Bookkeeping Glossary 2018

Glossary Word Cloud

Below is our latest glossary for 2018.

This glossary has been put together by multiple experienced bookkeeping experts. If you have a suggestion or would like to contribute tweet us at @AlexilumConnect or get in contact.

If you are looking for bookkeeping advice for your business or organisation contact us now.

You can browse the bookkeeping glossary below or filter it alphabetically by clicking on the alphabet character.

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  • Account
    This is like a label that is applied to your financial transaction to describe what it is and to make it easy to summarise. For example if you buy pens and paper we might allocate that to the Stationary expense account or when you sell your services we might allocate that to a Consultancy sales account. The individual accounts are categorised as Income, Cost of Goods Sold, Expenses, Assets, Liabilities or Equity.
  • Accounting
    While Accounting can incorporate Bookkeeping generally it's that next step further where the focus is on tax advice and tax minimisation which explains why Accountants charge a lot more than Bookkeepers do.
  • Accounting Period
    Generally we break up our financial reporting into set periods of time. As a minimum your financial records will be broken up into Financial Years because that's the period that your tax return will cover. Some other Government Reporting has other set periods that might be Quarterly or Monthly.
  • Accounts Payable
    Money owed to suppliers for goods or services including stock and equipment. Also see creditor.
  • Accounts Receivable
    Money owed from customers generally from sales made for your goods or services. Also see debtor.
  • Acquisitions
    Things purchases by a business.
  • Activity Statement
    A report provided to the Tax Office. There are two types the Business Activity Statement and the Instalment Activity Statement.
  • Assets
    Represents anything that is owned by the business. This can include both tangible things like cash, accounts receivable, stock, equipment, furniture etc and intangible things like trademarks, client lists etc. See also Balance Sheet.
  • Audit
    A detailed analysis by a special type of accountant to determine both the accuracy of your businesses financial records and also that the methodology (ie Double Entry Accounting) is accurate. While a lot of people make this out to be a big scary thing it's a standard process by the Tax Office that is not unusual to occur from time to time.
  • Bad Debts
    These are sales you've made but won't get paid for. Once you've decided there is no chance that you'll get the money out of that customer you can write off those invoices as bad debts so you don't have to pay tax on those sales.
  • Balance Sheet
    A report that reflects the financial position of a business at a point in time. The report is broken up into three key areas: Assets, Liabilities and Equity.
  • Bank Reconciliation
    The process of comparing the bank transactions in your Bookkeeping System against your Bank Statement. This is a great way to find any Transactions you've missed entering.
  • Bank Statement
    A report from your bank listing all of your deposits and withdrawals. This is an important document for your Bank Reconciliation.
  • Banking
    The process of depositing any cash or cheques to your bank account.
  • BAS
    A report that you send to the tax office on a regular basis. This report can only be prepared by a registered BAS Agent or Tax Agent and shows information like the sales made, GST Collected and GST paid for a given period. It can also change for different information and may also include things like PAYG and PAYGW. Also see Activity Statement.
  • Billing
    Where you invoice your customers for sales made to them.
  • Bookkeeping
    This is the process of recording your businesses financial transactions with the goal of making them organised in an efficient and accessible way for reporting and future reference.
  • Bookkeeping System
    A program like Xero, MYOB and Quickbooks that is used to record your businesses financial transactions. Because they are purpose built to handle this they have a lot of built in functionality to make this process more accurate and can save a lot of time compiling reports.
  • Budget
    A process to create a financial plan estimating the amount of income and expenses that will occur in the future. Once complete the budget can be used to not only compare against your actual performance but to also help make key business decisions.
  • Business Activity Statement
    A report that you send to the tax office on a regular basis. This report can only be prepared by a registered BAS Agent or Tax Agent and shows information like the sales made, GST Collected and GST paid for a given period. It can also change for different information and may also include things like PAYG and PAYGW. Also see Activity Statement.
  • Capital
    The funds provided to the business by an owner or shareholder.
  • Capital Gain
    When you sell a Fixed Asset for more than what you paid for it.
  • Cash Flow
    This describes the amount of actual money coming in from sales (or other activities) or going out for purchases etc. Cash is king in any business, if you are making sales but you haven't been paid yet then you could find yourself in trouble.
  • Closing Balance
    This is the final figure for an Account at a given point in time. For example the closing balance on your Bank Statement could be the balance of the account at the end of the month.
  • Collateral
    An Asset that you put up for a lender to take if you Default on your Loan repayments.
  • Contra
    Let's say you have a Customer that has also provided you with a service so they become a Supplier as well. If they owe you $1,000 and you owe them $750 you could contra the difference and they just pay you $250 to save you both paying each other which might also save on bank fees. This is very common in international transactions.
  • Conversion Balance
    When you are moving to a new Bookkeeping System we enter the balances of each of the Accounts like a summary of all of the transaction that happened to date. By entering a conversion balance you don't have to go through and re-enter all of your old transactions which is not only time consuming but may be unnecessary.
  • Cost of Goods Sold
    This is a type of expense that represents those costs that are directly related to generating income in your business. Generally this is used when you buy 'goods' or a physical item to then resell. So when I pay for my 'goods' that is a cost of goods sold expense. Also see Profit & Loss Statement.
  • Credit Note
    This is like a negative invoice that reduces or cancels out the original Invoice. This can refer to either credit notes provided to a customer to partially or fully refund them for a sale or from a supplier where they are refunding an invoice they sent to you.
  • Creditor
    Someone who is owed money by your business. Also see accounts payable.
  • Credits
    This is a technical term that is part of what we call double entry accounting and forms the basis of the standard of how financial transactions are recorded. The Credit refers to half of a Journal entry. Also see Debit.
  • Current Assets
    This is a subset of Assets that have a high Liquidity and can be easily converted to cash.
  • Current Liabilities
    This is a subset of Liabilities and generally represents short term liabilities or those that will generally be paid off in the current Financial Year.
  • Customer
    Someone who buys goods or services from your business.
  • Debits
    This is a technical term that is part of what we call double entry accounting and forms the basis of the standard of how financial transactions are recorded. The Debit refers to half of a Journal entry. Also see Credit.
  • Debtor
    Someone who owes your business money. Also see accounts receivable.
  • Default
    When you haven't made your loan repayment on time.
  • Deposit
    Cash or Cheques banked to your bank account.
  • Depreciation
    This is an accounting method to determine the financial aging of assets that your business owns. For example if you buy a new car for $50,000 it won't be worth that in three years’ time, so that drop in value is called depreciation. The Australian Tax Office has determined that not all assets that you buy can be claimed as an expense up front, and so you have to depreciate it over a number of years. The period that an item has to be depreciated over is determined by the ATO.
  • Dividend
    When part of a company's profits are given to shareholders.
  • Double Entry Accounting
    This is a technical term that describes the basis of the standard of how financial transactions are recorded.
  • Drawings
    Generally this means any money that an Owner takes from the business. Sometimes you'll see this as an Account.
  • End of Month
    A common Accounting Period when the accounts are Reconciled and Financial Reports are generated.
  • Equity
    This represents the net financial position of the business. It some ways it could be seen as what the business owes to its owners which is why it's sometimes referred to as Owners Equity. Equity is calculated as Assets - Liabilities = Equity. Also see Balance Sheet.
  • Expenses
    Expenses are costs which need to be paid out to run your business. Expenses are broken into two categories, Cost of Goods Sold and Overheads though it's not uncommon that overheads are just called Expenses on your financial reports. Also see Profit and Loss Statement.
  • Financial Statements
    A set of core financial reports generally made up of the Profit & Loss, Balance Sheet and Cash Flow.
  • Financial Year
    Generally running from June to July the following year in Australia (though it is possible to have different 12 month periods) this is your Accounting Period that your Tax will be calculated on by the tax office.
  • Fixed Assets
    These are long term Assets with a low Liquidity like buildings, vehicles, equipment etc.
  • Fixed Costs
    Generally overheads that need to be paid regardless of how many sales you are making ie rent and subscriptions. See also Variable Costs.
  • General Ledger
    This is a technical term that represents where all of your journals are summarised and is the basis of all financial reporting.
  • Goods and Services Tax
    This is an end user or consumer tax paid on most goods and services in Australia.
  • Goodwill
    When selling a business this is the difference between the selling price and the value of the Assets that the business owns.
  • Gross Profit
    The amount of money made before considering general expenses or Overheads. Generally this is represented by Income less Cost of Goods Sold.
  • GST
    This is an end user or consumer tax paid on most goods and services in Australia.
  • IAS
    A report that you send to the tax office on a regular basis. This report can only be prepared by a registered BAS Agent or Tax Agent and shows information like PAYG and PAYGW for a given period. It can also change for different information and may also include other items. Also see Activity Statement.
  • Income
    Money that comes from sales made.
  • Instalment Activity Statement
    A report that you send to the tax office on a regular basis. This report can only be prepared by a registered BAS Agent or Tax Agent and shows information like PAYG and PAYGW for a given period. It can also change for different information and may also include other items. Also see Activity Statement.
  • Interest
    Basically this is the cost of borrowing money whether that is as a traditional loan, a lease or a mortgage.
  • Inventory
    If you buy goods to sell again, those ones that you've bought but not yet sold is your inventory. Because it's something your business owns it is called an Asset.
  • Investment
    Money used to generate a profit. This could be a direct investment in things like shares or property or it could be an indirect investment like new equipment for a business so it can run more efficiently with the intention of achieving higher profitability.
  • Invoice
    A document that has the details of a sale on it. This could be an invoice that you provide to a customer for a sale you made or from a supplier for a sale they made to you.
  • Journal
    This is a technical term that represents a financial transaction. Accounting standards and systems determine how we should store financial information including the structure of the journal entry. You can think of this more as how your financial transactions are stored in the 'back end' as programs like Xero, MYOB and Quickbooks generally hide this from users for simplicities sake.
  • Lease
    A contract for a type of loan allowing you to use an Asset without paying for it up front. You may also have the option of owning that item through a Residual payment at the end of the lease term.
  • Ledger
    This is a technical term that describes where the Journals are stored.
  • Liabilities
    Represents anything that the business owes to others like accounts payables, loans from banks, unpaid superannuation and taxes etc. See also Balance Sheet.
  • Liquidate
    The process of converting Assets to cash. Also see Liquidity.
  • Liquidity
    How easily an Asset can be sold or converted into cash.
  • Loan
    Money borrowed from someone else like a bank. Generally you will pay Interest as a cost for borrowing that money.
  • Mark-up
    The amount of money you add to your cost price of a good that you sell. Sometimes mixed up with a Margin but it's from a different perspective.
  • MYOB
    A well known Bookkeeping System in Australia.
  • Net Loss
    Where you have more expenses than income in your Business.
  • Net Profit
    Where you have more income than expenses in your business.
  • Non-Cash Working Capital
    This is similar to Working Capital except you exclude all cash items from the calculation.
  • Opening Balance
    When looking at Account transactions rather than going through every single one over its history we may just start with an Opening Balance that represents those historical transactions to that date.
  • Overdraft
    A type of short term loan that allows you to spend more money than you have in your bank account. Generally when you apply for an overdraft facility there will be a set amount you can take out.
  • Overheads
    Ongoing business Expenses that are not related to direct costs like Cost of Goods Sold.
  • Pay as You Go
    This represents the amount of tax paid in advance to the tax office on behalf of the business to go towards their next tax bill. This is generally calculated on your BAS.
  • Pay as You Go Witholding
    This represents the amount of tax you withhold from an employee's pay to give to the tax office on their behalf.
  • Payable
    Amounts that need to be paid. Also see Accounts Payable.
  • Payee
    A company or individual who you will be paying.
  • PAYG
    This represents the amount of tax paid in advance to the tax office on behalf of the business to go towards their next tax bill. This is generally calculated on your BAS.
  • PAYGW
    This represents the amount of tax you withhold from an employee's pay to give to the tax office on their behalf.
  • Payroll
    This is the process of how a business pays its employees. This only describes payroll at a very high level as there are many steps to doing payroll.
  • Petty Cash
    Cash kept within the business to pay for incidental expenses ie milk, coffee etc.
  • Posting
    Another term for recording a Transaction.
  • Profit and Loss Statement
    A financial report that represents the businesses financial performance over a period of time. It's broken into three main areas including Income (sometimes called Revenue), Cost of Goods Sold and Expenses with the net result showing either a profit or loss. Also called an Income Statement.
  • Profit Margin
    Generally calculated as a percentage that is the difference between your selling price and buying price for goods. Sometimes mixed up with a Mark-Up but it’s from a different perspective.
  • QuickBooks
    A well known Bookkeeping System in Australia.
  • Receipt
    A written confirmation that you've received payment from a customer, sometimes showing additional charges as part of that payment ie EFTPOS transaction fees.
  • Reconcile
    A process of checking or validating financial transactions to make sure they are correct. This could also be called a Reconciliation.
  • Refund
    When you pay back a Customer after being overpaid or if you have provided a Customer with a Credit Note after they paid the original invoice.
  • Reimbursement
    When you pay back an employee after they've paid for something on behalf of the business.
  • Remittance
    A written document that notifies a supplier that a payment has been made. This is especially helpful if you are paying multiple invoices in the one payment so they know which ones have been paid.
  • Residual
    Sometimes called a balloon payment this is a lump sum amount that needs to be paid at the end of a lease to actually buy out the equipment.
  • Return on Investment (ROI)
    The Net Profit you will get back on an Investment.
  • Revenue
    Money collected (or promised) for the sale of your goods or services. Also see Profit & Loss Statement.
  • Salary
    A fixed amount of pay (generally per year) rather than based on the hours worked by an employee. Also see Payroll.
  • Sales
    The best part of being in business, when someone is willing to pay you to provide them with a good or service. Note that the sale is only the first part; you still need to get paid which is the Income part.
  • Statement of Cash Flows
    A Financial Statement that reports on the cash coming in and going out of the business. This report is often undervalued but can be much more important that the Profit & Loss. Also see Cash Flow.
  • Superannuation
    A Government mandated entitlement for employees in Australia to invest a portion of their Wages with the purposes of supporting their living expenses after retiring.
  • Supplier
    Someone who you buy goods or services from.
  • Tax
    Funds paid to the Government, generally calculated based on your Net Profit.
  • Transaction
    This is basically when you record a financial event ie you made a Sale or paid for an Expense. Also see Journals.
  • Trial Balance
    This is a technical report used to double check the accuracy of the journals that have been entered into the bookkeeping system.
  • Undeposited Funds
    Money that you've received but haven't banked yet.
  • Unpresented Cheque
    This is a cheque that you've received but haven't banked yet.
  • Unsecured Loan
    A type of loan that does not have any Collateral.
  • Variable Costs
    Costs that can vary depending on the amount of sales you make. See also Fixed Costs.
  • Vendor
    See Supplier.
  • Wages
    The cost of engaging an employee, basically what you pay them for their time.
  • Withdrawal
    Money taken from your bank account.
  • Working Capital
    Calculated by your Current Assets less your Current Liabilities this represents how easily your business will be able to service or pay off your debts.
  • Xero
    A well known Bookkeeping System in Australia.
  • Year End
    Generally we're talking about the end of the Financial Year. This is an important reporting period as it will form the basis of any Taxes you have to pay.