Every small business owner should maintain their bookkeeping because it helps track the total profits and losses of their company. In addition, bookkeeping can organize your financial information and make it easier to survive a tax audit from the Internal Revenue Service.

Bookkeeping Terminology

Bookkeeping concerns all aspects of your company’s operations. Before introducing bookkeeping into your business, you should learn some crucial bookkeeping terminology first. That way, you can avoid misunderstandings later on when managing your business and reviewing your financial records.

Below are the top 35 bookkeeping terms you should learn right away:

1) Accounting Period

The estimated period that various accounting duties are fulfilled. This time period could be annually, monthly, or quarterly.

2) Accounts Payable

When creditors and suppliers deliver goods or services to your company, you’ll owe them a particular amount of money. The total amount owed is listed under accounts payable.

3) Accounts Receivable

When your business delivers goods or services to customers or clients, they’ll owe you money for them. The total amount they owe is listed under accounts receivable.

4) Accrual Accounting

Accrual accounting refers to a particular accounting method where you debit the expenses incurred and credit the payments earned within a specified period.

5) Asset Classes

Asset classes refer to specific securities which are affected by marketplace activities. These securities are divided into three different asset classes: stocks & equities, fixed income & bonds, and money market instruments & cash equivalents.

6) Assets

A business has current assets and fixed assets. Current assets can be turned into cash within 12 months, while fixed assets will take over 12 months to benefit the company. Fixed assets might include things like real estate properties and large pieces of machinery.

7) Balance Sheet

A balance sheet is a financial statement that shows the current financial position of a company. It can also show the company’s previous financial position at a different time. For example, the typical balance sheet will reveal the company’s total assets and liabilities, along with the total equity of the shareholder or business owner.

8) Bank Reconciliation

Bank reconciliation is a comparison of the information on a company’s bank statements and bookkeeping records.

9) Bonds & Coupons

Bonds are securities that generate a fixed income for an investor. When a bond investor receives interest payments on their bond, the annual interest rate of these interest payments is the coupon.

10) Capital

Capital is your company’s current financial assets, such as your inventory and cash. Your current assets minus your current liabilities equals your total capital (or working capital).

11) Cash Flow

The amount of money going in and out of your company at a particular time.

12)  Cash Flow Statement

A summary of the cash flow going in and out of your business.

13) Chart of Accounts

A chart that features all the accounts listed on your general ledger and their reference numbers.

14) Cost of Goods Sold

The cost of producing the products that your company sells to generate revenue.

15) Credits

Credits are the entry on a balance sheet for increasing liabilities (business debts) or decreasing business assets.

16) Debits

Debits are the entry on a balance sheet for decreasing liabilities (business debts) or increasing business assets.

17) Depreciation

Depreciation is the amount of lost value in certain company assets, such as computers and vehicles.

18) Diversification

Diversification is when you distribute your company’s capital investments into different types of assets in order to reduce financial risk.

19) Double-Entry Accounting

Double-entry accounting is a unique system of bookkeeping where you list every financial transaction as a credit entry and debit entry.

20) Equity

Equity is the value of your company-owned assets after subtracting your company’s total liabilities from its total asset value.

21) Expenses

The operating expenses of your company.

22) Fixed Asset

The asset a company owns to generate long-term income.

23) General Ledger

Summarizes every financial transaction that ever took place in the company.

24) Gross Profit

Gross profit is the total profit minus the expenses related to manufacturing and selling the goods or services.

25) Income Statement

The income statement outlines the revenue earned annually, quarterly, or monthly. The costs of goods sold get subtracted from the revenue earned to calculate the net profit (or loss).

26) Interest

When a company takes out a loan or borrows money, it must pay interest on the debt. A percentage of the debt is used to calculate the interest your company must pay each month.

27) Insolvency

If a business or person cannot pay back the debts owed to their lender, they are considered to be in a state of insolvency.

28) Inventory

All the products that are currently available and sold to consumers.

29) Journals

Bookkeepers use journals to record logs of each transaction that occurs daily in the company. For example, there is a separate journal for accounts receivable, accounts payable, and cash.

30) Liabilities

Liabilities are the various company debts that still need to be paid (e.g., loans, bonds, unpaid bills).

31) Net Income

Net income (or net profit) is the company’s total earnings (total revenue minus total expenses).

32) Profit and Loss Statement

The profit and loss statement is a critical financial document that outlines the company’s current financial position by listing the revenues, costs, and expenses within a specific timeframe.

33) Retained Earnings

The company’s remaining net income once dividends have been paid to its shareholders.

34) Return on Investment

Return on investment is how much money you get back on your investment compared to how much money you invested.

Net Profit / Cost of Investment = Total Return on Investment

35) Revenue

Revenue is the amount of money your company receives from selling goods or services and collecting interest payments. 


Now you should better understand the most important terms used in bookkeeping practices. You don’t have to be a bookkeeper for your own business, but it still helps to understand these terms when reviewing your company’s financial documents. That way, you can ensure all the records are listed accurately on the documents.

As for the bookkeeping itself, you should hire a professional bookkeeper to manage your company’s financial records. Then you can devote more time to running your business and making it more successful.