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Accounting is the systematic process of recording, classifying, summarizing, and reporting financial transactions to provide useful information for business decisions, tax compliance, and stakeholder reporting.
An accounting error is an unintentional mistake in a financial record — a wrong amount, a misclassified transaction, a reversed entry, or a data entry typo that causes your books to be inaccurate.
An accounting period is a specific span of time covered by a set of financial statements — typically a month, quarter, or fiscal year. It's the timeframe you're reporting on.
Accounts payable (AP) is money your business owes to vendors, suppliers, or contractors for goods and services you've received but haven't paid for yet. Think of it as your business's "tab" — you got the stuff, now you owe the bill. AP shows up as a liability on your balance sheet until you pay it o
Accounts receivable (AR) is money that customers owe your business for products or services you've already delivered. It's the flip side of accounts payable — instead of you owing someone, someone owes you. AR is an asset on your balance sheet because it represents future cash coming in.
Accrual basis accounting records revenue when it's earned and expenses when they're incurred — regardless of when cash actually changes hands. It's the opposite of cash basis, where you only record transactions when money moves. Most businesses over $25 million in revenue are required to use accrual
Accrued expenses are costs your business has incurred but hasn't paid for yet — and hasn't received a bill for either. They're different from accounts payable because with AP, you have an invoice in hand. With accrued expenses, you know the expense exists, but the bill hasn't arrived. They show up a
Accrued revenue is income your business has earned by delivering goods or services but hasn't invoiced or collected yet. It's the revenue equivalent of accrued expenses — the work is done, the money is owed, but no bill has gone out. Accrued revenue appears as a current asset on your balance sheet.
Accumulated depreciation is the total amount of depreciation expense that has been recorded against a fixed asset since it was put into service. It reduces the asset's book value on your balance sheet.
An adjusting entry is a journal entry made at the end of an accounting period to update account balances before preparing financial statements. These entries ensure revenues and expenses are recorded in the correct period — even if cash hasn't moved yet. They're a core part of accrual basis accounti
Amortization is the process of spreading the cost of an intangible asset over its useful life. It's essentially depreciation's cousin — depreciation handles physical assets (equipment, vehicles), while amortization handles non-physical ones (patents, software licenses, trademarks). It can also refer
An asset is anything your business owns that has economic value — something that can be converted to cash, used to generate revenue, or provides future benefit. Assets include cash, equipment, inventory, real estate, accounts receivable, and even intangible things like patents. They appear on the le
An audit trail is a chronological record of every change made to your financial records — who did what, when, and why. It's the digital paper trail that proves your books are legit. Every transaction created, edited, or deleted gets logged, creating an unbreakable chain of accountability.
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Bad debt is money owed to your business that you've determined is uncollectible — a customer who can't or won't pay their invoice. When you write off bad debt, you remove it from accounts receivable and record it as an expense, acknowledging that the revenue you recognized will never turn into cash.
A balance sheet is a financial statement that shows what your business owns (assets), what it owes (liabilities), and what's left over for the owners (equity) at a specific point in time. It follows the fundamental equation: Assets = Liabilities + Equity. Unlike the P&L, which covers a period, the b
A bank feed is an automatic connection between your bank account and your accounting software that imports transactions in real time (or near real time). Instead of manually entering every deposit and payment, the bank feed pulls them in for you to review, categorize, and match to existing records.
Bank reconciliation is the process of comparing your accounting records to your bank statement to make sure they match. It catches errors, missing transactions, unauthorized charges, and timing differences between what you've recorded and what the bank shows. It's one of the most important monthly b
Basis of accounting refers to the method your business uses to determine when to record revenue and expenses. The two main methods are cash basis (record when money moves) and accrual basis (record when earned or incurred). Your chosen basis affects your financial statements, tax reporting, and how
Bill payment in bookkeeping refers to the process of paying a vendor bill that's already been recorded in your accounting system. It's a two-step process: first you enter the bill (creating an accounts payable liability), then you pay it (reducing AP and cash). This separation is key for accrual bas
A billable expense is a cost your business incurs on behalf of a client that you plan to pass along to them — essentially, you pay for something now and invoice the client for it later. Common examples include travel costs, materials, subcontractor fees, and shipping. It's an expense for you tempora
Book value is the value of an asset on your balance sheet after subtracting accumulated depreciation or amortization. It represents what the asset is "worth" according to your accounting records — not necessarily what you could sell it for on the open market. Book value is also used to describe the
A bookkeeper is a financial professional who records, categorizes, and maintains a business's day-to-day financial transactions. They handle the operational side of your finances — entering income and expenses, reconciling bank accounts, managing accounts payable and receivable, and preparing your b
Break-even is the point where your business's total revenue equals its total costs — you're not making a profit, but you're not losing money either. It's the minimum amount of sales you need to cover all your fixed and variable expenses. Anything above break-even is profit; anything below is a loss.
The break-even point is the sales level at which your total revenue exactly equals your total costs — you're not making a profit, but you're not losing money either.
Budget variance is the difference between what you budgeted (planned to spend or earn) and what actually happened. A favorable variance means you did better than expected — spent less or earned more. An unfavorable variance means you overspent or underearned. It's a key tool for financial performanc
A cost incurred in the ordinary course of running a business. Deductible business expenses reduce taxable income.
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Capital expenditure (CapEx) is money your business spends to acquire, upgrade, or maintain long-term physical assets like equipment, vehicles, buildings, or technology. Unlike operating expenses that are fully deducted in the period they're incurred, CapEx is capitalized — recorded as an asset on th
A capital gain is the profit you make when you sell an asset (like stock, real estate, or equipment) for more than you paid for it. Capital gains are taxed differently than ordinary income.
Cash basis accounting records revenue when you receive payment and expenses when you pay them — it's based entirely on when cash moves in or out of your accounts. It's the simpler of the two main accounting methods and is popular with small businesses, freelancers, and sole proprietors because it cl
Cash flow is the movement of money into and out of your business over a period of time. Positive cash flow means more money is coming in than going out. Negative cash flow means you're spending more than you're bringing in. It's different from profit — you can be profitable on paper but still run ou
A cash flow forecast is a projection of how much cash your business expects to receive and spend over a future period — typically weekly, monthly, or quarterly. It predicts when you'll have surplus cash and when you might face shortfalls, allowing you to plan ahead rather than react to crises.
A cash flow statement is one of the three core financial statements (along with the P&L and balance sheet). It shows how cash moved through your business over a period — where it came from and where it went. It's organized into three sections: operating activities, investing activities, and financin
A chart of accounts (COA) is the complete list of every account in your accounting system — organized by category. It's the framework that determines where every transaction gets recorded. Think of it as the filing system for your finances: every dollar in and out gets filed into one of these accoun
A check register is a detailed log of all transactions in a bank account — every deposit, withdrawal, check, transfer, and fee, listed in chronological order. It's your running record of account activity that helps you track your balance and reconcile with your bank statement. In modern accounting,
Class tracking is a feature in accounting software that lets you tag transactions with custom categories beyond the standard chart of accounts. Classes add another dimension to your financial reporting — you can track income and expenses by department, location, product line, project, or any other g
The closing balance is the final amount in an account at the end of an accounting period. It becomes the opening balance for the next period.
A closing entry is a journal entry made at the end of an accounting period that transfers balances from temporary accounts (revenue, expenses, and draws) to permanent accounts (retained earnings). It resets all income and expense accounts to zero so the next period starts fresh. Think of it as "arch
Closing the books is the month-end or year-end process of finalizing all financial records for an accounting period. It includes reconciling bank accounts, making adjusting entries, running final reports, and ensuring all transactions are recorded accurately. Once "closed," the period's books should
COGS (Cost of Goods Sold) represents the direct costs of producing the goods or services your business sells. For retailers, it's what you paid for the inventory you sold. For manufacturers, it includes materials, labor, and production overhead. For service businesses, it's the direct costs of deliv
A compound entry is a journal entry that involves more than two accounts — one account is debited while two or more accounts are credited, or one account is credited while two or more accounts are debited. It's more complex than a simple entry (which involves just two accounts) but allows you to rec
A contra account is an account that offsets another account on the same financial statement. It has an opposite balance to its paired account — if the main account has a debit balance, the contra account has a credit balance. Contra accounts are commonly used for depreciation, allowances for bad deb
Contribution margin is the amount left from sales revenue after deducting variable costs — the money each sale "contributes" to covering fixed costs and generating profit. It can be expressed as a dollar amount (contribution margin) or percentage (contribution margin ratio). It's essential for break
Cost allocation is the process of assigning shared expenses to different departments, products, projects, or cost centers based on a logical method. It distributes costs that can't be directly traced to a single activity — like rent, utilities, or administrative salaries — across the areas that bene
The original purchase price of an asset plus any additional costs (improvements, fees). Used to calculate capital gains or losses when the asset is sold.
A cost center is a business unit or department that incurs expenses but doesn't directly generate revenue. Cost centers support revenue-producing activities — think HR, IT, accounting, facilities, or R&D. They're evaluated on their ability to control costs and provide value to the organization, not
Cost of goods sold (COGS) is the direct cost of producing or purchasing the products your business sells. It includes materials, labor, and manufacturing overhead — but not rent, marketing, or admin costs.
In bookkeeping, a credit is an entry on the right side of a journal entry or T-account that increases certain types of accounts and decreases others. Credits increase liabilities, equity, and revenue accounts. They decrease asset and expense accounts. Every transaction requires at least one credit a
A credit memo (credit memorandum) is a document that reduces the amount a customer owes you — essentially a "negative invoice." It's used for returns, refunds, pricing adjustments, or error corrections. When applied to an existing invoice, it reduces the balance due. When issued independently, it cr
Current assets are resources your business owns that can be converted to cash within one year or the normal operating cycle, whichever is longer. They include cash, accounts receivable, inventory, prepaid expenses, and short-term investments. Current assets appear at the top of your balance sheet an
Current liabilities are debts and obligations your business must pay within one year or the normal operating cycle, whichever is longer. They include accounts payable, short-term loans, accrued expenses, customer deposits, and current portions of long-term debt. Current liabilities appear on your ba
A current liability is a debt or obligation your business expects to pay within one year. Accounts payable, credit card balances, payroll taxes due, and the current portion of loans are all current liabilities.
The current ratio measures your business's ability to pay short-term obligations. It's calculated as current assets divided by current liabilities. A ratio above 1.0 means you can cover your near-term debts.
A customer deposit is money a client pays upfront before you deliver goods or services. It's advance payment for future work — not revenue yet, but a liability on your balance sheet because you owe the customer either the product/service or their money back. Deposits improve cash flow and reduce the
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In bookkeeping, a debit is an entry on the left side of a journal entry or T-account that increases certain types of accounts and decreases others. Debits increase asset and expense accounts while decreasing liability, equity, and revenue accounts. Every transaction requires at least one debit and o
Deferred revenue (also called unearned revenue) is money you've received from customers for goods or services you haven't delivered yet. It's a liability on your balance sheet because you owe the customer either the product/service or their money back. As you fulfill obligations, deferred revenue co
Depreciation is the systematic allocation of an asset's cost over its useful life. Instead of expensing the full purchase price in year one, depreciation spreads the cost across the years the asset will be used. It appears as an expense on your P&L and accumulates as a contra-asset on your balance s
Direct costs are expenses that can be specifically traced to a particular product, service, project, or customer. They vary directly with production volume or activity level — more sales means proportionally more direct costs. Common direct costs include raw materials, direct labor, and subcontracto
A discount is a reduction from the normal selling price, offered to customers for early payment, bulk purchases, promotional purposes, or other business reasons. In bookkeeping, discounts can be recorded as contra-revenue (reducing gross sales) or as an expense, depending on the type and purpose of
A written acknowledgment provided by a nonprofit organization to a donor, confirming the details of a charitable contribution for tax-deduction purposes.
Double-entry bookkeeping is the fundamental accounting system where every transaction affects at least two accounts, with total debits always equaling total credits. Each transaction has two sides — something comes in (debit) and something goes out or is earned (credit). This system maintains the ac
A draw (or owner's draw) is money or assets that a business owner takes out of the company for personal use. It's not a salary or expense — it's a distribution of equity that reduces the owner's stake in the business. Draws are common in sole proprietorships, partnerships, and LLCs where owners aren
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Earned revenue is income that your business has legitimately recognized by delivering goods or services to customers. It's revenue you've actually "earned" through performance, not just money you've collected. On accrual basis, earned revenue appears on your P&L when the work is completed, regardles
EBITDA stands for Earnings Before Interest, Taxes, Depreciation, and Amortization. It's a measure of operating profitability that strips out financing and accounting decisions to show core business performance.
An employee advance is money paid to an employee before it's earned through work or before regular payroll. It's essentially a short-term loan from the company to the employee that gets deducted from future paychecks. Employee advances appear as current assets on your balance sheet until they're rep
A key accounting concept that helps businesses track and manage their financial information effectively.
Equity is the owner's claim on business assets after all liabilities are subtracted. In simple terms, it's what the business is worth to its owners—total assets minus total debts. You'll also hear it called owner's equity, stockholders' equity, or net worth depending on the business structure.
An estimate is a document sent to a potential customer that outlines the expected cost of goods or services before work begins. It's not a binding invoice—it's a proposal that helps the customer understand pricing and scope. Once the customer approves, the estimate typically converts into an invoice
Estimated taxes are quarterly tax payments made by self-employed individuals, freelancers, and businesses that don't have taxes withheld from their income. The IRS requires them to avoid underpayment penalties.
An expense report is a document that employees submit to get reimbursed for business-related costs they paid out of pocket. It itemizes each expense—meals, travel, supplies, mileage—along with dates, amounts, and receipts. The business reviews, approves, and reimburses the employee, then records the
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FIFO stands for First In, First Out—an inventory costing method where the oldest items purchased are assumed to be sold first. When you calculate cost of goods sold (COGS), FIFO uses the cost of your earliest inventory purchases before moving to newer ones. It's one of the most common inventory valu
A financial statement is a formal report that summarizes a business's financial activity and position. The three core financial statements are the Income Statement (Profit & Loss), the Balance Sheet, and the Cash Flow Statement. Together, they give a complete picture of how money comes in, goes out,
A fiscal year is the 12-month period a business uses for accounting and financial reporting. It doesn't have to match the calendar year (January–December). Some businesses choose a fiscal year that aligns with their natural business cycle—like a retailer ending in January after the holiday season wr
A fixed asset is a long-term tangible item a business owns and uses to generate revenue, not intended for sale. Think equipment, vehicles, buildings, furniture, and computers. Fixed assets have a useful life of more than one year and are depreciated over time rather than expensed all at once.
A fixed cost is a business expense that stays the same regardless of how much you produce or sell. Rent, insurance premiums, and salaried employee wages are classic examples. Whether your revenue doubles or drops to zero, fixed costs remain constant over a given period.
Float is the time gap between when a payment is initiated and when the funds actually settle in the recipient's account. During this window, the money exists in limbo—it's left the sender's account (or is pending) but hasn't arrived at its destination. Float can work for or against you depending on
A financial forecast is a projection of future revenue, expenses, and cash flow based on historical data, trends, and assumptions. Unlike a budget (which sets spending targets), a forecast predicts what will actually happen. Forecasts are updated regularly as new information becomes available.
Fund accounting is a bookkeeping system used primarily by nonprofits, churches, and government entities to track money by its intended purpose rather than by profitability. Each "fund" is a self-balancing set of accounts with its own revenue, expenses, assets, and liabilities. The goal isn't to meas
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GAAP stands for Generally Accepted Accounting Principles—the standard framework of rules, conventions, and guidelines for financial accounting in the United States. Set by the Financial Accounting Standards Board (FASB), GAAP ensures that financial statements are consistent, comparable, and transpar
The general journal is the chronological record of all financial transactions that don't fit into specialized journals (like sales or purchases journals). It's where you record adjusting entries, corrections, depreciation, and other non-routine transactions using debits and credits. Think of it as t
The general ledger (GL) is the master record of all financial transactions organized by account. Every debit and credit from the general journal and specialized journals ultimately lands in the general ledger. It's the backbone of your accounting system and the source from which all financial statem
Goodwill is an intangible asset that arises when one business acquires another for more than the fair market value of its identifiable assets minus liabilities. It represents the premium paid for things like brand reputation, customer relationships, employee talent, and market position—value that ex
Funds awarded to an organization (typically a nonprofit) for a specific purpose, usually from a government agency, foundation, or corporation. Grants don't require repayment.
Gross margin is the percentage of revenue remaining after subtracting the cost of goods sold (COGS). It tells you how much of every dollar in sales is available to cover operating expenses and generate profit. The formula is: (Revenue − COGS) ÷ Revenue × 100. A higher gross margin means more room fo
Gross profit is the money left over after subtracting the cost of goods sold (COGS) from total revenue. It's a dollar amount, not a percentage (that's gross margin). The formula is simple: Revenue − COGS = Gross Profit. It shows how much you earn from your core business activity before paying for ov
Gross receipts are the total amount of money a business receives from all sources before any deductions, expenses, or adjustments. This includes sales revenue, interest income, rental income, royalties, and any other income. Unlike net revenue, gross receipts don't subtract returns, allowances, or c
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Impairment occurs when an asset's market value drops permanently below its carrying value (book value) on the Balance Sheet. When this happens, the business must write down the asset to its fair value and recognize the loss on the income statement. Impairment applies to both tangible assets (equipme
An income statement—also called a Profit & Loss statement (P&L)—is a financial report that shows a business's revenue, expenses, and profit or loss over a specific period. It answers the fundamental question: did the business make money or lose money during this time? It's one of the three core fina
An indirect cost is a business expense that can't be traced directly to a single product, service, or project. These costs support the overall business but aren't tied to a specific revenue-generating activity. Rent, utilities, administrative salaries, and office supplies are common indirect costs.
An intangible asset is a non-physical asset that has value and a useful life of more than one year. Patents, trademarks, copyrights, customer lists, franchise agreements, and software licenses are all intangible assets. Unlike fixed assets (which you can touch), intangible assets derive their value
Interest expense is the cost a business pays for borrowing money. It includes interest on loans, lines of credit, credit cards, and any other debt. Interest expense appears on the income statement as a non-operating expense, separate from your core business costs. It reduces your net income and, in
Interest income is money your business earns from interest-bearing accounts or investments — savings accounts, CDs, money market funds, or loans you've made to others.
Internal controls are the policies, procedures, and safeguards a business puts in place to protect assets, prevent fraud, and ensure accurate financial reporting. They range from simple practices (requiring two signatures on checks over $5,000) to complex systems (segregation of duties, regular audi
Inventory is the stock of goods a business holds for sale to customers or for use in producing goods for sale. It includes raw materials, work-in-progress, and finished goods. Inventory is classified as a current asset on the Balance Sheet because it's expected to be sold or used within one year.
Inventory turnover is a ratio that measures how many times a business sells and replaces its inventory during a period. The formula is: Cost of Goods Sold ÷ Average Inventory. A higher turnover means inventory is selling quickly. A lower turnover suggests slow-moving stock that may be tying up cash.
An invoice is a document sent by a seller to a buyer requesting payment for goods or services delivered. It includes details like the invoice number, date, description of items, quantities, prices, payment terms, and the total amount due. In bookkeeping, creating an invoice records accounts receivab
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Labor cost is the total expense of employee compensation, including wages, salaries, overtime, payroll taxes, benefits, and worker's compensation. For product-based businesses, labor cost can be classified as either direct (employees who work directly on creating products) or indirect (supervisors,
A ledger is a collection of accounts that records all financial transactions for a business, organized by account type. The general ledger is the master ledger containing all accounts, while subsidiary ledgers focus on specific areas like accounts receivable or accounts payable. Each account in the
A liability is a debt or obligation that a business owes to outside parties. Liabilities represent claims against the company's assets and include accounts payable, loans, credit card debt, accrued expenses, and deferred revenue. They appear on the Balance Sheet and are classified as either current
LIFO stands for Last In, First Out—an inventory costing method where the most recently purchased items are assumed to be sold first. When calculating cost of goods sold (COGS), LIFO uses the cost of your newest inventory purchases before moving to older ones. It's the opposite of FIFO and generally
Liquidity measures how quickly a business can convert assets into cash or how easily it can meet short-term financial obligations. High liquidity means plenty of cash and assets that can be quickly converted to cash. Low liquidity means the business might struggle to pay bills even if it's profitabl
Location tracking is a QuickBooks feature that allows businesses to categorize transactions by physical location, department, or profit center. It's separate from the chart of accounts and enables you to see financial performance broken down by different segments of your business. This is especially
A long-term liability is a debt or obligation that isn't due within the next 12 months. These include mortgages, equipment loans, bonds, and other financing arrangements with payment terms extending beyond one year. Long-term liabilities appear on the Balance Sheet below current liabilities and affe
Lower of Cost or Market (LCM) is an accounting principle requiring inventory to be valued at the lower of its original cost or its current market replacement cost. If inventory can't be sold for more than it cost (due to obsolescence, damage, or market conditions), it must be written down to reflect
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Margin is the percentage of profit in a sale, calculated as profit divided by revenue. There are different types: gross margin (gross profit ÷ revenue), net margin (net income ÷ revenue), and operating margin (operating income ÷ revenue). Margin answers the question: "Of every dollar in sales, how m
Markup is the amount added to the cost of a product or service to determine its selling price, expressed as a percentage of cost. The formula is: (Selling Price − Cost) ÷ Cost × 100. Markup differs from margin—markup is profit as a percentage of cost, while margin is profit as a percentage of sellin
Materiality is an accounting concept that determines whether an error, omission, or misstatement is significant enough to influence decision-making by users of financial statements. Small, inconsequential amounts can be handled with simplified accounting methods, while material amounts require preci
A tax deduction for business-related driving, calculated using the IRS standard mileage rate ($0.70/mile for 2026) or actual vehicle expenses.
Month-end close is the accounting process of finalizing and reviewing all financial transactions for the month, making necessary adjustments, and preparing accurate financial statements. It includes bank reconciliation, adjusting entries for depreciation and accruals, reviewing account balances, and
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Net assets is the difference between total assets and total liabilities — it's what your business is worth on paper. For nonprofits, net assets replace the concept of equity or retained earnings.
Net income is the total profit remaining after all expenses, taxes, and interest have been subtracted from revenue. It's the "bottom line" of the income statement and shows whether the business made money or lost money during the period. Net income flows to the Balance Sheet as retained earnings and
Net profit is the total amount of money remaining after all business expenses, taxes, and interest payments have been subtracted from total revenue. It's identical to net income—both terms describe the "bottom line" profit that shows whether the business made or lost money during a specific period.
Net realizable value (NRV) is the estimated amount a business expects to collect from an asset, typically inventory or accounts receivable, after subtracting any costs required to sell or collect it. For inventory, it's the expected selling price minus selling costs. For receivables, it's the face v
Net terms (like Net 30, Net 60) specify how many days a customer has to pay an invoice after it's issued. Net 30 means payment is due within 30 days.
Non-operating income is revenue generated from activities outside a business's main operations. This includes interest earned on bank accounts, investment gains, rental income from unused property, insurance settlements, and gains from asset sales. Non-operating income appears separately on the inco
Accounting practices specific to tax-exempt organizations, emphasizing fund tracking, donor restrictions, and accountability rather than profit.
A note payable is a written promise to pay a specific amount of money, typically with interest, by a certain date or in installments over time. Notes payable represent formal debt obligations and include bank loans, equipment financing, mortgages, and promissory notes to investors or related parties
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An opening balance is the amount in an account at the beginning of an accounting period. It represents the carried-forward balance from the previous period's closing and becomes the starting point for the current period's transactions. Opening balances ensure continuity between accounting periods an
Operating expenses are the costs required to run a business's day-to-day operations, excluding the direct costs of producing goods or services (COGS). Operating expenses include rent, utilities, salaries, marketing, insurance, office supplies, and professional fees. These expenses appear on the inco
Operating income is the profit generated from a business's core operations, calculated as gross profit minus operating expenses. It excludes non-operating items like interest expense, investment income, and one-time gains or losses. Operating income shows how profitable the business is at its fundam
Other comprehensive income (OCI) refers to revenues, expenses, gains, and losses that are excluded from net income on the income statement. These items — like unrealized gains on investments or foreign currency adjustments — appear in the equity section of the balance sheet instead. OCI captures fin
Revenue from sources outside your primary business operations — interest earned, gains on asset sales, rental income, or refunds.
An outstanding check is a check that has been written and recorded in your books but hasn't been cashed or cleared by the bank yet. Until the recipient deposits it and the bank processes it, the check remains "outstanding." This creates a temporary difference between your book balance and your bank
Overhead refers to the ongoing business expenses that aren't directly tied to producing a specific product or service. These are the costs of keeping your business running — rent, utilities, insurance, office supplies — regardless of how much you sell. Overhead is also called "indirect costs" becaus
Owner's equity is the portion of a business's assets that belongs to the owner after all liabilities are paid off. It's calculated as total assets minus total liabilities. Think of it as your ownership stake — what you'd walk away with if you sold everything and paid every debt.
An owner's draw is money a business owner takes out of the business for personal use. It's not a salary or wage — it's a withdrawal from the owner's equity in the company.
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Paid-in capital is the total amount of money that shareholders have invested in a company by purchasing its stock. It includes the par value of the shares plus any additional amount paid above par value (called "additional paid-in capital"). This money comes from investors — it's not generated by bu
A payable (or "accounts payable") is money your business owes to vendors, suppliers, or service providers for goods or services you've received but haven't paid for yet. Payables are short-term liabilities — they're debts you're expected to settle within a set period, usually 30 to 90 days.
Payroll expense is the total cost a business incurs to compensate its employees. This includes gross wages, salaries, bonuses, and commissions — plus the employer's share of payroll taxes (Social Security, Medicare, unemployment). It's typically one of the largest expense categories for any business
Payroll liability is the total amount of payroll-related obligations your business owes but hasn't paid yet. This includes withheld employee income taxes, the employee and employer shares of FICA (Social Security and Medicare), state and federal unemployment taxes, and any other deductions like heal
Payroll taxes are taxes levied on wages and salaries that fund government programs like Social Security, Medicare, and unemployment insurance. Both employers and employees pay payroll taxes — the employer withholds the employee's share from their paycheck and also pays a matching employer share. Tog
A fixed daily allowance for lodging, meals, and incidental expenses during business travel, set by the IRS or GSA.
Petty cash is a small amount of physical cash kept on hand for minor, everyday business expenses. Instead of writing a check or using a credit card for a $12 box of pens or a $7 parking fee, you pay from petty cash. It's tracked through a petty cash fund with receipts documenting every disbursement.
Posting is the process of transferring journal entries from the general journal to the individual accounts in the general ledger. It's the step that takes a recorded transaction and distributes it to the correct accounts — so your accounts receivable, cash, revenue, and other ledger accounts all ref
A prepaid expense is a payment made in advance for goods or services you'll receive in the future. Even though you've spent the cash, it's recorded as an asset — not an expense — until the benefit is used up. Common examples include prepaid insurance, prepaid rent, and annual software subscriptions
A pricing strategy is the method a business uses to set prices for its products or services. It considers costs, competition, perceived value, and market positioning.
A profit and loss statement (P&L), also called an income statement, summarizes your business's revenues, costs, and expenses over a specific period. The bottom line shows whether you made a profit (revenue exceeded expenses) or took a loss (expenses exceeded revenue). It's one of the three core fina
A profit center is a department, division, or segment of a business that generates its own revenue and is evaluated based on its profitability.
Profit margin is the percentage of revenue that remains as profit after expenses are deducted. It tells you how many cents of every dollar you keep. There are different types — gross profit margin (revenue minus direct costs), operating profit margin (after operating expenses), and net profit margin
A purchase order (PO) is a formal document sent from a buyer to a seller authorizing a purchase. It specifies the items or services being ordered, quantities, agreed prices, delivery dates, and payment terms. Once accepted by the vendor, a PO becomes a binding agreement — and it's a key internal con
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Estimated tax payments made four times per year to the IRS and state agencies, covering income tax and self-employment tax on earnings without withholding.
The quick ratio (also called the acid-test ratio) measures your business's ability to pay its short-term obligations using only its most liquid assets — cash, marketable securities, and accounts receivable. Unlike the current ratio, it excludes inventory and prepaid expenses because those can't be c
QuickBooks Online (QBO) is a cloud-based accounting software by Intuit used by millions of small businesses for invoicing, expense tracking, bank reconciliation, payroll, and financial reporting.
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A receipt is a written document confirming that a payment has been made. It typically includes the date, amount paid, description of what was purchased, the seller's information, and the payment method. In bookkeeping, receipts serve as source documents that verify expenses and support tax deduction
A receivable (or "accounts receivable") is money owed to your business by customers for goods or services you've already delivered. When you send an invoice with payment terms like "net-30," the amount becomes a receivable — an asset on your balance sheet representing future cash inflow. Receivables
Reconciliation is the process of comparing two sets of records to make sure they agree. In bookkeeping, it most commonly means matching your internal accounting records (like your QuickBooks register) against your bank statement to verify every transaction is accounted for and the balances match. An
A recurring transaction is any financial transaction that repeats on a regular schedule — weekly, monthly, quarterly, or annually. Common examples include rent payments, subscription fees, loan payments, and recurring invoices to retainer clients. Accounting software can automate these so they're re
A refund is a return of money to a customer for a product or service they've already paid for. In bookkeeping, a refund reverses part or all of a previously recorded sale — reducing revenue and either decreasing cash (if you send money back) or creating a credit on the customer's account. Refunds ar
A reimbursement is a payment made to an employee, contractor, or partner to repay them for out-of-pocket business expenses they paid with their own money.
A restricted fund contains money that a donor or grantor has designated for a specific purpose or time period. The nonprofit must use it only as specified — not for general operations.
Retained earnings is the cumulative total of net profits your business has earned since inception, minus any dividends or owner distributions paid out. It represents profits that have been kept ("retained") in the business rather than distributed to owners or shareholders. Retained earnings appear o
Revenue is the total income your business earns from its primary operations — selling goods, providing services, or both. It's the "top line" on your income statement, before any expenses are deducted. Revenue is different from profit: revenue is what comes in; profit is what's left after costs.
Revenue recognition is the accounting principle that determines when revenue should be recorded in your books. Under accrual accounting, revenue is recognized when it's earned — meaning the product is delivered or the service is performed — regardless of when payment is received. This ensures financ
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Sales tax is a consumption tax imposed by state and local governments on the sale of goods and certain services. As a business, you collect sales tax from customers at the point of sale and remit it to the appropriate tax authority. Sales tax is not your revenue — you're a pass-through collector hol
Schedule C (Form 1040) is the IRS tax form used by sole proprietors and single-member LLCs to report business income and expenses. It's filed as part of your personal tax return and calculates your net business profit or loss. The result flows to your 1040 and determines how much self-employment tax
Section 179 of the IRS tax code lets businesses deduct the full purchase price of qualifying equipment and software in the year it's purchased, instead of depreciating it over several years.
Segment reporting breaks down a company's financial results by business segment, geography, or product line — showing which parts of the business are profitable and which aren't.
The Social Security and Medicare tax that self-employed individuals pay on net earnings — currently 15.3% (12.4% Social Security + 2.9% Medicare).
Service revenue is income earned from performing services for clients or customers — as opposed to selling physical products. It's recorded when the service is delivered (under accrual accounting) or when payment is received (under cash basis). Service revenue is the primary income source for consul
Shareholder equity (also called stockholders' equity) is the total value of a corporation that belongs to its shareholders after all liabilities are subtracted from total assets. It includes paid-in capital (money invested by shareholders), retained earnings (accumulated profits), and sometimes trea
A short-term liability (also called a current liability) is a financial obligation your business must pay within one year or one operating cycle. Common examples include accounts payable, credit card balances, payroll liabilities, short-term loans, and the current portion of long-term debt. These ar
A source document is the original record that provides evidence a financial transaction occurred. These are the paper trail of your business — invoices, receipts, bank statements, contracts, purchase orders, and canceled checks. Source documents are the foundation of every bookkeeping entry and the
The statement of cash flows is a financial report that shows how cash moves in and out of your business over a specific period. It's divided into three sections: operating activities (day-to-day business), investing activities (buying/selling assets), and financing activities (loans, investments, di
Straight-line depreciation is the simplest method of spreading the cost of a tangible asset evenly over its useful life. You take the purchase price, subtract the estimated salvage value (what it'll be worth at the end), and divide by the number of years you expect to use it. The result is the same
A sub-ledger (or subsidiary ledger) is a detailed record that breaks down the transactions within a single general ledger account. Instead of showing one lump sum for "accounts receivable," the sub-ledger lists every customer who owes you money and how much each one owes. Common sub-ledgers include
A suspense account is a temporary holding place for transactions that need more information before they can be properly classified. When you receive a payment but aren't sure what it's for, or discover a discrepancy that needs investigation, you record it to a suspense account until you can determin
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The matching principle is a fundamental accounting concept requiring expenses to be recorded in the same period as the revenues they help generate. Instead of recording expenses when paid or revenues when received, the matching principle ensures that costs are aligned with the income they produce. T
A T-account is a visual representation of an individual ledger account that looks like the letter "T." The account name appears at the top, debits are recorded on the left side, and credits on the right side. It's a teaching tool that helps you understand how transactions affect individual accounts
A tangible asset is a physical item of value that your business owns and uses in its operations. Unlike intangible assets (like patents or trademarks), tangible assets have physical substance you can touch — equipment, vehicles, buildings, furniture, and inventory. They typically appear on the balan
A tax deduction is a business expense that reduces your taxable income. The more legitimate deductions you claim, the less tax you pay. Common deductions include rent, supplies, mileage, insurance, and professional services.
Tax liability is the total amount of taxes your business owes to federal, state, and local governments but hasn't paid yet. This includes income taxes, payroll taxes, sales tax, property tax, and any other tax obligations. Tax liabilities appear on the balance sheet under Current Liabilities since t
The sum of everything a business owns — cash, receivables, inventory, equipment, property, and investments. Found on the balance sheet.
A trial balance is a report that lists every account in your chart of accounts along with its debit or credit balance. The total of all debit balances must equal the total of all credit balances — this proves that the accounting equation (Assets = Liabilities + Equity) is in balance. It's a fundamen
Trust accounting is a specialized bookkeeping system for managing money held on behalf of others. Professionals like lawyers, real estate agents, and property managers often receive funds that don't belong to them — client retainers, earnest money, security deposits — and must keep these funds separ
A turnover ratio measures how efficiently a business uses its assets by comparing the rate at which assets are converted to sales or cash. Common turnover ratios include inventory turnover (how quickly inventory sells), accounts receivable turnover (how quickly customers pay), and accounts payable t
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An uncollectible account (also called a bad debt) is an accounts receivable that you've determined will never be collected. Despite your best efforts — follow-up calls, payment plans, collection agencies — the customer can't or won't pay. At some point, you must write off the debt as a business loss
Undeposited Funds is a QuickBooks account that temporarily holds customer payments until you make a bank deposit. When you receive multiple checks or cash payments, you first record them to Undeposited Funds, then create a single bank deposit that groups them together. This matches your bank stateme
Unearned revenue is money you've received from customers for goods or services you haven't delivered yet. It's recorded as a liability — not income — because you owe the customer either the product/service or a refund. Common examples include annual subscriptions paid upfront, deposits for future wo
Unit cost is the total cost to produce or deliver one unit of a product or service. It includes all direct costs (materials, labor) and often a portion of indirect costs (overhead) allocated to each unit. Understanding unit cost is essential for pricing decisions, profitability analysis, and cost co
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Variable costs are expenses that change in direct proportion to your business activity level. When you produce more, sell more, or work more, these costs go up. When business slows down, they decrease. Common variable costs include raw materials, production labor, sales commissions, and shipping. Th
A vendor credit is a reduction in what you owe a supplier, typically issued when you return merchandise, receive defective goods, or get an adjustment for overcharges. It's like a refund, but instead of getting cash back, the vendor reduces your account payable balance. Vendor credits can also be ap
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Working capital is the difference between your current assets (cash, receivables, inventory) and your current liabilities (payables, short-term debt, accrued expenses). It measures your business's short-term financial health and ability to operate day-to-day. Positive working capital means you can c
A write-off is the removal of an asset from your books when it no longer has value or can't be collected. Common write-offs include bad debts (uncollectible receivables), obsolete inventory, damaged equipment, or worthless investments. The write-off reduces the asset on your balance sheet and typica
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