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Learn common accounting terms

by Intuit•356• Updated about 12 hours ago

Learn common accounting terms in QuickBooks.

Use this table to learn common accounting terms in QuickBooks. This helps you get a clear understanding of terms and definitions related to finance and bookkeeping.

Accounting term	Description	Alternate words and phrases	Examples of use	Purpose and benefits
Accounts payable (AP)	Money your business owes to others. For example, the bills from your vendors you need to pay.	• Money you owe • What you have to pay • Bills to be paid (for example, your business’s credit card bills)	• "Your Accounts Payable report shows all the invoices you still need to pay." • "This report shows all the bills you still need to pay."	Cash flow and relationships: Reminds you to pay on time, avoid late fees, and maintain good relationships with your vendors.
Accounts receivable (AR)	Money that's owed to your business. For example, unpaid customer invoices.	• Money owed to you • What customers owe you • Money coming in	• “Let’s look at your Accounts Receivable to see who hasn't paid you yet." • "Let's check your outstanding invoices to see who still needs to pay you."	Revenue and cash flow: Helps you track and manage incoming payments.
Accrual accounting method	Records pending and completed income and expenses even if the money hasn't been paid or received yet.	Record income when you earn it and expenses when you get the bill, even if no money movement has happened yet.	• "Your business is on the accrual basis of accounting." • "You record income as soon as you send an invoice, and expenses as soon as you get a bill.”	True performance: Lets you have a complete view of current and future transactions.
Amortization	Breaks down big costs into smaller amounts over time. Similar to depreciation, but applies to intangibles (things you own but can't touch, such as a patent or a large software license).	Spread the cost of an intangible asset over its useful life instead of expensing it all at once.	"In addition to depreciating your fixed assets, you can also amortize your intangible assets"	Accurate expense recognition and tax: Lets you gradually expense the cost of valuable intangible assets. This helps you see a more accurate picture of your profitability and potentially reduce your taxable income over time.
Asset	Valuable things you own and use to run your business.	• Something valuable your business owns • What your business has of value	• "Your business's assets include cash, inventory, and equipment." • "Your business has some valuable things, like cash, your products, and any equipment you own."	Value and resources: Represents what your business owns to run and grow. This helps you understand your financial strength and future earning potential.
Current asset	Short-term things you own, such as cash and inventory.	Things your business owns that you can easily turn into cash.	"These are things your business owns that you can easily turn into cash or use within a year. For example, cash in the bank, money owed to you by customers or products you can sell"	Liquidity and operations: Shows the money your business has for daily and short-term needs. Your current assets are important for keeping your business flexible and financially stable.
Fixed asset	Long-term tangible things you own, such as land, buildings, machinery, and equipment.	Things your business owns that you can use for more than a year and can’t easily turn into cash.	“These are long-term assets your business uses for more than a year, like buildings, land, vehicles, and machinery. You can’t easily turn these into cash.”	Long-term investment and value: Long-term investments that make up a big part of your business’s value. Managing them helps you plan for repairs, upgrades, or replacements.
Balance sheet	Shows your business’s financial position at a specific point in time.	• A financial snapshot for a period of time • A list of what you own and what you owe • Your business’s financial health report	“Let’s take a look at the balance sheet to see what your business owns and how much you owe.”	Financial health and stability: Shows your business’s overall financial position. This helps you make wise decisions about borrowing, investing, and cutting costs.
Bookkeeping	Recording, organizing, and tracking your business’s financial transactions.	• Keeping track of your business’s money • Organizing your financial records • Managing your business’s money trail	“Good bookkeeping means tracking your money and keeping records organized to help your business succeed.”	Foundation for decision making and compliance: Accurate bookkeeping helps you track your money, stay compliant with taxes, and build a strong base for financial success.
Cash basis accounting method	Records income and expenses only when actual payment happens. For example, when a customer pays you or when you pay a bill.	Counting income and expenses only when money moves in or out of your bank account.	"You only record income when you actually get paid and expenses when you actually pay them."	Simple cash tracking: Shows the actual cash in your bank. This helps you make spending decisions. Note: You might not see a full financial picture of your business if you have unpaid bills or invoices.
Cash flow	The movement of money in and out of your business.	• Cash movement • Money flow	“Tracking your business’s cash flow helps you make wise financial decisions.”	Decision making: Tracking cash flow helps you manage expenses, avoid shortages, and plan for growth.
Cost of goods sold (COGS)	Total cost of producing or buying items a business sells. For example, the cost of raw materials used to make furniture, or the amount paid to buy products for resale.	• The cost to make or buy your products • What it costs you to sell something.	• "Let's figure out what it cost you to buy or make all the products you sold this month." • “Reducing the COGS can help you increase your business’s profit.”	Gross profit and pricing: helps you set prices, control costs, and make adjustments as needed.
Credit	Accounting entry that increases liabilities, equity, and income accounts. It decreases asset and expense accounts.	• Credit entry • Right-side entry	“Let’s record a credit to your revenue (income) account to show the sale you made yesterday.”	Double-entry accounting: A credit entry is essential in a double-entry accounting method. It makes sure every transaction is balanced.
Debit	Accounting entry that increases assets and expenses accounts. It decreases liabilities, equity, and income accounts.	• Charge • Expense entry • Left-side entry	“Let’s record a debit to your COGS (expense) account to show the purchase you made yesterday for the ingredients.”	Double-entry accounting: A debit entry is essential in a double-entry accounting method. It makes sure every transaction is balanced.
Cash on hand or petty cash	A small amount of money on hand you keep in the business for minor daily expenses. For example, paying for daily food delivery fees or giving change.	• Hand cash • Office cash • Operating cash	“Let’s record the payment you made for the food delivery yesterday under petty cash.”	Better control of small expenses: Helps you see where small amounts go and adjust future budgets accordingly.
Depreciation	Gradual reduction in value of a long-term asset (like equipment or vehicles) over many years.	• Asset reduction • Depletion - used for natural resources like oil, gas, or minerals	• “Let’s calculate the depreciation of your new truck.” • "We're going to spread the cost of your new truck over its useful life, since its value will depreciate over time."	Tax savings and true cost: Shows the true worth of assets as they age and lose value. This can also help you get tax deductions for business investments.
Equity	Your share or claim on the business after you pay all debts.	• The owner’s stake in the business • What’s left after you subtract what you owe from what you own.	"This is your share of the business, or what’s left for you if you sell all your assets and pay all your debts."	Owner's wealth and investment: Shows how much of the business you actually own. This helps you measure your business’s growth and make better financial decisions.
Expense	The cost your business pays to run its operation. For example, rent and supplies.	• Expenditure • Operating cost • Payment	“Your utility and internet bills are operating expenses that recur monthly. You should track them carefully.”	Cost and profitability: Shows how much you spend, spots where to save or invest, helps manage cash flow and maintains accurate tax reporting.
General ledger	Main record of all your financial transactions.	• Main ledger • Master ledger • Accounting ledger	“Make sure to record all your sales and expenses in the general ledger to keep your accounts up to date.”	Detailed history and accuracy: Foundation of all your financial reports. It helps you trance transactions and provides a complete audit trail for your business.
Revenue	Money your business earns from sales or services you provide, before subtracting expenses (for example, COGS).	• Gross income • Gross sales • Gross earnings	“Record your revenue before you deduct any expenses to show gross earnings.”	Top-line growth: Your starting point for profitability. Tracking revenue helps you understand your sales performance and identify opportunities to increase your income.
Income or profit	Money your business earns from sales or services you provide, after subtracting expenses (for example, COGS).	• Net income • Net sales • Net earnings • Net proceeds • Net profit	“Record your income promptly so you can manage your business’s cash flow and keep your books accurate.”	Better financial planning: Provides a detailed overview of your business's actual profit. This helps you manage cash flow, plan growth, and make smart business decisions.
Inventory	Refers to the goods (or raw materials) your business has on hand and are ready for sale.	• Products ready for sale • Raw materials in stock • Goods your business has on hand	“Record your inventory of finished goods so you can track assets and calculate COGS.”	Effective stock management: Helps you make sure you have enough stocks to meet demand, reduce overstocking, and make smart ordering decisions.
Invoice	Document you send to your customer to request for payment for goods or service(s) you provided.	• Bill • Sales invoice • Payment request	“Send an invoice to the customer you sold the goods to yesterday, so they can make a payment.”	Income generation and tracking: Helps you manage your invoices so you can stay organized and get payments on time.
Journal entry	Manual record of a transaction you use to move money from one account to another.	• Accounting entry • Book entry • Transaction record • Journal record	“Create a journal entry to record your office rent payment for this month.”	Detailed record keeping: Keeps your financial records accurate. It also helps you track debits and credits, and guides you into making smart business decisions.
Liability	Money your business owes to others. For example, loans, money you owe to vendors, unpaid taxes, etc.	• Money you owe • A business debt • A financial obligation	"Your liabilities include loans and credit card balances.”	Debt and obligations: Helps you stay aware of your financial commitments and avoid taking on too much debt.
Current liability	Money your business owes which you must pay within a year. For example, money you owe to vendors, unpaid taxes, wages payable, etc.	• Short-term debts • Money you owe that’s due within a year	“You should monitor your short-term commitments like utilities and salaries to avoid late payments or penalties.”	Immediate obligations and liquidity: Track your current liabilities to help you avoid late payments or penalties. It also keeps your financial records accurate.
Long-term liability	Money your business owes which you must pay after a year. For example, long-term loans, lease obligations extending over a year, etc.	• Long term debts • Money you owe that isn’t due in a year	"These are the debts like loans or mortgages that your business will pay off over time, not right away."	Long-term planning and solvency: Helps you plan future payments, manage debt, make smart investments, and maintain your commitment to pay.
Profit and loss statement	Financial report that shows your income and expenses. It also serves as a summary of how your business performed over a specified period.	• Your income statement • A report showing your income and expenses	“Let’s take a look at your Profit and Loss statement to see how much you earned and spent last year.”	Profitability and performance: Measures financial performance. It helps you spot areas for improvement and make strategic business decisions.
Reconciliation	Comparing two sets of financial records to make sure they match and are accurate.	• Checking your accounts • Balancing your books • Matching transactions	“Let’s do a reconciliation to make sure that all transactions match.”	Fraud prevention and accuracy: Helps you avoid mistakes, catch, discrepancies and even potential fraud.
Retained earnings	Portion of your business’s net income that you keep within your business rather than pay out as dividends to shareholders.	• Profits you keep within the business • Saved earnings • Reinvested income	“You can add this year’s profits to your retained earnings to reinvest in the business.”	Growth and investment capacity: Shows how much profit your business has reinvested in itself rather than distributing to owners. This helps you understand your business’s ability to plan for growth without the need to get a loan.
Statement of cash flows	Report that shows where your cash came from and where it went.	• Cash flow statement • Cash movement report • Statement of cash movement • Liquidity statement	"This report shows you exactly where your cash came from and where it went during this time period."	Liquidity and operations: Helps you check if you have enough cash to run your daily operations, pay employees, and invest in growth.
Transaction	Business activity that involves the exchange of money, goods, or services.	• A financial event • Anytime money changes hands • A record of money movement	“You should record every transaction to maintain accurate financial records.”	Core of business activity: Provides a clear record of all your business activities that affect your financial accounts. This helps you track your business finances accurately.
Trial balance	Report that shows all the balances of your business’s general ledger accounts at a specific point in time.	• Balance check • Ledger balance summary	“You can run a trial balance report to check for discrepancies.”	Accurate reporting: Prepare a trial balance to detect errors early. This helps you make adjustments as needed.
Current fiscal year	12-month accounting period in progress for a business.	• Current fiscal year • Ongoing accounting year • This fiscal period	“You can track all transactions for the current fiscal year to prepare accurate year-end statements.”	Reporting and tax compliance: Helps you organize reporting, budgeting, and prepare for tax filings.
Unearned revenue	Money your business receives in advance for goods or services even if you haven’t delivered them yet.	• Advance payments • Customer deposits • Prepaid fees	"Customer deposits or prepayments are money that your business received before any work or products are delivered."	Accurate income and future work: Track your unearned revenue to record your income accurately and manage obligations. This helps you keep good relationships with your customers.

Note: You can also check out this page for more terms and in-depth explanations.

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