Reference
Accounting & Bookkeeping Glossary
Accounts Payable (AP)
Money your business owes to vendors and suppliers for goods or services received but not yet paid. AP appears as a current liability on your Balance Sheet.
Accounts Receivable (AR)
Money owed to your business by customers for goods or services already delivered but not yet collected. AR appears as a current asset on your Balance Sheet.
Accrual Accounting
An accounting method that records income when earned and expenses when incurred — regardless of when cash changes hands. Required for larger businesses; optional for most small businesses.
Balance Sheet
A financial statement showing your business's assets, liabilities, and equity at a specific point in time. Assets = Liabilities + Owner's Equity.
Bank Reconciliation
The process of matching your QuickBooks or accounting records against your actual bank statements to verify they agree and catch any errors or missing transactions.
Bookkeeping
The process of recording, organizing, and maintaining your business's financial transactions. See our guide: What Is Bookkeeping?
Cash Flow
The movement of money into and out of your business during a period. Positive cash flow means more money came in than went out. You can be profitable on paper but have a cash flow problem if customers pay slowly.
Cash-Basis Accounting
An accounting method that records income when cash is received and expenses when cash is paid. Simpler than accrual accounting and used by most small businesses.
Chart of Accounts
A categorized list of every account your business uses to record financial transactions — organized by type: assets, liabilities, equity, income, and expenses.
Cost of Goods Sold (COGS)
The direct costs of producing or purchasing the products your business sells. Revenue minus COGS equals gross profit.
Depreciation
The process of spreading the cost of a long-term asset (equipment, vehicle, building) over its useful life. A $10,000 piece of equipment depreciated over 5 years = $2,000 expense per year.
Double-Entry Bookkeeping
The accounting system where every transaction affects at least two accounts — a debit in one and a credit in another. This keeps the Balance Sheet equation (Assets = Liabilities + Equity) in balance.
EBITDA
Earnings Before Interest, Taxes, Depreciation, and Amortization. A measure of business profitability that removes non-operating and non-cash items. Commonly used in business valuations.
Estimated Taxes
Quarterly tax payments made by self-employed individuals and businesses that expect to owe $1,000 or more in federal taxes for the year. Due April 15, June 15, September 15, and January 15.
Fiscal Year
A 12-month accounting period used by a business. Most small businesses use a calendar fiscal year (January 1 – December 31), but businesses can choose any 12-month period.
Fixed Assets
Long-term physical assets used in business operations — equipment, vehicles, real estate, furniture. Also called property, plant, and equipment (PP&E). Fixed assets are depreciated over time.
Form 1099
An IRS information return used to report income paid to non-employees. The most common for small businesses: Form 1099-NEC (non-employee compensation) for contractors paid $600 or more in a year.
Form W-2
The annual wage and tax statement issued by employers to employees by January 31. Shows total wages paid and taxes withheld during the calendar year.
General Ledger
The master record of all financial transactions for a business, organized by account. Every bookkeeping entry appears in the general ledger. QuickBooks maintains this automatically.
Gross Profit
Revenue minus Cost of Goods Sold (COGS). Gross profit shows how much money is left after paying for the products you sold, before overhead expenses.
Income Statement (P&L)
A financial statement showing revenues, expenses, and net income (or loss) over a period of time. Also called a Profit & Loss statement. One of the three core financial statements.
Inventory
The goods a business holds for sale. Properly valued inventory is required for accurate COGS and financial statements. Common methods: FIFO (first-in, first-out) and weighted average cost.
Journal Entry
A record of a financial transaction in the accounting system, showing the accounts debited and credited. In QuickBooks, most journal entries are created automatically when you record transactions.
Liability
A financial obligation your business owes to an outside party. Current liabilities (due within one year) include accounts payable, accrued expenses, and short-term debt. Long-term liabilities include mortgages and long-term loans.
Nexus (Sales Tax)
The connection between your business and a tax jurisdiction that creates an obligation to collect and remit sales tax there. Physical nexus = having a location. Economic nexus = meeting a sales threshold (often $100,000 or 200 transactions). See our Sales Tax page.
Net Income
Revenue minus all expenses — the "bottom line." Net income is what remains after subtracting COGS, operating expenses, taxes, and interest. Also called net profit or net earnings.
Payroll Taxes
Taxes paid by employers (and employees) based on wages. Employer payroll taxes include: FICA (Social Security 6.2% + Medicare 1.45%), FUTA (federal unemployment), and SUTA (state unemployment).
Profit & Loss Statement (P&L)
See Income Statement. A financial report showing revenues minus expenses equals net income or loss over a specific period.
QuickBooks
The most widely used small business accounting software. QuickBooks Online (cloud-based) is the current standard. ASU uses QuickBooks for all client bookkeeping and offers setup and support services.
Retained Earnings
The cumulative net income of a business that has been kept in the business rather than distributed to owners. Retained earnings increase with profits and decrease with losses or owner distributions.
Revenue
The total income generated by your business from its primary operations (sales of goods or services) before any expenses are deducted. Also called gross revenue or top-line revenue.
Sales Tax
A consumption tax collected by businesses from customers on taxable sales and remitted to the government. In Louisiana, sales tax is collected at both the state level and by each of the 64 parishes separately.
Schedule C
IRS Schedule C (Form 1040) is used by sole proprietors and single-member LLCs to report business income and expenses on their personal tax return. Net profit from Schedule C is subject to self-employment tax.
Trial Balance
A bookkeeping report that lists all general ledger accounts and their balances at a point in time. Used to verify that debits equal credits and to prepare financial statements.
Unearned Revenue
Payment received from customers before the related goods or services have been delivered. Unearned revenue is a liability until the service is performed or the product is delivered.
Working Capital
Current assets minus current liabilities. Working capital measures your business's ability to cover short-term obligations with short-term assets. Positive working capital = more liquidity. Negative working capital = potential cash flow risk.
Common Accounting Questions
What is the difference between revenue and income?
Revenue (also called gross revenue or top-line) is the total money your business brings in from sales before any expenses. Income (or net income) is what's left after subtracting all expenses from revenue. A business can have high revenue and negative net income if expenses exceed sales.
What is the difference between accounts payable and accounts receivable?
Accounts payable (AP) is money you owe to others — your bills, vendor invoices, and unpaid obligations. It appears as a liability on your Balance Sheet. Accounts receivable (AR) is money others owe to you — your outstanding invoices and customer balances. It appears as an asset. AP and AR together give you a picture of near-term cash obligations and expected cash inflows.
What is the difference between cash-basis and accrual accounting?
Cash-basis accounting records income when cash is received and expenses when cash is paid. It's simple and shows your actual cash position. Accrual accounting records income when earned (even if unpaid) and expenses when incurred (even if unpaid). Accrual provides a more accurate picture of profitability but is more complex. Most small businesses use cash-basis; lenders and larger businesses often require accrual.
What does COGS mean and why does it matter?
COGS stands for Cost of Goods Sold — the direct cost of producing or purchasing what you sell. Revenue minus COGS equals gross profit, which tells you how much you make on each sale before overhead. Without accurate COGS tracking, you don't know your true profit margin. Retail, restaurant, and manufacturing businesses need careful COGS tracking.
What is working capital and how do I know if mine is healthy?
Working capital is current assets minus current liabilities. It measures your ability to pay near-term bills with near-term resources. Positive working capital is generally healthy. Negative working capital means your short-term obligations exceed your short-term assets — a warning sign. Most lenders look at working capital when evaluating business loan applications.