Accounting Terms: Complete Glossary
Master 75+ essential accounting terms every bookkeeper needs. From accounts payable to bank reconciliation, understand the terminology that drives accurate financial records.
7 Categories
Core concepts, financial statements, transaction processing, assets & liabilities, revenue & expenses, accounting principles, and specialized terms.
75+ Definitions
Each term includes clear definition, real-world example, and practical application for bookkeepers.
Practical Examples
Every term includes scenario-based examples showing how it applies in day-to-day bookkeeping work.
TL;DR
This complete accounting glossary covers 75+ essential terms organized into 7 categories. Every bookkeeper and accountant needs to master concepts like accounts payable, accounts receivable, general ledger, bank reconciliation, and the chart of accounts. Understanding these terms ensures accurate financial records and proper QuickBooks transaction categorization. Zera Books applies this terminology automatically through AI-powered categorization, achieving 99.6% accuracy for $79/month unlimited.
Core Accounting Concepts
Accounts Payable (AP)
Money your business owes to vendors, suppliers, and creditors for goods or services purchased on credit. Appears as a current liability on your balance sheet.
Example: You receive a $500 invoice from an office supply vendor with 30-day payment terms. This $500 becomes accounts payable until you pay it.
Accounts Receivable (AR)
Money customers owe to your business for goods or services delivered on credit. Appears as a current asset on your balance sheet.
Example: You invoice a client $3,000 for consulting services with net-30 terms. This $3,000 is accounts receivable until the client pays.
General Ledger
The complete record of all financial transactions in your business, organized by account. The foundation of your accounting system and the source for all financial reports.
Example: Every transaction (sales, expenses, payroll, bank deposits) gets recorded in the general ledger with debits and credits.
Chart of Accounts
A complete listing of all accounts in your general ledger, organized by category (assets, liabilities, equity, revenue, expenses) with unique account numbers.
Example: Your chart of accounts might include 1000-Cash, 1200-Accounts Receivable, 5000-Office Expenses, 6000-Payroll Expenses.
Double-Entry Bookkeeping
The accounting principle that every transaction affects at least two accounts with equal debits and credits. This ensures your books always balance.
Example: When you receive $1,000 cash from a customer, you debit Cash (+$1,000 asset) and credit Revenue (+$1,000 income).
Accrual Accounting
Recording revenue when earned and expenses when incurred, regardless of when cash changes hands. Required by GAAP for most businesses.
Example: You complete $5,000 of work in December but don't invoice until January. Under accrual accounting, you record the $5,000 revenue in December.
Cash Basis Accounting
Recording revenue when cash is received and expenses when cash is paid. Simpler than accrual but doesn't match revenue and expenses to the correct period.
Example: You receive a $2,000 payment in March for work completed in February. Cash basis records this as March revenue.
Financial Statements
Balance Sheet
A financial statement showing assets, liabilities, and equity at a specific point in time. Follows the equation: Assets = Liabilities + Equity.
Example: Your Dec 31 balance sheet shows $50,000 cash, $20,000 AR, $15,000 AP, and $55,000 owner equity.
Income Statement (P&L)
A financial statement showing revenue, expenses, and net income over a period of time. Also called Profit & Loss statement.
Example: Your Q4 P&L shows $100,000 revenue, $60,000 expenses, and $40,000 net income.
Cash Flow Statement
A financial statement tracking how cash moves in and out of your business through operating, investing, and financing activities.
Example: Your cash flow statement shows you generated $30,000 from operations, spent $10,000 on equipment, and received $20,000 in loans.
Trial Balance
A report listing all general ledger accounts with their debit or credit balances. Used to verify that total debits equal total credits.
Example: Your trial balance shows all accounts with Cash $50,000 (debit), Revenue $100,000 (credit), ensuring debits = credits.
Transaction Processing
Bank Reconciliation
Comparing your accounting records to bank statements to identify and resolve discrepancies. Essential for accurate financial records.
Example: You reconcile December by comparing your Cash account to bank statements, identifying outstanding checks and deposits in transit.
Journal Entry
A record of a business transaction showing the accounts affected, debit and credit amounts, and description. The building block of accounting.
Example: To record a $500 office expense payment: Debit Office Expense $500, Credit Cash $500.
Posting
Transferring journal entries to the general ledger accounts. This updates account balances and makes transactions visible in reports.
Example: After recording a journal entry, you post it so the Cash and Revenue accounts reflect the new balances.
Adjusting Entries
Journal entries made at the end of an accounting period to record transactions that haven't been recorded yet. Ensures accurate financial statements.
Example: At month-end, you record accrued interest earned but not received, or depreciation expense on assets.
Closing Entries
Journal entries at year-end that zero out temporary accounts (revenue, expenses) and transfer net income to retained earnings.
Example: You close $100,000 revenue and $60,000 expenses to Retained Earnings, leaving revenue/expense accounts at $0 for the new year.
Assets & Liabilities
Current Assets
Assets expected to be converted to cash or used within one year. Includes cash, accounts receivable, inventory, and prepaid expenses.
Example: Your current assets: $20,000 cash, $15,000 accounts receivable, $5,000 inventory.
Fixed Assets
Long-term physical assets used in business operations. Includes buildings, equipment, vehicles, and furniture. Subject to depreciation.
Example: Your fixed assets: $200,000 building, $30,000 equipment, $15,000 vehicles.
Depreciation
The systematic allocation of an asset's cost over its useful life. Reduces asset value on balance sheet and creates an expense on P&L.
Example: You buy a $10,000 computer with 5-year life. Annual depreciation: $2,000/year ($10,000 ÷ 5 years).
Current Liabilities
Obligations due within one year. Includes accounts payable, short-term loans, accrued expenses, and current portion of long-term debt.
Example: Your current liabilities: $10,000 accounts payable, $5,000 credit card balance, $3,000 accrued payroll.
Long-Term Liabilities
Obligations due after one year. Includes mortgages, bonds payable, and long-term loans.
Example: Your long-term liabilities: $150,000 business loan with 10-year term.
Owner's Equity
The owner's stake in the business. Equals Assets minus Liabilities. Includes owner contributions, retained earnings, and current year profit.
Example: Owner invested $50,000, business earned $30,000 profit, owner withdrew $10,000. Equity = $70,000.
Revenue & Expenses
Revenue Recognition
The accounting principle determining when revenue is recorded. Under accrual accounting, revenue is recognized when earned, not when cash is received.
Example: You complete a $10,000 project in December and invoice in January. You recognize the $10,000 revenue in December.
Cost of Goods Sold (COGS)
Direct costs of producing goods sold during a period. Includes materials, direct labor, and manufacturing overhead. Key metric for calculating gross profit.
Example: You sell products for $50,000. Materials cost $20,000, labor $10,000. COGS = $30,000. Gross profit = $20,000.
Operating Expenses
Costs of running your business that aren't directly tied to producing goods or services. Includes rent, salaries, marketing, insurance, and utilities.
Example: Your monthly operating expenses: $3,000 rent, $8,000 salaries, $1,000 marketing, $500 utilities.
Gross Profit
Revenue minus cost of goods sold. Shows profitability before operating expenses. Gross profit margin = (Gross Profit ÷ Revenue) × 100.
Example: Revenue $100,000, COGS $40,000. Gross profit = $60,000. Gross margin = 60%.
Net Income
The bottom line profit after all revenue and expenses. Revenue minus COGS minus operating expenses minus taxes. Also called net profit or earnings.
Example: Revenue $100,000, COGS $40,000, operating expenses $35,000, taxes $5,000. Net income = $20,000.
EBITDA
Earnings Before Interest, Taxes, Depreciation, and Amortization. Measures operating performance before non-cash expenses and financing costs.
Example: Net income $20,000 + interest $2,000 + taxes $5,000 + depreciation $3,000 = EBITDA $30,000.
Accounting Principles & Standards
GAAP (Generally Accepted Accounting Principles)
Standard framework of accounting principles, standards, and procedures used in the United States. Required for public companies and preferred for financial reporting.
Example: Following GAAP means using accrual accounting, matching revenue and expenses to the correct period, and providing proper disclosures.
Matching Principle
The accounting principle requiring expenses to be recorded in the same period as the related revenue. Core principle of accrual accounting.
Example: You pay $6,000 for annual insurance in January. You record $500/month expense over 12 months, not $6,000 in January.
Conservatism Principle
When faced with uncertainty, accountants should choose the option that least overstates assets or income. Anticipate losses but not gains.
Example: You estimate warranty costs will be $5,000-$10,000. Conservative approach records $10,000 liability.
Materiality Principle
The concept that small, insignificant items don't need the same level of accounting treatment as material items. Focus on what impacts decision-making.
Example: You buy a $20 stapler. Instead of recording it as an asset and depreciating it, you expense it immediately (immaterial).
Specialized Terms
Amortization
The gradual write-off of an intangible asset or loan principal over time. Similar to depreciation but for intangibles like patents or goodwill.
Example: You purchase a patent for $100,000 with 10-year life. Annual amortization expense = $10,000.
Bad Debt
Accounts receivable that are unlikely to be collected. Written off as an expense. Estimated using the allowance method or direct write-off method.
Example: Customer owes $5,000 but files bankruptcy. You write off $5,000 as bad debt expense.
Deferred Revenue
Money received for goods or services not yet delivered. A liability on your balance sheet until you earn the revenue by delivering.
Example: Customer pays $12,000 for annual software subscription in January. You recognize $1,000/month revenue over 12 months.
Working Capital
Current assets minus current liabilities. Measures short-term financial health and operational efficiency.
Example: Current assets $80,000, current liabilities $50,000. Working capital = $30,000 (positive = healthy).
Break-Even Point
The sales volume where total revenue equals total costs (fixed + variable). No profit, no loss. Key metric for pricing and business planning.
Example: Fixed costs $50,000/month, contribution margin 40%. Break-even sales = $125,000/month.
Variance Analysis
Comparing actual financial results to budgeted or expected amounts to identify and explain differences. Essential for management control.
Example: Budgeted revenue $100,000, actual $95,000. Unfavorable variance of $5,000 (5%) requires investigation.
Categories
Quick Reference: Account Types
Understand the five fundamental account types and their normal balances. Essential for proper transaction categorization in QuickBooks and Xero.
Asset Accounts
What your business owns
Liability Accounts
What your business owes
Equity Accounts
Owner's stake in business
Revenue Accounts
Income from business activities
Expense Accounts
Costs of doing business
Debit & Credit Rules Cheat Sheet
| Account Type | Increase | Decrease | Normal Balance |
|---|---|---|---|
| Assets | Debit | Credit | Debit |
| Liabilities | Credit | Debit | Credit |
| Equity | Credit | Debit | Credit |
| Revenue | Credit | Debit | Credit |
| Expenses | Debit | Credit | Debit |
How Zera Books Applies Accounting Terminology
Understanding accounting terms is essential. Applying them correctly across thousands of transactions is where Zera Books excels.
AI-Powered Categorization
Zera AI automatically categorizes every transaction using your chart of accounts. It understands accounting terminology and applies the correct account codes based on transaction descriptions.
Expense Classification: Automatically categorizes office supplies, utilities, rent, payroll, marketing
Revenue Recognition: Identifies sales, service income, interest income automatically
Asset Tracking: Recognizes equipment purchases, inventory costs, prepaid expenses
Bank Reconciliation Automation
Zera Books streamlines month-end bank reconciliation by extracting all transactions, detecting multiple accounts, and preparing files for direct import to QuickBooks or Xero.
Multi-Account Detection: Automatically separates checking, savings, and credit card transactions
Duplicate Prevention: Identifies and flags duplicate transactions before import
Format Accuracy: 99.6% extraction accuracy ensures clean reconciliation
Real-World Impact: Ashish Josan, Manager at Manning Elliott (CPA firm), processes bank statements for 30+ clients. Before Zera Books, manual categorization took 45 minutes per statement. Now, AI categorization reduces this to 5 minutes of review. "The AI understands accounting terminology better than some junior bookkeepers. It consistently applies the chart of accounts correctly across all client files."
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