The Accounting Glossary

The only accounting terms you'll ever need to know

Accounts Payable — Money you owe and haven't yet handed over. The pile of IOUs with your name on them.

Accounts Receivable — Money owed to you that hasn't landed yet. The pile of IOUs with your customers' names on them.

Accrual accounting — Recording income and expenses when they happen, not when the cash moves. The invoice you raise on Monday counts on Monday, even if the money shows up three weeks later.

Accrued Expenses — Costs you've run up but haven't paid. The bill has happened; the payment hasn't caught up.

Accrued Income — Work you've done but haven't been paid for. Earned, invoiced, and still waiting by the mailbox.

Amortisation — Spreading the cost of an intangible thing — a licence, a patent, goodwill — across the years it earns its keep, instead of taking the hit all at once.

Assets — Everything your business owns that holds value: cash, kit, stock, the money owed to you. If you can sell it or it helps you earn, it's an asset.

Audit — A formal once-over of your books to confirm the numbers are honest. Nothing to fear if your records are tidy — which is rather the point of keeping them tidy.

Balance Sheet — A snapshot of what you own, what you owe, and what's left over for you, frozen at a single moment. Assets on one side, liabilities and equity on the other, always level.

Bank Reconciliation — Matching your records against your bank's, line by line, until the two agree. stub does the heavy lifting; you get the moment they tie out.

Bill — An invoice you've received from a supplier — money you owe, with a due date attached. The other side of the invoice you send.

Bookkeeping — Recording every financial move your business makes. A diary, except it's about money and stub writes most of it for you.

Break-even — The line where income exactly covers costs. Not winning, not losing — the moment before the fun part.

Budget — Your best guess at what you'll earn and spend, written down before the month talks you into something. A plan is just a wish with numbers.

Capital — The money and assets you put to work to grow the business. The fuel, not the joyride.

Capital Expenditure (CapEx) — Big spend on things built to last: the oven, the van, the machine that pays for itself over years, not weeks.

Cash Flow — The rhythm of money in and money out. Profit is an opinion; cash flow is what keeps the lights on.

Chart of Accounts — The master list of every account your business uses to sort its money. The filing system that keeps the books from becoming a shoebox.

Cost of Goods Sold (COGS) also called Cost of Sales — What it directly costs to make or buy what you sell: the flour in the cake, the fabric in the dress. Sell nothing, spend nothing here.

Credit — One half of every entry. A credit lowers assets and expenses, and lifts income, liabilities, and equity. Its opposite is a debit, and the two always balance.

Credit Note — A document that cancels or reduces an invoice you already sent — the refund's paperwork. You over-charged, or they returned the goods; the credit note squares it.

Current Assets — The assets you can turn into cash within a year: your bank balance, your stock, the invoices about to be paid. The money that funds today.

Current Liabilities — What you owe within the year: this month's bills, short-term loans, the tax that's nearly due. The near-term to-do list of debt.

Debit — The other half of every entry. A debit lifts assets and expenses, and lowers income, liabilities, and equity. The yin to credit's yang, and always equal to it.

Debit Note — A document raised against a supplier to reduce what you owe them — the credit note seen from the buyer's seat.

Deferred Revenue — Money a customer has paid you for something you haven't delivered yet. Cash in the account, but a promise on the books until you make good.

Depreciation — The value a physical asset loses as it ages and earns. Your van was worth more the day you bought it, and the books should say so.

Discount — Money knocked off an invoice, by percentage or flat amount. The sweetener that closes the deal.

Dividends — A slice of the profit paid out to the owners. The reward for the risk of owning the thing.

Equity — What the business is actually worth to you: everything it owns minus everything it owes. The "this is mine" line at the bottom.

Expenses — The money that leaves to keep the business running, from rent to the coffee that fuels it. Necessary leaks.

Financial Statements — The core reports on your business's health: the Balance Sheet, the Profit & Loss, the Cash Flow. The report card, minus the fridge magnet.

Financial Year — The twelve months your business measures itself by. It doesn't have to start in January, but it does have to start.

Fixed Assets — The big things you keep for the long haul: property, vehicles, equipment. Bought to use, not to flip.

Fixed Costs — The expenses that don't flinch when sales rise or fall. Rent and salaries want paying whether you sold ten or ten thousand.

General Ledger — The complete record of every transaction, in balanced debits and credits. The single source of truth every report is built from.

Gross Profit — What's left of your sales once you subtract the direct cost of making them (COGS), before the rest of the bills arrive. The first, most honest cut of profit.

Income also called revenue — Everything the business earns from selling what it sells, before any costs come off.

Income Statement also called a Profit & Loss — The record of what you earned and spent across a period, ending in the number everyone actually reads.

Income Tax — The government's cut of what your business earns. Unavoidable, so best planned for.

Inventory — The goods you're holding to sell, or the materials waiting to become them. Your treasure chest, assuming the treasure moves.

Invoice — The bill you send a customer for what you've delivered: what they owe, and by when. The document that turns work into money.

Journal Entry — A single recorded transaction, with its date, its debits, and its credits. The sentence; the ledger is the whole story.

Liabilities — Everything the business owes: loans, bills, unpaid tax. The claims other people have on your assets.

Liquidity — How fast you can turn what you own into spendable cash. A full warehouse is worth little if rent's due Friday.

Long-term Liabilities — Debts that outstay the year: the mortgage, the multi-year loan, the slow burners.

Loss — When expenses outrun income over a period. The month you'd rather redraw — and the data to make the next one better.

Matching Principle — The rule that an expense is recorded in the same period as the income it helped create. Costs and the sales they earned belong on the same page.

Net Profit — What's genuinely left after every cost — operating, interest, tax — comes off revenue. The bottom line, and it means it.

Operating Expenses (OpEx) — The everyday running costs that keep the doors open: rent, wages, software, the endless small stuff.

Overhead — The running costs not tied to any one product or sale — insurance, admin, the rent on the office. The price of simply existing as a business.

Payroll — Paying your team what they're owed, on time, with the tax handled. The dream doesn't work if the people who make it don't get paid.

Petty Cash — The small float kept on hand for small things: stamps, milk, the emergency doughnuts.

Prepaid Expenses — Things you've paid for now and will use later: the annual insurance, the year of software. Paid up front, spent over time.

Pro Forma — A preliminary invoice sent before the real one, so a customer knows the price and terms before committing. A quote wearing an invoice's suit.

Profit — What's left after the hustle and the costs. The reason the whole thing is worth doing.

Purchase Order — A document you send a supplier to confirm what you're buying, at what price, before they ship. Your intent to buy, in writing.

Quote — A written estimate you send a customer before the work begins: here's the price, here's what you get. No obligation until they say yes.

Recurring Invoice — An invoice stub sends on a schedule you set once, so the retainer or subscription bills itself. Set it, forget it, get paid.

Retained Earnings — The profit the business keeps and reinvests instead of paying out. The war chest for whatever's next.

Sales Tax also VAT — Tax you collect on sales and pass to the government — you're the middleman, not the recipient. stub tracks what you owe so the number's never a surprise.

Statement — A running summary of everything a customer owes or a supplier is owed, across every invoice and payment. The "where do we stand" document.

Supplier — Anyone your business buys from. The other half of every bill you pay.

Taxable Income — The portion of your income the tax is actually calculated on, once the legitimate deductions come off. What's left for the taxman to eye.

Trial Balance — A check that every debit and credit in the books agrees before you build the real reports. The books' spell-check.

Variable Costs — The costs that rise and fall with how much you sell: materials, commissions, packaging. Busy month, bigger bill.

Variant — A version of a product — the size, the colour, the flavour — tracked on its own so your stock counts stay honest.