Glossary
Accounting terms, without the jargon
27 terms every founder and accounting student should know — each with a worked example and the concepts it connects to.
Bookkeeping Basics
- Adjusting EntriesEnd-of-period journal entries that move revenues and expenses into the correct period before financials are issued.
- Bookkeeping vs AccountingBookkeeping is recording transactions; accounting is interpreting them — one captures, the other explains.
- Chart of AccountsThe organized list of every account a company uses to record transactions — the index of its general ledger.
- Contra AccountAn account that offsets and reduces the balance of a related account instead of recording directly into it.
- Debit and CreditThe left and right sides of every journal entry — the two directions a transaction can move an account's balance.
- Double-Entry BookkeepingThe recording system where every transaction hits at least two accounts, with total debits always equal to total credits.
- General LedgerThe complete set of every account a company's transactions post to — the master record behind all financial statements.
- Journal EntryThe fundamental record of a transaction: one debit and one or more credits, for equal totals, in the general ledger.
- Trial BalanceA report listing every general ledger account with its debit or credit balance, proving total debits equal total credits.
Accruals & Timing
- Accrual AccountingAn accounting method that records revenue when earned and expenses when incurred, regardless of when cash moves.
- Accrued ExpenseAn expense your company has incurred but hasn't paid or recorded yet — the cost is real, the invoice isn't.
- Cash Basis AccountingAn accounting method that records revenue when cash is received and expenses when cash is paid — nothing counts until money moves.
- Deferred RevenueCash a customer has paid you for goods or services you haven't delivered yet — recorded as a liability, not income.
- Prepaid ExpenseA cost you've paid before using the benefit — recorded as an asset, then expensed gradually as it's consumed.
- Revenue RecognitionThe rule for when revenue officially counts: when you've delivered what the customer agreed to buy, not when cash arrives.
Close & Reconciliation
Assets & Liabilities
- Accounts PayableMoney your company owes to suppliers for goods or services received but not yet paid for.
- Accounts ReceivableMoney customers owe you for goods or services you've delivered but haven't been paid for yet.
- DepreciationSpreading the cost of a long-lived asset across the periods it's used, rather than expensing it all at once.
- Straight-Line DepreciationThe simplest depreciation method: equal expense every period over an asset's useful life.
Founder Cash Metrics
- Burn RateHow much cash your company consumes per month — the speed at which your bank balance is shrinking.
- RunwayHow many months your company can keep operating at its current net burn rate before cash runs out.
- Working CapitalCurrent assets minus current liabilities — the cash cushion available to fund day-to-day operations.
Profitability
- Cost of Goods SoldThe direct costs of producing or delivering what you sold — the expense matched against revenue to get gross profit.
- Gross MarginRevenue minus cost of goods sold, expressed as a percentage — how much of each dollar is left after direct delivery costs.
- Operating ExpenseThe ongoing costs of running the business that sit below gross profit — salaries, rent, marketing, software, admin.