Accounting & Bookkeeping Glossary

1099 Contractor

A 1099 contractor (independent contractor) is someone who performs work for your business but isn't an employee. You don't withhold taxes from their payments, but you must issue a 1099-NEC form if you pay them $600 or more in a year. Misclassifying employees as contractors is one of the most common (and costly) compliance mistakes businesses make.

Accounts Payable (AP)

Accounts payable is the money your business owes to vendors, suppliers, and contractors. Think of it as your 'bills to pay' list. Keeping AP organized means you pay on time, avoid late fees, and maintain good relationships with the people you do business with.

Accounts Receivable (AR)

Accounts receivable is the money your clients owe you for work you've already done. If you've sent an invoice and haven't been paid yet, that's AR. Tracking it closely is critical because AR that sits too long turns into cash flow problems — or worse, bad debt you'll never collect.

Accrual Basis Accounting

Accrual accounting records income when you earn it and expenses when you incur them — regardless of when the money actually moves. This gives you a more accurate picture of profitability than cash basis, which is why the IRS requires it once your business hits a certain size. Most professional services firms should be on accrual.

Aging Report

An aging report breaks down your outstanding invoices (or bills) by how long they've been unpaid — typically in 30-day buckets like Current, 30 days, 60 days, 90+ days. It's the single best tool for spotting collection problems before they become cash crises. If you're not reviewing yours monthly, you're flying blind.

Assets

Assets are everything your business owns that has value — cash, accounts receivable, equipment, vehicles, real estate, and inventory. They're listed on your balance sheet and classified as current (convertible to cash within a year) or long-term. Knowing your total assets matters for loan applications, business valuations, and understanding your company's financial position.

Balance Sheet

A balance sheet is a snapshot of your business's financial position at a specific point in time. It shows what you own (assets), what you owe (liabilities), and what's left over (equity). If your balance sheet doesn't balance, something is wrong in your books — and that's a problem your bookkeeper needs to fix before tax time.

Bank Reconciliation

Bank reconciliation is the process of matching your internal financial records against your bank statements to make sure everything lines up. It catches errors, duplicate charges, unauthorized transactions, and missed deposits. If you're not reconciling monthly, you don't actually know how much money you have.

Bookkeeper vs. Accountant

A bookkeeper handles day-to-day financial record-keeping — categorizing transactions, reconciling accounts, and producing financial statements. An accountant (typically a CPA) uses those records for tax strategy, audits, and higher-level financial planning. You need both, but you need a good bookkeeper first. Garbage in, garbage out.

Bookkeeping

Bookkeeping is the systematic recording and organizing of all financial transactions in your business. It's the foundation everything else sits on — tax filing, financial planning, investor reporting, loan applications. Without clean books, none of that works. Modern bookkeeping is done in cloud software like QuickBooks Online, not paper ledgers.

Bookkeeping Cleanup

A bookkeeping cleanup (also called catch-up bookkeeping) is the process of fixing months or years of messy, incomplete, or neglected financial records. This typically involves re-categorizing transactions, reconciling all accounts, and producing accurate financial statements. It's common after a bookkeeper quits, during a business transition, or when tax season reveals gaps you've been ignoring.

Bookkeeping Pricing

Bookkeeping pricing varies based on transaction volume, number of accounts, and the services you need (basic bookkeeping vs. full-service with AR/AP and payroll). Most outsourced bookkeeping firms charge $300-$2,000/month for small businesses. Beware of rock-bottom prices — cheap bookkeeping usually means offshore, inexperienced, or both. You get what you pay for.

CAM Reconciliation

Common Area Maintenance (CAM) reconciliation is the process of comparing estimated CAM charges billed to tenants against actual expenses incurred by the property owner. At year-end, you reconcile the difference and either bill tenants for the shortfall or issue credits. Getting this wrong leads to tenant disputes and potential legal issues.

Cash Basis Accounting

Cash basis accounting records income when you receive payment and expenses when you actually pay them. It's simpler than accrual and works fine for smaller businesses, but it can give you a misleading picture of profitability — especially if you have large outstanding invoices or prepaid expenses. Most businesses outgrow it.

Cash Flow

Cash flow is the movement of money in and out of your business over a period of time. Positive cash flow means more money coming in than going out. Many profitable businesses fail because of poor cash flow — you can have great revenue on paper but still not have enough cash to make payroll. Monitoring it weekly (not just monthly) is how smart owners stay ahead.

Cash Flow Statement

A cash flow statement shows where your cash came from and where it went during a specific period. It's divided into three categories: operating activities (running the business), investing activities (buying/selling assets), and financing activities (loans, owner draws). It tells a different story than your P&L — and both matter.

Catch-Up Bookkeeping

Catch-up bookkeeping is exactly what it sounds like — getting your books current after falling behind. Whether it's 3 months or 3 years, a catch-up project involves reconciling every account, categorizing every transaction, and producing clean financial statements. Most catch-up projects take 2-6 weeks and are quoted as a flat-fee project.

Certified Public Accountant (CPA)

A CPA is a licensed accounting professional who has passed the CPA exam and met state-specific education and experience requirements. CPAs handle tax preparation, audits, and strategic financial advice. Your bookkeeper and your CPA should work as a team — your bookkeeper keeps the records clean, and your CPA uses those records for tax strategy.

Chart of Accounts

Your chart of accounts is the master list of every category where financial transactions get recorded — think of it as the filing system for your money. A well-organized chart of accounts makes your financial reports useful and meaningful. A messy one (the famous 47 'Miscellaneous Expense' sub-accounts) makes your reports useless.

Cloud Bookkeeping

Cloud bookkeeping means managing your financial records using internet-based software like QuickBooks Online, Xero, or FreshBooks instead of desktop programs or spreadsheets. The advantages are huge: real-time access from anywhere, automatic bank feeds, seamless collaboration with your bookkeeper and CPA, and automatic backups. There's really no reason to use desktop software anymore.

Cost of Goods Sold (COGS)

COGS is the direct cost of producing or delivering what you sell. For a product business, it's materials and labor. For a service business, it's typically the direct labor cost of delivering the service. Getting COGS right is critical because it directly affects your gross profit margin — and that's the number that tells you if your pricing works.

Depreciation

Depreciation spreads the cost of a major purchase (like equipment, vehicles, or furniture) over its useful life instead of expensing it all at once. So a $50,000 vehicle might be depreciated over 5 years at $10,000/year. It reduces your taxable income each year and gives a more accurate picture of your expenses. Your CPA picks the method; your bookkeeper records it.

Equity

Equity is what's left when you subtract your liabilities from your assets — it's the owner's stake in the business. It includes initial investments, retained earnings, and owner draws. If your equity is shrinking over time, your business is losing value. It shows up on your balance sheet and is one of the key numbers your CPA and potential lenders look at.

Financial Statements

Financial statements are the reports that tell the story of your business's financial health. The big three are: Profit & Loss (how much you made), Balance Sheet (what you own vs. owe), and Cash Flow Statement (where the cash went). Together, they give you everything you need to make informed business decisions — and everything your CPA needs at tax time.

GAAP (Generally Accepted Accounting Principles)

GAAP is the set of standardized accounting rules that businesses in the U.S. follow for financial reporting. It ensures consistency so that financial statements from different companies are comparable. If you're applying for a loan, seeking investors, or getting audited, your financials need to be GAAP-compliant. Your bookkeeper handles the day-to-day compliance; your CPA ensures the big picture.

General Ledger

The general ledger is the master record of every financial transaction in your business. Every sale, expense, payment, and adjustment lives here, organized by account. Think of it as your company's complete financial diary. When your bookkeeper 'closes the books' each month, they're making sure the general ledger is accurate and complete.

Gross Profit

Gross profit is your revenue minus the direct cost of delivering your services (COGS). It tells you how much money you're making before overhead, salaries, rent, and other operating expenses. For professional services firms, gross profit margin should typically be 50-70%. If yours is lower, you have a pricing problem or an efficiency problem.

Income Statement

An income statement (also called a Profit & Loss statement) shows your revenue, expenses, and net income over a period of time. It answers the fundamental question: 'Did we make money or lose money?' Every business owner should be reviewing their income statement monthly — not just at tax time.

Invoice

An invoice is a document you send to clients requesting payment for goods or services you've provided. A proper invoice includes your business info, the client's info, a description of services, amounts, payment terms, and a due date. Sending invoices promptly and tracking them diligently is the single biggest thing you can do to improve cash flow.

IOLTA Trust Accounting

IOLTA (Interest on Lawyers' Trust Accounts) is a special bank account where attorneys hold client funds separately from their operating money. State bar rules are strict: you cannot commingle trust funds with firm money, and you must reconcile IOLTA accounts monthly. Getting this wrong can result in disbarment. It's one of the most compliance-critical areas of law firm bookkeeping.

Job Costing

Job costing tracks all the expenses associated with a specific project, client, or job so you can see the true profitability of each one. For professional services firms, this means tracking labor hours, subcontractor costs, and direct expenses per engagement. Without job costing, you might be losing money on your biggest clients and not even know it.

Journal Entry

A journal entry is a manual recording of a financial transaction in your accounting system. While most transactions flow in automatically through bank feeds and invoicing, some need to be entered manually — like depreciation, accruals, reclassifications, and year-end adjustments. Every journal entry has a debit and a credit that must balance.

Net Profit

Net profit (also called net income or the bottom line) is what's left after you subtract ALL expenses from revenue — including operating costs, taxes, interest, and depreciation. It's the truest measure of whether your business is actually making money. A business can have great revenue and terrible net profit if expenses aren't controlled.

Outsourced Bookkeeping

Outsourced bookkeeping means hiring an external firm (like Steph's Books) to handle your financial record-keeping instead of employing an in-house bookkeeper. For most businesses between $1M-$10M in revenue, outsourcing is more cost-effective, gives you access to a team rather than a single person, and eliminates the headaches of hiring, training, and managing a bookkeeping employee.

Owner Draws

Owner draws are withdrawals of cash or assets from the business by the owner for personal use. They're not a business expense — they reduce equity. How you handle owner draws affects your tax situation, so they need to be recorded properly and separately from salary or guaranteed payments. Your CPA will have opinions on the best structure.

Payroll

Payroll is the process of calculating and distributing employee compensation, including wages, tax withholdings, benefits deductions, and employer-paid taxes. Getting payroll wrong has immediate consequences — bounced paychecks, IRS penalties, and unhappy employees. Most small businesses should outsource payroll to a provider like Gusto or QuickBooks Payroll to avoid costly mistakes.

Payroll Taxes

Payroll taxes are the taxes withheld from employee wages (federal income tax, Social Security, Medicare) plus the employer's matching portion. They also include federal and state unemployment taxes. Payroll tax deposits have strict deadlines — miss them and the IRS charges penalties and interest that add up fast. This is one area where you really don't want to DIY.

Profit and Loss Statement (P&L)

The P&L (also called an income statement) summarizes your revenue, costs, and expenses over a specific time period. It's the report that answers: 'Are we making money?' You should review your P&L monthly, compare it to prior periods, and look at it as a percentage of revenue — not just dollar amounts. That's where the real insights are.

Property Management Accounting

Property management accounting involves tracking income and expenses across multiple properties and owners, handling security deposits, managing CAM charges, and producing owner distribution reports. It's more complex than standard bookkeeping because you're essentially running separate books for each property while consolidating at the management company level.

QuickBooks Online (QBO)

QuickBooks Online is the most popular cloud-based accounting software for small and medium businesses. It handles invoicing, expense tracking, bank connections, financial reporting, and payroll. It's what we use for most of our clients because of its reliability, ecosystem of integrations, and the fact that your CPA almost certainly knows how to work with it.

Receipt Management

Receipt management is the process of capturing, organizing, and storing receipts to support your business expenses. The IRS requires documentation for deductions, and 'I lost the receipt' isn't an accepted explanation during an audit. Modern tools like Dext, Hubdoc, or QuickBooks' built-in receipt capture let you snap a photo and attach it directly to the transaction.

Reconciliation

Reconciliation is the process of verifying that two sets of records agree with each other. Bank reconciliation matches your books to your bank. Credit card reconciliation matches your books to your credit card statement. Trust account reconciliation matches client ledgers to bank balances. The goal is always the same: make sure the numbers match and catch anything that doesn't.

Retained Earnings

Retained earnings are the cumulative profits your business has kept (retained) rather than distributed to owners. They show up on your balance sheet under equity. Healthy retained earnings mean the business is building value over time. If your retained earnings are negative, the business has lost more money than it's made over its lifetime — a red flag for lenders.

Revenue

Revenue (also called sales or top line) is the total amount of money your business earns from its core operations before any expenses are deducted. It's the starting point of your P&L. Revenue is important, but it's not profit — a business doing $5M in revenue with $5.1M in expenses is still losing money. Always look at revenue in context.

Revenue Recognition

Revenue recognition is the accounting principle that determines when you can officially record revenue in your books. Under accrual accounting, you recognize revenue when you've earned it (delivered the service), not when you receive payment. For professional services firms with retainers, milestone billing, or long-term contracts, getting this right is essential for accurate financial reporting.

Security Deposits

In property management, security deposits are funds held on behalf of tenants to cover potential damages or unpaid rent. They're a liability on your books — not income — because the money isn't yours until it's either applied to damages or forfeited per the lease terms. State laws vary on handling, interest requirements, and return timelines, so proper accounting is essential.

Tax Preparation

Tax preparation is the process of compiling financial information and filing tax returns with the IRS and state agencies. For business owners, this includes income tax, self-employment tax, quarterly estimated payments, and various information returns (1099s, W-2s). The quality of your tax return is only as good as the quality of your books — clean bookkeeping makes tax prep faster, cheaper, and more accurate.

Three-Way Reconciliation

Three-way reconciliation is a trust accounting procedure used primarily by law firms. It matches three records: the bank statement balance, the book balance in your accounting software, and the individual client ledger balances. All three must agree. If they don't, you have a trust accounting problem that needs to be resolved immediately — bar associations take this very seriously.

Triple Net Lease (NNN)

A triple net lease requires the tenant to pay property taxes, insurance, and maintenance (the three 'nets') in addition to rent. From a bookkeeping perspective, you need to track these pass-through charges separately, bill them correctly, and reconcile them at year-end. It's a common commercial lease structure that adds complexity to property management accounting.

Trust Accounting

Trust accounting is the management of funds held on behalf of someone else — most commonly seen in law firms (IOLTA accounts) and property management (security deposits, owner funds). The cardinal rule: trust funds must be kept completely separate from operating funds. Commingling is a compliance violation that can result in serious consequences, including loss of professional licenses.

Vendor Management

Vendor management in bookkeeping means maintaining accurate records for every business you pay — contact information, payment terms, W-9s for 1099 reporting, and transaction history. Clean vendor records prevent duplicate payments, make 1099 preparation painless at year-end, and help you negotiate better terms when you can show your payment history.

Virtual Bookkeeper

A virtual bookkeeper provides bookkeeping services remotely using cloud-based tools like QuickBooks Online, shared document storage, and video calls. There's no difference in quality between virtual and on-site bookkeeping — and in many cases, virtual is better because you get a dedicated team instead of a single in-house employee who might call in sick or quit without notice.

W-2

A W-2 is a tax form that reports an employee's annual wages and the taxes withheld from their paychecks. Employers must provide W-2s to employees and the IRS by January 31 each year. If you have employees, generating accurate W-2s is non-negotiable — errors cause headaches for your employees' personal tax returns and can trigger IRS inquiries.