Accounting Terms Every Business Owner Should Know (Glossary)

Bankers, accountants and tax officers use words that can make a business owner feel lost. This glossary explains the most common terms in plain language. Most definitions are one or two sentences — enough to follow the conversation and ask good questions.

#A–C

Accrual basis — Recording income when earned and expenses when incurred, even if cash hasn't moved. Larger companies use it.

Accounts payable — Money you owe suppliers for goods or services already received.

Accounts receivable — Money customers owe you; in shops, usually called baki. See managing baki.

Asset — Something the business owns that has value: cash, equipment, a vehicle, stock.

Audit trail — A record of who created, changed or deleted each entry and when. Averiq keeps one automatically.

Balance sheet — A snapshot of what the business owns (assets) and owes (liabilities) on a date, with the difference being the owner's equity.

Bank reconciliation — Matching your book balance with the bank statement and explaining differences. See bank reconciliation.

Capital — Money the owner puts into the business.

Cash basis — Recording income and expenses only when money actually moves. Most small businesses use it.

Cash book — A date-ordered record of money in and out with a running balance. See how to keep a cash book.

Cash flow — Movement of money in and out over a period, split into operating, investing and financing activities.

Cost of goods sold (COGS) — The cost of the stock you actually sold in a period.

Credit / debit — In double-entry, the two sides of every transaction. See single vs double entry.

#D–L

Depreciation — Spreading the cost of an asset (like a computer) over its useful life instead of counting it all as an expense in one month.

Drawings / owner withdrawal — Money the owner takes out for personal use. Not an expense.

Equity — Owner's share of the business: assets minus liabilities.

Expense — A cost of running the business, such as rent, salary or electricity.

Financial year / fiscal year — The 12-month period for accounts and tax. In Bangladesh it runs 1 July to 30 June. See the July–June fiscal year.

Gross profit — Sales minus cost of goods sold, before operating expenses.

Income / revenue — Money earned from selling goods or services.

Invoice — A bill you send a customer requesting payment.

Journal — A chronological record of transactions (in double-entry systems).

Ledger — Entries grouped by account or party, such as all transactions with one supplier. See client and vendor ledgers.

Liability — Something the business owes: loans, supplier dues, unpaid salaries.

Liquidity — How easily you can pay short-term obligations with available cash.

#M–Z

Margin — Profit as a percentage of sales. A ৳ 20,000 profit on ৳ 2,00,000 sales is a 10% margin.

Net profit — What remains after all operating expenses are deducted from income.

Opening balance — An account's balance on the day you start recording. See opening balance guide.

Overhead — Costs that don't change much with sales: rent, salaries, internet.

Petty cash — A small cash fund for minor daily expenses.

Profit and loss statement (P&L) — Report of income, expenses and profit for a period. See how to read a P&L.

Reconciliation — Checking two records (book vs bank, book vs cash box) agree.

Trial balance — A list of all ledger balances used to check that debits equal credits.

Turnover — Total sales for a period; often used in VAT and tax rules.

VAT — Value Added Tax, collected on sales and paid to the government. See VAT basics.

Voucher — A numbered document proving and authorising a transaction. See vouchers explained.

Working capital — Short-term assets minus short-term liabilities; the money available to run day-to-day operations.

#FAQ

#What's the difference between revenue and profit?

Revenue is what you earn from sales. Profit is what remains after subtracting the costs of earning it.

#What's the difference between a ledger and a journal?

A journal lists transactions in date order. A ledger groups the same transactions by account or party.

#Which terms matter most for a small business?

Cash flow, profit, margin, receivables (baki), payables and opening balance. Master these six and you can read most reports.