Bookkeeping & Accounting Glossary
Plain-English definitions for the terms you’ll see in QuickBooks, on financial statements and in conversations with your CPA — plus why each one matters to a small business owner.
A
- Accounts Payable (AP)
- Money your business owes to vendors and suppliers for goods or services you have received but not yet paid for.
- Why it matters: Tracking AP keeps you from paying the same bill twice, missing due dates, or overestimating how much cash you really have. Monthly bookkeeping →
- Accounts Receivable (AR)
- Money customers owe your business for work you have already delivered and invoiced.
- Why it matters: An aging AR report shows who is paying late, which is often the first place a cash crunch shows up. Monthly bookkeeping →
- Accrual Basis Accounting
- A method that records income when it is earned and expenses when they are incurred, regardless of when cash changes hands.
- Why it matters: Accrual books give a truer picture of profitability for businesses that invoice customers or carry inventory.
B
- Balance Sheet
- A financial statement showing what a business owns (assets), what it owes (liabilities), and the owner's stake (equity) on a specific date.
- Why it matters: Lenders and CPAs ask for it first. If your balance sheet doesn't reconcile to your bank and loan statements, your books have errors.
- Bank Reconciliation
- The process of matching every transaction in your books against your bank statement so the ending balances agree.
- Why it matters: Reconciling monthly catches duplicate entries, missed deposits, bank errors and fraud while they are still easy to fix. Monthly bookkeeping →
- Bookkeeping Cleanup
- Correcting and completing past bookkeeping records — recategorizing transactions, fixing reconciliations and removing duplicates — so the books are accurate.
- Why it matters: Messy books lead to overpaid taxes, rejected loan applications and expensive year-end CPA hours. Bookkeeping cleanup & catch-up →
C
- Cash Basis Accounting
- A method that records income when cash is received and expenses when cash is paid.
- Why it matters: Simple and common for small service businesses, but it can hide unpaid bills and unpaid invoices.
- Cash Flow Statement
- A report showing how cash moved in and out of the business from operations, investing and financing over a period.
- Why it matters: A profitable business can still run out of cash. This statement explains where the money actually went.
- Catch-Up Bookkeeping
- Recording months or years of transactions that were never entered so the books are brought current.
- Why it matters: You can't file accurately, apply for financing, or make good decisions on books that stop months ago. Bookkeeping cleanup & catch-up →
- Chart of Accounts
- The organized list of every account — income, expense, asset, liability and equity — used to categorize transactions in your books.
- Why it matters: A lean, well-built chart of accounts makes your reports readable and maps cleanly to tax return lines for your CPA. QuickBooks Online services →
- Cost of Goods Sold (COGS)
- The direct costs of producing the goods or services a business sells, such as materials and direct labor.
- Why it matters: COGS determines your gross margin — the number that tells you whether your pricing actually works.
D
- Depreciation
- Spreading the cost of a long-lived asset, like a vehicle or equipment, over its useful life instead of expensing it all at once.
- Why it matters: Depreciation affects both reported profit and taxes. Your CPA decides the tax treatment; your books need the asset recorded correctly.
- Double-Entry Bookkeeping
- The system where every transaction affects at least two accounts — a debit and an equal credit — so the books always balance.
- Why it matters: It's the foundation of accurate books and what accounting software like QuickBooks does behind the scenes.
E
- Equity
- The owner's claim on the business after liabilities are subtracted from assets, including contributions, draws and retained earnings.
- Why it matters: Equity accounts track what you've put in and taken out — essential for LLC owners paying themselves through draws.
F
- Form 1099-NEC
- An IRS information return used to report payments of nonemployee compensation to independent contractors.
- Why it matters: Missing or late 1099s can carry per-form IRS penalties. Clean vendor records make January filing simple. Payroll & 1099 support →
- Form W-2
- The annual wage and tax statement employers give each employee and file with the Social Security Administration.
- Why it matters: W-2s must match what payroll reported all year — another reason payroll and bookkeeping need to agree. Payroll for small teams →
G
- General Ledger
- The complete record of every financial transaction in a business, organized by account.
- Why it matters: Every financial statement is built from the general ledger. Errors here flow into every report.
- Gross Profit
- Revenue minus cost of goods sold, before operating expenses.
- Why it matters: Watching gross profit month to month shows whether rising sales are actually making you money.
J
- Journal Entry
- A manual record of a transaction, with debits and credits, used for adjustments, accruals and corrections.
- Why it matters: Journal entries fix what bank feeds can't, like loan interest splits, depreciation and payroll accruals.
L
- Liabilities
- What the business owes others: loans, credit cards, unpaid bills, payroll taxes and sales tax collected.
- Why it matters: Sales tax and payroll tax you've collected are liabilities, not income — mixing them up is a costly mistake.
M
- Month-End Close
- The routine of reconciling accounts, recording adjustments and finalizing financial statements for the month.
- Why it matters: A consistent close means decisions are based on current numbers instead of last quarter's guesses. Monthly bookkeeping →
N
- Net Income
- Total revenue minus all expenses for a period — the bottom line on a profit and loss statement.
- Why it matters: Net income is not the same as cash in the bank, especially if you have loans, draws or unpaid invoices.
O
- Owner's Draw
- Money a sole proprietor or LLC owner takes out of the business for personal use, recorded in equity rather than as an expense.
- Why it matters: Recording draws as expenses understates profit and creates confusion at tax time.
P
- Payroll Liabilities
- Withheld employee taxes and employer payroll taxes owed to government agencies but not yet paid.
- Why it matters: Withheld taxes are held in trust for the government; unpaid amounts can create serious penalties. Payroll for small teams →
- Profit and Loss Statement (P&L)
- A report summarizing revenue, costs and expenses over a period to show whether the business made or lost money. Also called an income statement.
- Why it matters: Your P&L is the single most useful monthly report for running a small business. Monthly bookkeeping →
R
- Retained Earnings
- Accumulated profits kept in the business over time rather than distributed to owners.
- Why it matters: If retained earnings look wrong, prior years' books probably weren't closed properly.
S
- Sales Tax Payable
- Sales tax collected from customers that must be remitted to the state. In Texas, it's remitted to the Comptroller.
- Why it matters: Collected sales tax is never your money. Tracking it separately prevents surprise bills.
T
- Trial Balance
- A report listing every account's ending debit or credit balance to confirm total debits equal total credits.
- Why it matters: Your CPA often starts year-end work from the trial balance.
U
- Uncategorized Expense
- A holding account in QuickBooks for transactions that haven't been assigned to a real category.
- Why it matters: A large balance here means your P&L is unreliable and deductions may be missed. Cleanup for QuickBooks →
- Undeposited Funds
- A QuickBooks clearing account that holds received payments until they're grouped into a bank deposit.
- Why it matters: A growing balance usually means payments were recorded but never matched to deposits — overstating income. QuickBooks Online services →
Definitions are general educational information. Tejas Bookkeeping does not prepare or file tax returns — for tax treatment of any item, check with your CPA. Looking for numbers? See our small business bookkeeping statistics or browse the bookkeeping blog.