Bookkeeping 101: Terms Every Business Owner Should Know

Bank and Credit Card Reconciliations

Reconciliation means comparing a company’s financial records with bank and credit card statements to make sure everything matches. If there are differences, they need to be checked and corrected. This process helps prevent errors and fraud and keeps bookkeepers from losing sleep.

Filing Sales Tax

Businesses that sell goods or services often collect sales tax from customers. This money does not belong to the business; it must be sent to the government on a regular schedule, usually monthly or quarterly. Filing sales tax correctly helps businesses avoid penalties and keeps tax agencies from sending “love letters” in the form of audits.

Cash vs. Accrual Accounting

There are two main ways businesses record income and expenses:

• Cash Accounting: Records transactions only when money is received or paid.
• Accrual Accounting: Records transactions when they happen, even if the money hasn’t been received or paid yet.

Accrual accounting gives a clearer picture of a business’s financial health, while cash accounting is simpler and easier to manage...kind of like the difference between paying with a credit card or waiting for payday.

Transaction Coding

Every transaction a business makes is categorized to keep records organized. For example, buying office supplies might be coded as an “office expense.” Proper coding helps business owners track spending and prepare financial reports more easily because guessing at tax time is never a good strategy.

Accounts Payable and Accounts Receivable

• Accounts Payable (AP): The money a business owes to suppliers or vendors for goods and services.
• Accounts Receivable (AR): The money customers owe to a business for goods or services sold on credit.

Keeping track of AP and AR ensures business owners pay their bills on time and collect the money they are owed because no one likes playing hide-and-seek with their cash flow.

General Ledger

A general ledger is a complete record of all financial transactions in a business. It organizes transactions into different accounts, such as revenue, expenses, assets, and liabilities. The general ledger is used to create financial statements—think of it as the business’s diary, but with fewer juicy secrets.

Balance Sheet

A balance sheet is a financial statement that shows a business’s assets (what it owns), liabilities (what it owes), and equity (the owner’s share). It gives a snapshot of a business’s financial position at a specific point in time…kind of like a financial selfie.

Profit and Loss Statement (P&L)

Also called an income statement, a P&L report shows a business’s revenue, expenses, and profit or loss over a period of time. This helps business owners understand how much money they are making or losing so they know whether to celebrate or rethink that fancy office coffee machine.

Chart of Accounts

A chart of accounts is a list of all the categories used to record financial transactions. It includes assets, liabilities, revenue, expenses, and equity accounts. Having a well-organized chart of accounts makes bookkeeping easier because chaos belongs in action movies, not in financial records.

Petty Cash

Petty cash is a small amount of money kept on hand for minor expenses, such as office supplies or employee reimbursements. Businesses track petty cash to ensure all spending is recorded properly—because even small change adds up, just like those “just one more coffee” purchases.