Accounting Glossary
98 accounting and bookkeeping terms, explained in plain English — no jargon required to understand the jargon.
A
Accounts Receivable
Money owed to your business by clients for invoices issued but not yet paid. An asset on the balance sheet.
Accounts Payable
Money your business owes suppliers for bills received but not yet paid. A liability on the balance sheet.
ABN (Australian Business Number)
An 11-digit identifier for Australian businesses, required on tax invoices and for GST registration.
Asset
Anything of value a business owns — cash, receivables, equipment, property. Listed on the balance sheet.
Accrual Accounting
Recording income when earned and expenses when incurred — regardless of when cash moves.
Aging Report
A breakdown of unpaid invoices by how overdue they are — current, 30, 60, 90+ days. The collections to-do list.
Audit Trail
The chronological record showing who did what and when in the books — every entry traceable to its source.
Accrual
Recording income or an expense before cash moves — recognising the event in the period it belongs to.
Amortisation
Spreading an intangible asset's cost over time — or a loan's repayment schedule. The intangible cousin of depreciation.
B
Balance Sheet
A snapshot of what a business owns (assets), owes (liabilities), and the owner's stake (equity) at a point in time.
BAS (Business Activity Statement)
The periodic form Australian businesses lodge to report and pay GST, PAYG withholding, and other obligations.
Bank Reconciliation
Matching your books against bank statements to catch missing, duplicate, or erroneous transactions.
Bad Debt
An invoice that will never be collected, usually because the client can't or won't pay. Written off as an expense.
Bookkeeping
The ongoing recording and organising of financial transactions — the foundation all accounting is built on.
Balance Due
The unpaid remainder of an invoice after any part-payments and credits are applied.
Break-Even Point
The sales level at which revenue exactly equals total costs — beyond it every sale contributes profit.
Burn Rate
How quickly a business spends its cash reserves per month. Cash divided by burn rate equals runway.
Budget
A financial plan setting expected income and spending for a period — the yardstick actual results are measured against.
C
Cash Flow
The movement of money in and out of a business. Profitable businesses can still fail if cash runs out.
Chart of Accounts
The organised list of all accounts used to categorise transactions — assets, liabilities, equity, income, and expenses.
Credit Note
A document reducing what a client owes — issued for returns, overcharges, or goodwill adjustments.
Credit
An entry on the right side of an account. Credits increase liabilities, equity, and income; they decrease assets and expenses.
Cash Accounting
Recording income and expenses only when money actually moves. Simpler, and closer to bank reality.
Client / Customer
A person or business that buys from you. Client records tie together invoices, payments, and revenue history.
Capital
Money or assets invested in a business to generate income — the owners' stake plus borrowed funds put to work.
Capital Expenditure (CapEx)
Spending on long-lived assets — equipment, vehicles, property — capitalised and depreciated rather than expensed at once.
Cost of Goods Sold (COGS)
The direct costs of producing what you sold — materials, direct labour, freight. Revenue minus COGS equals gross profit.
Cash Flow Forecast
A projection of money in and out over coming weeks or months, revealing shortfalls while there's still time to act.
Company (Pty Ltd)
A separate legal entity owned by shareholders — limited liability, its own tax rate, more ongoing compliance.
D
Depreciation
Spreading the cost of a long-lived asset over its useful life instead of expensing it all at purchase.
Double-Entry Bookkeeping
The system where every transaction affects at least two accounts, keeping the books mathematically self-checking.
Debit
An entry on the left side of an account. Debits increase assets and expenses; they decrease liabilities, equity, and income.
Deferred Revenue
Money received before the work is done — a liability until you deliver, then recognised as income.
Dividend
A distribution of company profits to shareholders. In Australia, franking credits can attach for company tax already paid.
Drawings
Money a sole trader or partner takes from the business for personal use — a reduction of equity, not an expense.
Deposit
An upfront part-payment securing work or goods — reduces risk and funds early costs; unearned revenue until delivered.
E
Expense
Money a business spends to operate — rent, software, wages, supplies. Deductible expenses reduce taxable profit.
Equity
The owner's residual stake in the business: assets minus liabilities. Grows with retained profits.
Early Payment Discount
A small discount for paying fast — e.g. 2% if paid within 10 days. Trades margin for improved cash flow.
F
Fiscal Year
The 12-month period a business uses for accounting and tax. In Australia: 1 July to 30 June.
Financial Statements
The formal set of reports — P&L, balance sheet, cash flow statement — that together describe a business's financial position.
G
GST (Goods & Services Tax)
A broad consumption tax (10% in Australia) added to most sales. Registered businesses collect it and remit it via BAS.
General Ledger
The master record of every financial transaction, organised by account. All reports are built from it.
Gross Profit
Revenue minus the direct costs of delivering it. Shows whether the core offering is profitable before overheads.
Gross Pay
An employee's earnings before any deductions — base salary or wages plus allowances and overtime.
Goodwill
The premium paid for a business above its identifiable net assets — reputation, clients, brand. Arises on acquisition.
H
Home Office Expenses
Deductible costs of working from home — running costs like power and internet, claimed by fixed rate or actual cost.
I
Invoice
A document sent to a client requesting payment for goods or services, listing items, amounts, tax, and payment terms.
Invoice Number
The unique sequential identifier on each invoice. Gaps and duplicates raise questions in audits.
Instant Asset Write-Off
A tax rule letting eligible small businesses deduct the full cost of assets immediately instead of depreciating over years.
Inventory
Goods held for sale. An asset on the balance sheet until sold, when its cost moves to COGS.
Invoice Financing
Borrowing against unpaid invoices, or selling them, to get cash now instead of waiting on payment terms.
Intangible Asset
A non-physical asset with value — software, trademarks, patents, licences, goodwill.
Insolvency
Being unable to pay debts as they fall due — the trigger for administration, liquidation, or restructuring.
Independent Contractor
A self-employed person engaged for results rather than employed for time — different tax, super, and legal treatment.
J
Journal Entry
A recorded transaction showing which accounts are debited and credited, with the amounts always balancing.
L
Liability
Anything a business owes — unpaid bills, loans, taxes collected but not yet remitted.
Landed Cost
The true cost of getting a product to your door — purchase price plus freight, customs duty, insurance, and handling.
Late Fee
A charge added to overdue invoices — must be stated in your terms beforehand to be enforceable.
Line of Credit
A pre-approved borrowing limit drawn on as needed — interest only on what's used. A cash-flow buffer.
Liquidity
How quickly assets convert to cash to meet obligations. Cash is most liquid; property least.
M
Markup
The amount added to cost to reach the selling price, expressed as a percentage of cost (not of price).
N
Net Profit
What remains after ALL expenses, including overheads and tax. The true bottom line.
Net Pay
Take-home pay — gross earnings minus tax withheld and other deductions. What actually lands in the bank.
O
Overdue Invoice
An invoice unpaid past its due date. Prompt, systematic follow-up dramatically improves collection rates.
Operating Expense (OpEx)
The recurring day-to-day costs of running the business — rent, wages, software, utilities.
Overhead
Costs that keep the business running but aren't tied to any specific sale — rent, admin wages, insurance.
P
Profit & Loss (P&L)
A report of revenue and expenses over a period, ending in net profit or loss. Also called an income statement.
Payment Terms
The agreed timeframe and conditions for paying an invoice — e.g. Net 30, due on receipt, or 50% upfront.
Profit Margin
Profit as a percentage of revenue. Gross margin covers direct costs; net margin covers everything.
Petty Cash
A small cash float for minor purchases, tracked with receipts and topped up as it's spent.
Purchase Order (PO)
A buyer's formal commitment to purchase, issued before delivery. Suppliers quote the PO number on their invoice.
Prepayment
Paying in advance for something consumed later — insurance, rent, subscriptions — expensed gradually as it's used.
Partnership
Two or more people in business together, sharing profits, losses, and usually personal liability.
PAYG Withholding
Tax an employer withholds from wages and remits to the ATO on the employee's behalf, reported via BAS.
Payroll
The process of paying employees — calculating gross pay, withholding tax, adding super, and reporting to the ATO via STP.
Progress Invoice
Billing a project in stages as milestones complete, so cash arrives as work proceeds.
Pro Forma Invoice
A preliminary invoice-shaped document for approvals or customs — not a demand for payment or a tax invoice.
Q
Quote / Estimate
A priced proposal issued before work begins. A quote is typically fixed; an estimate is an informed approximation.
R
Receipt
Proof that a payment was made and accepted. Receipts substantiate expenses for tax deductions and reimbursements.
Revenue
Total income earned from sales before any costs are deducted. Also called turnover or gross income.
Recurring Invoice
An invoice generated automatically on a schedule — ideal for retainers, subscriptions, and ongoing services.
Retainer
A recurring fee for ongoing availability or a set amount of work each period. The backbone of predictable revenue.
Reimbursement
Repaying someone — usually an employee — for business costs they paid personally, against receipts.
Remittance Advice
A note from a payer listing which invoices a payment covers — essential for allocating lump-sum payments correctly.
S
Statement of Account
A summary sent to a client listing their invoices, payments, and current balance over a period.
Sole Trader
The simplest business structure — one individual trading in their own name, personally liable, taxed at personal rates.
Superannuation
Compulsory retirement contributions Australian employers pay quarterly on top of wages — deadlines are strictly enforced.
Stocktake
A physical count of inventory, reconciled against the records to catch shrinkage, damage, and errors.
Solvency
The ability to pay debts as they fall due. Trading while insolvent exposes directors to personal liability.
T
Tax Invoice
An invoice that meets tax-authority requirements, showing the seller's tax registration and the tax charged — required for claiming GST credits.
Trial Balance
A listing of every ledger account with its balance — total debits must equal total credits.
Trust
A structure where a trustee holds assets for beneficiaries — common for family businesses and asset protection.
V
Vendor / Supplier
A business you buy goods or services from. Vendor records tie together bills, payments, and spending history.
Variance
The difference between budgeted and actual figures. Favourable or unfavourable, variances point to what changed.
Vehicle Expenses
Costs of business vehicle use — claimed per kilometre or via the logbook method in Australia.
W
Write-Off
Removing an amount from the books as unrecoverable or fully expensed — a bad debt, obsolete stock, or depreciated asset.
Working Capital
Current assets minus current liabilities — the buffer available to fund day-to-day operations.