Bookkeeping terms in plain English.
Written the way one owner would explain it to another.
A
Accounts Payable (AP)
Bills you owe but haven't paid yet. Things like vendor invoices and credit card balances.
Accounts Receivable (AR)
Money customers owe you that hasn't hit your bank yet. Invoices you've sent but haven't been paid.
Accrual basis
Recording money when it's earned or owed, even if cash hasn't moved yet. Tells the truer story of how the business is doing.
B
Balance Sheet
A snapshot of what your business owns (assets), what it owes (liabilities), and what's left (equity), at a single point in time.
Bank reconciliation
Making sure every dollar in your bank statement matches your books. If something doesn't tie, you find out where.
C
Capital expenditure (CapEx)
Big purchases that last more than a year. Equipment, vehicles, building improvements. Different from regular expenses.
Cash basis
Recording money only when it actually moves. Easier to do, but doesn't show what you've earned or owe.
Cash flow
Money coming in minus money going out. Profit on paper means nothing if cash flow is broken.
Cash Flow Statement
Report showing where cash came from and where it went over a period. Operating, investing, and financing activities.
Chart of Accounts
The list of buckets your bookkeeper uses to sort every dollar. Custom to your business.
Cost of Goods Sold (COGS)
What it actually costs you to make or buy what you sell. Materials, freight in, manufacturing labor.
D
Depreciation
Spreading the cost of a long-life asset over the years it's used. So a $30,000 truck shows up as $5,000 each year for 6 years, not $30,000 in one month.
E
EBITDA
Earnings before interest, taxes, depreciation, and amortization. Common way to compare profitability across businesses.
Equity
What's left for the owners after subtracting what the business owes from what it owns.
F
Fixed costs
Expenses that stay roughly the same regardless of how busy you are. Rent, salaries, software subscriptions.
G
General Ledger (GL)
The master record where every transaction lives. The single source of truth your books are built from.
Gross margin
Revenue minus the cost of what you sold. The money you have left to cover everything else.
I
Inventory
Goods you have on hand to sell. Sits on the balance sheet as an asset until it gets sold.
J
Journal entry
A manual transaction recorded in the books, usually for adjustments at month or year end.
L
Liabilities
What the business owes. Loans, credit card balances, unpaid bills, taxes payable.
N
Net income
What's left after you subtract every expense from revenue. The bottom line.
O
Operating expenses (OpEx)
Day-to-day costs of running the business. Rent, utilities, salaries, software, marketing.
P
Profit and Loss (P&L)
Report showing revenue, expenses, and the profit or loss over a period. Also called the income statement.
Prepaid expenses
Money you paid for something you haven't used yet. Annual insurance, software bought yearly. Sits on the balance sheet, expensed monthly.
R
Reconciliation
Matching two records to confirm they agree. Bank to books, deal book to ledger, etc.
Retained earnings
Profit the business has kept rather than paid out to owners. Adds up year after year on the balance sheet.
Revenue
Money you earned from selling products or services. Top of the P&L. Sometimes called sales.
T
Trial balance
A list of every account and its balance at a point in time. The starting point for building financial statements.
V
Variance
The difference between what you expected and what happened. Budget versus actual is the most common variance check.
W
Working capital
Current assets minus current liabilities. How much cushion you have to cover the next 12 months of bills.
Write-off
Removing an asset, receivable, or expense from the books because it's no longer collectible or has lost value.
Y
Year-end close
Final adjustments to lock the books for the year. Gets your numbers ready for taxes, audits, or investors.
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