Small business accounting glossary

Payroll

Form 1099-NEC is the US information return a business files to report payments to independent contractors and other non-employees for services.

Purchases and payables

Accounts payable is the money a business owes its suppliers for goods or services it has received but not yet paid for.

Sales and receivables

Accounts receivable is the money customers owe a business for goods or services already delivered and invoiced but not yet paid.

Bookkeeping basics

Accrual basis is an accounting method that records income when it is earned and expenses when they are incurred, whatever the date cash changes hands.

Financial statements

An accrued expense is a cost a business has incurred in a period but has not yet been billed for or paid.

Sales and receivables

An aging report lists unpaid invoices or bills grouped by how long they have been outstanding, usually current, 1 to 30, 31 to 60, 61 to 90 and over 90 days past due.

Assets and depreciation

Amortization is spreading an amount evenly over time.

Bookkeeping basics

An audit trail is a record of who created, changed or deleted each transaction in the books, and when.

Inventory and costing

Average cost is an inventory costing method that values every unit of an item at the average price paid for the units on hand.

Sales and receivables

Bad debt is money a customer owes that you no longer expect to collect, because the customer will not or cannot pay.

Financial statements

A balance sheet is a financial statement that shows what a business owns (assets), what it owes (liabilities) and the owner's stake (equity) on a single date.

Bookkeeping basics

A bank reconciliation is the process of matching the transactions in your books against your bank statement for a period, so the two balances agree.

Purchases and payables

A bill is an invoice a business receives from a vendor for goods or services it has bought and will pay later.

Profit and analysis

The break-even point is the level of sales at which a business covers all its costs and makes neither a profit nor a loss.

Assets and depreciation

Capital cost allowance is the Canadian tax deduction for the cost of depreciable property such as equipment, vehicles, computers and buildings.

Bookkeeping basics

Cash basis is an accounting method that records income when payment is received and expenses when they are paid.

Financial statements

A cash flow statement is a financial statement that shows where a business's cash came from and where it went over a period.

Bookkeeping basics

A chart of accounts is the list of every account a business uses to record its transactions, grouped into assets, liabilities, equity, income and expenses, often with a number for each.

Bookkeeping basics

Closing the books is the routine at the end of a month or year that makes the accounts complete and final for that period.

Inventory and costing

Cost of goods sold is the direct cost of the products a business sold in a period: what it paid for the goods, or for the materials and labour to make them.

Payroll

CPP is the Canada Pension Plan, a contributory public pension.

Sales and receivables

A credit memo is a document that reduces what a customer owes you, issued for a return, a price correction, a discount after the fact or a billing mistake.

Sales and receivables

A customer deposit is money a customer pays before the work is done or the goods are delivered.

Bookkeeping basics

Debits and credits are the two sides of every accounting entry.

Financial statements

Deferred revenue is money a business has received for goods or services it has not yet delivered.

Assets and depreciation

Depreciation is the way a business spreads the cost of a long-lived asset, such as a truck, a machine or computer equipment, over the years it is used.

Bookkeeping basics

Double-entry bookkeeping is the system in which every transaction is recorded in at least two accounts, with equal debits and credits.

Profit and analysis

EBITDA is earnings before interest, taxes, depreciation and amortization: net income with those four items added back.

Payroll

EI is Canada's Employment Insurance, which pays benefits to workers who lose their job or take leave for illness, parenting or caregiving.

Payroll

An EIN and a Business Number are the federal tax IDs for a business.

Sales and receivables

An estimate is a written offer telling a customer what a job or order will cost before the work starts.

Payroll

FICA is the US federal payroll tax for Social Security and Medicare, named for the Federal Insurance Contributions Act.

Inventory and costing

FIFO, short for first in, first out, is an inventory costing method that assumes the oldest stock is sold first.

Bookkeeping basics

A fiscal year is the 12-month period a business uses for its accounts and, usually, its tax return.

Assets and depreciation

A fixed asset is something a business owns and uses to earn income for more than a year, such as vehicles, machinery, computers, furniture or a building.

Payroll

Form 941 is the IRS Employer's Quarterly Federal Tax Return.

Payroll

FUTA is the US federal unemployment tax, paid by employers only, under the Federal Unemployment Tax Act.

Bookkeeping basics

A general ledger is the complete record of every transaction in a business, organized by account.

Profit and analysis

Gross margin is the share of sales left after paying the direct cost of what was sold.

Payroll

Gross pay is what an employee earns before anything is taken off: hours times rate, or the salary for the period, plus overtime, bonuses and commission.

Sales tax

GST/HST is Canada's federal value-added sales tax.

Sales tax

An input tax credit is the GST or HST a registered Canadian business paid on purchases for its commercial activities, which it claims back on its GST/HST return.

Inventory and costing

Inventory valuation is the method and result of putting a dollar value on the stock a business holds at a point in time.

Sales and receivables

An invoice is a document a business sends a customer asking to be paid for goods or services already delivered.

Purchases and payables

An item receipt is a record that goods from a supplier have arrived before the supplier's bill.

Profit and analysis

Job costing is tracking the income and costs of each job or project separately, so you can see what each one actually earned.

Bookkeeping basics

A journal entry is a manual record of a transaction that lists the accounts affected and the amount debited or credited to each, with total debits equal to total credits.

Profit and analysis

Markup and margin are two ways to express the same profit on a sale.

Profit and analysis

Net income is what a business has left after subtracting all its expenses from all its income for a period: cost of goods sold, operating costs, interest, depreciation and, for corporations, income tax.

Bookkeeping basics

Opening balance equity is a temporary equity account that accounting software uses to balance the opening balances entered when books are set up.

Bookkeeping basics

An owner's draw is money or property a sole proprietor or partner takes out of the business for personal use.

Financial statements

Owner's equity is the owner's share of a business: what is left of the assets after all liabilities are paid.

Payroll

Payroll liabilities are the amounts an employer owes because it ran payroll but has not yet paid them over: income tax withheld from employees, the employee and employer shares of Social Security and Medicare or CPP and EI, unemployment taxes, and deductions such as retirement or benefit contributions.

Bookkeeping basics

Petty cash is a small amount of physical cash a business keeps on hand for minor expenses, such as postage, parking or coffee supplies.

Financial statements

A prepaid expense is a cost paid in advance for something the business will use over future periods, such as an annual insurance policy or rent paid ahead.

Financial statements

A profit and loss statement is a financial statement that shows a business's income, costs and expenses over a period, such as a month or a year, and the profit or loss that results.

Sales and receivables

Progress invoicing is billing a customer for a large job in stages as the work is done, instead of one invoice at the end.

Sales tax

PST is a provincial sales tax charged in addition to the 5% GST in British Columbia (7%), Saskatchewan (6%) and Manitoba, where it is called the retail sales tax (RST, 7%).

Purchases and payables

A purchase order is a document a business sends a supplier to order goods or services at an agreed price and quantity.

Sales tax

QST is the Quebec sales tax, charged at 9.975% on most goods and services supplied in Quebec, alongside the 5% GST.

Payroll

A Record of Employment is the form a Canadian employer issues when an employee has an interruption of earnings, such as a layoff, quit, dismissal or leave.

Sales and receivables

Retainage is a portion of each payment, often 5% to 10%, that a customer holds back on a construction contract until the work is finished and accepted.

Financial statements

Retained earnings are the total profits a business has earned since it started, minus any losses and any dividends or distributions paid out.

Sales and receivables

A sales order is a record that a customer has confirmed an order you have agreed to fill, before the goods ship or the invoice is sent.

Sales tax

Sales tax nexus is the connection with a US state that obliges a business to register, collect that state's sales tax and file returns there.

Payroll

SUTA is state unemployment tax, the payroll tax each US state charges employers to fund unemployment benefits.

Payroll

A T4 is the Canadian slip, the Statement of Remuneration Paid, that an employer issues to each employee for the calendar year.

Financial statements

A trial balance is a report that lists every account in the general ledger with its debit or credit balance on a given date.

Bookkeeping basics

Undeposited funds is a holding account for customer payments that have been received but not yet deposited in the bank.

Purchases and payables

A vendor credit is an amount a supplier owes back to you, usually for returned goods, an overcharge or a damaged delivery.

Payroll

A W-2 is the US Wage and Tax Statement an employer gives each employee for the calendar year.

Profit and analysis

Working capital is a business's current assets minus its current liabilities.