Beginner-Friendly Glossary for Small Business Owners
Core Bookkeeping & Accounting Concepts
🌐 Core Bookkeeping & Accounting Concepts
| Term | Definition | Example |
| Accounting Cycle | The full process of recording and closing financial transactions during a period. | Recording a sale → posting to the ledger → preparing a trial balance → generating reports. |
| Accounting Period | The specific time frame covered by financial statements. | A business may produce monthly reports covering January 1–31. |
| Bookkeeping | Systematically recording all financial transactions of the business. | Recording all customer payments and supplier purchases in a spreadsheet or software. |
| Budget Variance | The difference between budgeted and actual financial results. | You planned $10,000 for marketing but spent $15,000 → $5,000 over budget. |
| Budgeting | Estimating income and expenses to manage future financial performance. | Planning to earn $200,000 this quarter and spend $150,000 on operations. |
| Chart of Accounts | A categorized list of all accounts used to record transactions. | Includes accounts like “Bank Account,” “Sales Revenue,” and “Utilities Expense.” |
| Closing Balance | The balance in an account at the end of a reporting period. | After all January entries, your Cash account ends with $75,000 — that’s the closing balance. |
| Double-Entry Bookkeeping | A method where every transaction affects at least two accounts — one debit and one credit. | Paying rent: Debit Rent Expense $10,000, Credit Bank Account $10,000. |
| Financial Statements | Reports that summarize the financial health and performance of a business. | Includes Income Statement (P&L), Balance Sheet, and Cash Flow Statement. |
| Forecasting | Estimating future income or expenses based on trends or historical data. | Predicting $500,000 in sales for Q3 based on Q1 and Q2 growth trends. |
| General Ledger | The main accounting record containing all accounts and transactions. | Your general ledger has entries for every expense, sale, and payment across all accounts. |
| Journal Entry | A recorded transaction showing affected accounts and whether they are debited or credited. | Debit Office Supplies $1,000, Credit Cash $1,000 for a stationery purchase. |
| Opening Balance | The starting balance of an account at the beginning of an accounting period. | On January 1st, your Cash account has $50,000 — that’s the opening balance. |
| Reconciliation | The process of comparing internal records with external sources to ensure accuracy. | Matching your bank statement with your books to ensure all deposits and withdrawals are recorded. |
| Trial Balance | A list of all account balances to check that total debits equal total credits. | Before generating reports, you check that total debits = total credits in your trial balance. |
💼 Key Accounts (A–Z)
| Term | Definition | Example |
| 📊 Assets | ||
| Assets | Everything your business owns that has value. | Cash, inventory, equipment, accounts receivable. |
| Current Assets | Assets expected to be used or turned into cash within one year. | Cash in the bank, unpaid invoices (receivables), office supplies. |
| Fixed Assets | Long-term assets used in business operations. | Computers, office furniture, delivery vehicles. |
| Long-term Assets | Assets held for more than one year, including investments or major equipment. | A 5-year warehouse lease, manufacturing equipment. |
| 🧾 Liabilities | ||
| Accrued Expenses | Expenses you’ve incurred but haven’t paid yet. | Unpaid salaries, unpaid electricity bill for the month. |
| Current Liabilities | Debts due within one year. | Credit card balances, short-term loans, unpaid vendor bills. |
| Liabilities | What your business owes to others. | Bank loans, tax payable, outstanding invoices. |
| Long-Term Liabilities | Debts payable after one year. | A 5-year business loan or long-term lease obligation. |
| Unearned Revenue | Money collected for goods/services not yet delivered. | A client pays $50,000 upfront for a project to be completed in 2 months. |
| 📉 Equity | ||
| Equity | The owner’s share after subtracting liabilities from assets. | If you have $300,000 in assets and $200,000 in liabilities, equity = $100,000. |
| Retained Earnings | Profits reinvested into the business instead of paid out. | You made $50,000 profit and kept it in the company rather than withdrawing. |
| Share Capital | Money invested by the owner(s) or shareholders. | $100,000 cash contributed by the founder to start the business. |
💸 Revenue & Income
| Term | Definition | Example |
| Gains and Losses | Profit or loss from non-core activities (not part of your regular business). | Selling an old company vehicle for more or less than its book value. |
| Gross Profit | Revenue minus the cost of goods sold (COGS); before operating expenses. | $100,000 sales − $40,000 COGS = $60,000 gross profit. |
| Net Profit (Net Income) | The remaining profit after subtracting all costs and expenses. | $60,000 gross profit − $30,000 operating expenses = $30,000 net income. |
| Other Income | Earnings not directly tied to your core products or services. | Earning $5,000 interest from a time deposit. |
| Revenue | Total income from selling goods or services. | $120,000 total sales for the month. |
| Sales | Revenue from your main products or services. | A coffee shop’s income from drinks and food. |
💰 Business Expenses
| Term | Definition | Example |
| Accounting & Audit Fees | Professional fees for financial services. | Paying an accountant $15,000 for annual filing and audit support. |
| Amortization Expense | Gradual write-off of intangible assets. | Spreading the $100,000 cost of a software license over 5 years. |
| Bad Debt | Uncollectible customer payments. | Writing off $8,000 from a client who never paid. |
| Cleaning Expense | Costs of cleaning services or supplies. | Paying $2,000 for janitorial services. |
| COGS (Cost of Goods Sold) | Direct cost of making or buying products you sell. | $30,000 spent on raw ingredients for a bakery. |
| Depreciation Expense | Value loss of physical assets over time. | Annual $10,000 depreciation on office computers. |
| Freight Costs | Shipping or delivery fees. | $5,000 spent on courier fees to deliver customer orders. |
| Income Tax Expense | Taxes owed based on your taxable profit. | $20,000 paid to BIR for quarterly taxes. |
| Insurance Expense | Premiums paid to protect business assets. | $1,500 monthly for property insurance. |
| Interest Expense | Charges for borrowed money. | $3,000 loan interest paid to the bank. |
| Marketing & Advertising Expense | Costs for promotions and campaigns. | $12,000 spent on Facebook ads and flyers. |
| Meals & Entertainment | Food or events for client or team purposes. | $2,000 for a client lunch meeting. |
| Miscellaneous Expense | Small costs that don’t fit into other categories. | $300 for a one-time domain registration fee. |
| Office Expense | General office supplies and tools. | $1,200 for pens, printer ink, and folders. |
| Payroll (Salaries, Wages, Benefits) | Employee compensation and related costs. | $100,000 for staff salaries, plus SSS and PhilHealth contributions. |
| Rent Expense | Cost of renting business space. | $25,000 monthly for your shop's lease. |
| Repair & Maintenance | Fixing or servicing business equipment or property. | $2,500 to repair an aircon unit. |
| Telephone Expense | Costs for mobile or landline used in business. | $1,000 for the company’s Globe business line. |
| Travel Expense | Transportation, lodging, or meals while on business trips. | $8,000 for hotel and airfare to attend a trade fair. |
| Utilities Expense | Electricity, water, internet, and other operational services. | $6,000 combined monthly bill for electricity and water. |
📄 Transactions & Documentation
| Term | Definition | Example |
| Billing | The process of creating and sending invoices to customers. | You send a $5,000 invoice to a client for graphic design services. |
| Deposit | Money placed into your bank account. | Depositing $10,000 in client payments into your BPI business account. |
| Invoice | A document requesting payment for goods or services provided. | You issue an invoice for $15,000 to a customer after delivering a product. |
| Payment Terms | Rules that outline when and how payments must be made. | “Net 30” means the customer must pay within 30 days of the invoice date. |
| Petty Cash | A small amount of on-hand cash used for minor expenses. | Using $200 from the petty cash fund to buy printer ink. |
| Purchase Ledger | A record of all outstanding payments you owe to suppliers. | You owe $8,000 to a supplier for raw materials — tracked here. |
| Receipt | Proof that a payment was made or received. | A client gives you a $1,000 cash payment and you issue a receipt. |
| Recurring Invoice | An invoice automatically sent at regular intervals. | Monthly $3,000 invoice sent to a retainer client every 1st of the month. |
| Sales Ledger | A record of invoices issued and money received from customers. | Tracks a customer who owes you $12,000 and has paid $8,000. |
| Statement of Account | A summary showing what a customer has been billed, paid, or still owes. | You email a customer a summary showing all invoices and payments from Jan–Jun. |
| Write-off | Removing an amount from your records because it's uncollectible or unusable. | A customer declares bankruptcy, and you write off their $4,500 unpaid bill. |
🏦 Cash & Bank
| Term | Definition | Example |
| Bank | Accounts where your business holds its money. | Your business checking account at BDO or UnionBank. |
| Bank Charges | Fees banks charge for account services or transactions. | $300 monthly maintenance fee or ATM withdrawal fees. |
| Bank Loans | Funds borrowed from a bank, usually with interest. | Taking out a $500,000 business loan repayable in 2 years. |
| Cash | Physical money or funds immediately available for use. | $2,000 in your office cash drawer. |
| Interest Earned | Money made from deposits or investments. | Earning $150 interest on your business savings account. |
🧮 Debits & Credits
Term |
Definition |
Example |
| Credit | An accounting entry that increases liabilities, revenue, or equity; decreases assets. | Credit Sales Revenue $1,000 when you make a sale. |
| Debit | An accounting entry that increases assets or expenses; decreases liabilities or equity. | Debit Cash $1,000 when you receive payment from a client. |
🔍 Other Helpful Terms
| Term | Definition | Example |
| Audit | A formal examination of financial records for accuracy or compliance. | A BIR audit checks if your books match your tax filings. |
| Inventory Adjustment | Updating inventory records due to loss, damage, theft, or error. | Removing 5 broken items from your inventory records. |
| Overheads | Business expenses not directly linked to making a product or service. | Rent, electricity, admin salaries. |
| ROI (Return on Investment) | A metric used to assess how profitable an investment is. | You spend $10,000 on ads and gain $50,000 in sales → high ROI. |
| Subsistence | Reimbursement for food, lodging, or allowances during business travel. | A $1,500 meal allowance during an overnight business trip. |
| Suspense Account | A temporary placeholder for unclear or unclassified transactions. | A $5,000 bank deposit with no clear source is recorded here temporarily. |
| VAT / Sales Tax | Taxes imposed on goods or services sold to customers. | Charging 12% VAT on a $10,000 invoice ($1,200 VAT). |
📩 Need Help Understanding These Terms?
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Your business finances—explained clearly, step by step.