Accounting Glossary: Plain-English Definitions

Accounting has its own vocabulary, and most of it isn't taught anywhere unless you went looking for it. This glossary covers the terms small business owners actually run into · in accounting software, on financial statements, or in a conversation with a bookkeeper · explained without circular jargon (no definitions that just use three other undefined terms).

Accounts Payable (AP)

Money your business owes to suppliers or vendors for goods or services you've already received but haven't paid for yet. If you get a $500 invoice from a supplier due in 30 days, that $500 sits in accounts payable until you pay it. Most accounting software gives you an "AP" report showing everything you currently owe and when it's due · useful for planning cash flow so you don't get surprised by a due date.

Accounts Receivable (AR)

The mirror image of accounts payable: money owed to your business by customers who've received goods or services but haven't paid yet. If you invoice a client $2,000 with 30-day terms, that $2,000 sits in accounts receivable until they pay. An "AR aging report" breaks this down by how overdue each invoice is (current, 30 days, 60 days, 90+ days) · the single most useful report for catching slow-paying customers before it becomes a real cash problem.

Balance Sheet

A snapshot, at one specific date, of what your business owns (assets), what it owes (liabilities), and what's left over for the owner (equity). It's called a "balance" sheet because assets always equal liabilities plus equity · that's not a coincidence, it's how double-entry bookkeeping works. Unlike a profit and loss statement, which covers a period of time, a balance sheet is a single moment: "as of September 30."

General Ledger

The master record of every financial transaction your business has ever made, organized by account. Every sale, expense, payment, and adjustment lands in the general ledger somewhere. In practice, you'll rarely look at the raw general ledger yourself · your accounting software uses it behind the scenes to generate the reports you actually read (balance sheet, profit and loss, etc.).

Trial Balance

A report listing every account in your general ledger and its current balance, used as a checkpoint to confirm total debits equal total credits before closing the books for a period. If a trial balance doesn't balance, something was entered wrong somewhere and needs to be found before you can trust any report built on top of it. Bookkeepers and accountants run this as a routine sanity check, not something a business owner needs to review personally.

Write-Off

Removing an asset's value from your books, most commonly because a customer's unpaid invoice is never going to be collected, or because equipment has become worthless. Writing off a bad debt doesn't get you the money back · it just corrects your books to reflect reality instead of counting money you're never actually going to receive as an asset.

Double-Entry Bookkeeping

An accounting method where every transaction gets recorded in at least two accounts · one debit, one credit · so the books always stay in balance. If you buy $200 of office supplies with cash, your supplies expense goes up by $200 and your cash goes down by $200: two entries, one transaction. Nearly every accounting software (QuickBooks, Xero, FreshBooks, Wave) handles the double-entry mechanics automatically; you just categorize the transaction and the software posts both sides correctly.

Accrual Accounting

An accounting method that records income and expenses when they're earned or incurred, not when cash actually moves. If you invoice a client in December but they pay in January, accrual accounting counts that as December income. This is the opposite of cash-basis accounting, which only records a transaction when money changes hands. We cover the tradeoffs between the two in more depth in our bookkeeping basics guide.