and withholdings collected from paychecks that you hold temporarily before remitting to the government. Not your money.

Prepaid Expenses

Things you've paid for but not yet used — like an annual insurance premium — recorded as an asset and expensed month by month.

R–W

Reconciliation

Proving a balance in your books against an outside source — a bank statement, a loan statement, a merchant report. Unreconciled books are unverified books.

Retained Earnings

The running total of all profit the business has ever earned minus all distributions ever taken. A scorekeeping number — not a pile of cash.

Revenue

What the business earned in a period, before any costs. The top line.

Trial Balance

A listing of every account and its balance, used to check that the books are in balance. Your CPA will ask for it.

Variable Costs

Costs that rise and fall with sales — materials, direct labor, merchant fees. Mostly the same idea as COGS.

W-2 / 1099

The year-end forms reporting what you paid people: W-2s for employees, 1099s for contractors ($600+). Both due to recipients by January 31.

Working Capital

Current assets minus current liabilities — the cushion available to fund day-to-day operations. The first thing a lender computes.

Write-Off

Removing something from the books that no longer has value — most often an invoice that will never be collected (bad debt).