Bookkeeping Glossary for Small Business Owners
A Quick-Reference Terminology Guide from Best Balance Bookkeeping
Bookkeeping terms can feel like a foreign language when you’re just getting started. At Best Balance Bookkeeping, we want you to feel confident, informed, and empowered—so we created this quick glossary of essential bookkeeping terms. Whether you’re doing your own books or working with a professional, this guide will help you understand the basics with ease.
Core Bookkeeping Terms
🔧 Cleanup
A cleanup restores accuracy to your books by correcting past errors, reclassifying transactions, removing duplicates, and organizing everything properly.
⏱️ Catch Up
Catch-up bookkeeping records financial activity that hasn’t been entered yet. If you’ve fallen behind, catching up brings your books current so you can see where your business stands.
🔄 Reconciliation
Reconciliation compares your bookkeeping records with actual bank and credit card statements. This process ensures your books match reality and helps identify missing or incorrect transactions.
📅 Year-End Close
The year-end close finalizes your financial records for the year. This includes reconciling every account, reviewing reports, and preparing your books for tax season.
📤 Accounts Payable (AP)
Money your business owes to vendors or suppliers. These are your unpaid bills.
📥 Accounts Receivable (AR)
Money that customers owe your business. These are outstanding invoices that customers have yet to pay.
📊 Monthly Financial Reports
Balance Sheet
A snapshot of your business’s financial health. It shows:
- Assets (Anything you own, whether tangible or non-tangible, that likely has future financial benefit to your business.)
- Liabilities (what the business owes)
- Equity (the value of the business)
Income Statement (Profit & Loss Statement)
Shows revenue, expenses, and profit over a specific period. This report tells you whether your business made or lost money.
Statement of Cash Flows
Tracks how money moves in and out of your business—across operating, investing, and financing activities.
💵 Revenue, Profit & Cost Terms
Revenue (Sales)
All the money your business earns before expenses.
Income
Sometimes incorrectly used interchangeably with revenue, but often refers to net income, which is profit after expenses.
Gross Profit
Revenue minus Cost of Goods Sold (COGS). This shows how much profit you make before overhead expenses.
Net Profit (Net Income)
Your bottom line: total revenue minus all expenses.
EBIT (Earnings Before Interest and Taxes)
This is the same as Net Profit, with Loan Interest and Sales Tax expenses added back in.
Cost of Goods Sold (COGS)
The direct cost of producing or delivering your products or services—such as materials, manufacturing, or direct labor.
Expense
The costs of running your business, like software fees, rent, supplies, marketing, or professional services.
Inventory
Products or materials you have on hand to sell. Proper inventory tracking helps measure profitability and calculate COGS accurately.
📚 Additional Terms Every Business Owner Should Know
📂 Chart of Accounts
A complete list of all accounts used to categorize your transactions—assets, liabilities, income, expenses, and equity.
🧮 Cash vs. Accrual Basis Accounting
Cash Basis: Records income when received and expenses when paid.
- Accrual Basis: Records income when earned and expenses when incurred, giving a fuller picture of your financial activity.
📘 General Ledger
The master record of all your financial transactions.
📝 Journal Entry
A manual adjustment entered into your bookkeeping system to correct or update financial information.
📅 Posting
The process of recording transactions into the appropriate accounts within your general ledger.
🧾 Vendor vs. Customer
Vendors: Businesses you pay.
- Customers: Individuals or businesses who pay you.
📉 Depreciation
Spreading out the cost of a long-term tangible asset—like machinery or vehicles—over its predicted useful life.
📉 Amortization
Spreading out the cost of an intangible asset such as software or intellectual property over its predicted useful life.
🧾 Sales Tax Liability
The amount of sales tax your business has collected and must remit to the state.
💙 Need Help Keeping Your Books Balanced?
Bookkeeping doesn’t have to be overwhelming. Best Balance Bookkeeping is here to help with cleanup, catch-up work, monthly maintenance, and year-end close—all in clear, easy-to-understand terms.
👉 Reach out anytime if you’d like support managing your business finances with confidence and clarity.
This content is not financial advice, and is for informational and educational purposes only. I am not a CPA, enrolled agent, or tax preparer, and I do not provide tax advice, tax preparation, or legal guidance. Best Balance Bookkeeping offers bookkeeping services only. Please consult a licensed tax professional or attorney for advice specific to your situation. By interacting with the content on this site you are agreeing to the Terms of Service and Privacy Policy.