The 70 Accounting Terms You Need To Know

Accounting terms can be confusing, but they don’t have to be. This glossary breaks down 60 essential accounting terms and abbreviations with clear, straightforward definitions for business owners and students.

For a deeper introduction, check out our free Beginner’s Guide to Accounting eBook or explore our picks for the best small business accounting software.

Basic Accounting Terms & Definitions

Use this glossary to quickly look up essential accounting terms and their definitions.

1. Accountant

An accounting professional who prepares, maintains, analyzes, or audits financial records and helps individuals or businesses manage their finances.

2. Accounting Automation

Software features that automate repetitive accounting tasks, such as recurring invoices, payment reminders, expense categorization, and bank reconciliations.

3. Accounting Equation

The accounting equation is the foundation of double-entry accounting:

Assets = Liabilities + Equity

4. Accounts

Records used to track specific financial transactions. Accounts are typically grouped into five categories: assets, liabilities, equity, revenue, and expenses.

5. Accounts Payable (AP)

Money your business owes to vendors or suppliers for products or services purchased on credit.

6. Accounts Receivable (AR)

Money customers owe your business for products or services you’ve delivered but haven’t been paid for yet.

7. Accrual Accounting

An accounting method that records income when it’s earned and expenses when they’re incurred, regardless of when money is received or paid.

8. Accrued Expenses

Expenses that have been incurred but haven’t been paid yet. Common examples include wages, interest, and utilities owed at the end of an accounting period.

9. AI Accounting

The use of artificial intelligence to automate tasks such as transaction categorization, bank reconciliation, forecasting, invoice processing, and financial reporting.

10. Amortization

The process of gradually spreading the cost of an intangible asset or loan over a set period of time.

11. Assets

Resources your business owns that have financial value, such as cash, inventory, equipment, and property.

12. Audit

A formal review of a business’s financial records to verify their accuracy and ensure compliance with accounting standards or regulations.

13. Balance Sheet

A financial statement that summarizes a business’s assets, liabilities, and equity at a specific point in time.

14. Bank Feed

A secure connection between your bank account and accounting software that automatically imports bank transactions.

15. Bookkeeper

A professional who records and manages a business’s day-to-day financial transactions.

16. Bookkeeping

The process of recording and organizing a business’s financial transactions.

17. Capital

Money or other assets invested in a business to help fund its operations and growth.

18. Cash Flow (CF)

The movement of money into and out of a business.

19. Cash Flow Statement

A financial statement that summarizes the cash coming into and going out of a business over a specific period.

20. Cash-Basis Accounting

An accounting method that records income when payment is received and expenses when they’re paid, regardless of when they’re earned or incurred.

21. Certified Public Accountant (CPA)

A licensed accounting professional who has met state education, examination, and experience requirements. CPAs can perform services such as audits, tax preparation, financial reporting, and business consulting.

22. Chart Of Accounts

A list of all the financial accounts a business uses to organize and track transactions. Accounts are typically grouped into categories such as assets, liabilities, equity, revenue, and expenses.

23. Cloud-Based

Software that’s accessed over the internet instead of being installed on a local computer or server. Most modern accounting software is cloud-based, allowing users to access their data from virtually anywhere.

24. Contra Accounts

Accounts that offset the balance of a related account in the general ledger. For example, accumulated depreciation is a contra asset account because it reduces the value of a fixed asset.

25. Cost Of Goods Sold (COGS)

The direct costs of producing the products or services your business sells, such as materials and direct labor.

26. Credits

Accounting entries that increase liabilities, equity, or revenue and decrease assets or expenses. Credits are recorded on the right side of an account.

27. Current Assets

Assets that are expected to be converted into cash, sold, or used up within one year or one operating cycle. Common examples include cash, inventory, and accounts receivable.

28. Debits

Accounting entries that increase assets or expenses and decrease liabilities, equity, or revenue. Debits are recorded on the left side of an account.

29. Depreciation

The process of spreading the cost of a tangible business asset over its useful life instead of deducting the full cost all at once. Common examples include equipment, vehicles, and buildings.

30. Double-Entry Accounting

An accounting method in which every transaction affects at least two accounts, with total debits always equaling total credits. Most businesses use double-entry accounting because it provides a more complete and accurate picture of their finances.

31. Enterprise Resource Planning (ERP)

Software that helps businesses manage and integrate core operations, such as accounting, inventory, payroll, human resources, and customer management, in a single system.

32. Equity

The owner’s financial interest in a business. Equity equals a company’s assets minus its liabilities.

33. Expenses

The costs a business incurs to operate and generate revenue, such as rent, payroll, utilities, and supplies.

34. Fixed Assets

Long-term assets a business owns and uses to operate, such as buildings, equipment, vehicles, and machinery. Fixed assets are expected to last more than one year.

35. Fixed Expenses

Business expenses that generally stay the same from month to month, such as rent, insurance, and loan payments.

36. Free Cash Flow

Cash remaining after a business pays its operating expenses and capital expenditures. Free cash flow can be used to pay debt, invest in growth, or return money to owners or shareholders.

37. General Ledger

The primary accounting record that contains all of a business’s financial transactions and account balances.

38. Gross Profit

Revenue minus the cost of goods sold (COGS). Gross profit measures how much money a business earns before operating expenses are deducted.

39. Invoice

A document that requests payment for products or services provided, including the amount due, payment terms, and due date.

40. Job Costing

A method of tracking the costs and profitability of individual jobs or projects.

41. Journal Entries

Accounting records used to document business transactions by recording the affected accounts, debits, and credits in chronological order.

42. Liabilities

Money or other financial obligations a business owes to others.

43. Liquidation

The process of selling a business’s assets to pay off debts, often as part of closing the business.

44. Locally-Installed

Software that’s installed directly on a computer or device instead of being accessed over the internet. Some locally installed software may still require an internet connection for updates or license verification.

45. Negative Cash Flow

A situation where more cash leaves the business than comes in during a given period. Prolonged negative cash flow can make it difficult to cover operating expenses.

46. Net 30

A payment term that gives customers 30 days from the invoice date to pay their bill. Similar terms include Net 15 and Net 60.

47. Net Cash Flow

The difference between total cash inflows and total cash outflows during a specific period.

48. Net Profit

The amount of money a business has left after subtracting all expenses from its total revenue. Net profit is often referred to as the “bottom line.”

49. Operating Cash Flow

Cash generated from a company’s normal business operations, excluding investing and financing activities.

50. Optical Character Recognition (OCR)

Technology that reads receipts, invoices, and other financial documents so accounting software can automatically extract key information.

51. Operating Expenses

The day-to-day costs of running a business, such as payroll, rent, utilities, marketing, and office supplies.

52. Payroll

The process of calculating and paying employee wages, salaries, taxes, and deductions. Payroll can also refer to the employees being paid.

53. Profit & Loss Report (P&L)

A financial statement that summarizes a business’s revenue, expenses, and profit over a specific period. Also called an income statement.

54. Proposal

A document that outlines the products, services, pricing, or scope of work a business is offering to a prospective customer.

55. Purchase Order

A document issued by a buyer requesting goods or services from a supplier, including quantities, pricing, and other purchase details.

56. Quote

A document that outlines the estimated cost of products or services before a sale is finalized.

57. Positive Cash Flow

A situation where more cash comes into the business than goes out during a given period. Positive cash flow generally indicates a business has enough cash to cover its expenses.

58. Real-Time Reporting

Financial reports that update automatically as new transactions are recorded, providing an up-to-date view of a business’s finances.

59. Reconciliation

The process of comparing financial records, such as bank statements and accounting records, to identify and correct discrepancies.

60. Return On Investment (ROI)

A measure of how profitable an investment is, typically expressed as a percentage.

ROI = (Gain from Investment − Cost of Investment) / Cost of Investment

61. Revenue

The total income a business earns from selling products or services before expenses are deducted.

62. Sales Order

A document issued by a seller confirming a customer’s order for products or services after receiving a purchase order or sales request.

63. Single-Entry Accounting

An accounting method that records each transaction only once, typically as income or an expense. It’s simpler than double-entry accounting but provides less detailed financial information.

64. Software As A Service (SaaS)

A software delivery model in which users pay a subscription to access software over the internet instead of purchasing it outright.

65. Solvency

A business’s ability to meet its long-term financial obligations. A solvent business has enough assets to cover its debts over time.

66. Tax Deduction

An eligible expense that reduces your taxable income, which may lower the amount of tax you owe.

67. Taxes

Required payments individuals and businesses make to local, state, or federal governments to help fund public programs and services.

68. Trial Balance

A report that lists the balances of all general ledger accounts. In a balanced trial balance, total debits equal total credits.

69. Variable Expenses

Business expenses that change over time based on activity or usage, such as utilities, shipping, maintenance, and raw materials.

70. Year-End Accounting

The process of reviewing and closing a business’s books at the end of the accounting year to ensure financial records are complete and accurate.