Top 10 Bookkeeping Terms Every Small Business Owner Should Know
When you're running a business, understanding basic bookkeeping terms isn't just helpful—it's essential. Even if you have a bookkeeper (or plan to hire one), knowing these key terms will empower you to make better financial decisions, understand your reports, and communicate more confidently about your business finances.
Here are the top 10 bookkeeping terms every small business owner should know:
1. Chart of Accounts (COA)
This is the foundation of your bookkeeping system. It’s a list of all the accounts your business uses to organize its financial transactions—things like income, expenses, assets, and liabilities.
Why it matters: A well-structured COA helps keep your records clean, clear, and easy to report on.
2. General Ledger
The general ledger is the complete record of all your business transactions, organized by account. Every transaction your business makes eventually ends up here.
Why it matters: It's the official record your financial statements are built from.
3. Accounts Receivable (A/R)
This refers to money owed to your business by clients or customers. If you've sent an invoice but haven’t been paid yet, that amount is part of your A/R.
Why it matters: Tracking A/R helps you stay on top of unpaid invoices and manage your cash flow.
4. Accounts Payable (A/P)
This is money your business owes to others, like vendors or suppliers. When you receive a bill and haven’t paid it yet, it's listed as A/P.
Why it matters: Monitoring A/P ensures you pay bills on time and avoid late fees or damaged relationships.
5. Reconciliation
This is the process of comparing your bookkeeping records to your bank or credit card statements to ensure they match.
Why it matters: Reconciliation helps catch errors, duplicates, or missing transactions—and keeps your books accurate.
6. Profit and Loss Statement (P&L)
Also known as the Income Statement, this report shows your revenue, expenses, and profit (or loss) over a period of time.
Why it matters: It’s one of the most important tools for understanding whether your business is making money.
7. Balance Sheet
A snapshot of your business’s financial position at a specific point in time. It shows your assets, liabilities, and equity.
Why it matters: This report is essential for evaluating your business's stability and net worth.
8. Cash Flow
This refers to the movement of money in and out of your business. Positive cash flow means more money is coming in than going out.
Why it matters: Good cash flow is critical for paying bills, investing in growth, and surviving slow months.
9. Depreciation
This is the reduction in value of a fixed asset (like equipment or a vehicle) over time, due to use and wear.
Why it matters: Depreciation is a non-cash expense that can help reduce your taxable income.
10. Accrual vs. Cash Accounting
These are the two main accounting methods:
Cash Accounting records income and expenses when money changes hands.
Accrual Accounting records income and expenses when they are earned or incurred, regardless of when the money is actually received or paid.
Why it matters: Knowing which method you use affects how and when you report income and expenses.
Final Thoughts
You don’t need to be a CPA to run a successful business—but understanding these 10 basic bookkeeping terms will help you take charge of your numbers, reduce confusion, and work more effectively with your bookkeeper or accountant.
Need help putting these terms into practice? At DPP Bookkeeping, LLC, we make bookkeeping simple and stress-free for small business owners. Let’s keep your finances clean, clear, and working for you.
Visit DPPBookkeeping.com to get started!