The accounting glossary, written for bookkeepers.
Plain-language definitions of accounting and bookkeeping terms, with jurisdiction-specific notes for UK, AU, CA, NZ, and SG practices. Sourced from the rules our compliance engine ships with.
A
4 termsAccounts payable
A current liability on the balance sheet representing money the business owes to suppliers for goods or services received but not yet paid for, typically settled within 30 to 90 days according to the supplier's payment terms.
Accounts receivable
A current asset on the balance sheet representing money customers owe to the business for goods or services delivered but not yet paid for, typically due within 7 to 60 days according to the agreed invoice terms.
Accruals
Expenses incurred or revenue earned in an accounting period but not yet invoiced or paid, recorded in the books to match income and costs to the period they relate to under the accruals concept.
Amortization
The accounting practice of spreading the cost of an intangible asset (software licences, goodwill, patents, customer relationships) over its useful life as an expense on the income statement, rather than deducting the full purchase price in the year of acquisition.
B
3 termsBalance sheet
A financial statement presenting a snapshot of what a business owns (assets), what it owes (liabilities), and the residual interest of its owners (equity) at a single point in time, with assets always equal to liabilities plus equity.
Bank reconciliation
The bookkeeping process of comparing the bank account ledger in the accounting system to the bank statement issued by the bank, matching every transaction line by line, and identifying and resolving any unmatched items so the two records agree at the period-end date.
BAS (Business Activity Statement)
The Australian Tax Office form used by GST-registered businesses to report and pay GST, PAYG withholding, PAYG instalments, fringe benefits tax instalments, wine equalisation tax, luxury car tax, and fuel tax credits over a quarterly or monthly period.
C
9 termsCapital allowance
The UK tax mechanism that replaces accounting depreciation for fixed-asset tax relief: a system of statutory deductions (Annual Investment Allowance, full expensing, writing-down allowances) that lets businesses deduct the cost of qualifying plant and machinery from their taxable profit at specific prescribed rates.
Capital expenditure (CapEx)
Cash spent on acquiring or improving long-lived fixed assets that will generate economic benefits over more than one accounting period, capitalised to the balance sheet at cost and depreciated or amortised over useful life, as distinct from operating expenditure that is fully expensed in the period.
Capital gains tax (CGT)
The tax on the profit (gain) realised when an asset is sold or otherwise disposed of for more than its acquisition cost, applied at jurisdiction-specific rates and with country-specific exemptions, allowances, and indexation rules.
Cash flow statement
A financial statement reconciling the net profit from the P&L to the actual cash position on the balance sheet by splitting cash movements into operating, investing, and financing activities over a defined period.
Chart of accounts
The structured list of every general ledger account used by a business to record financial transactions, organised by category (assets, liabilities, equity, revenue, expenses) and typically tied to the financial statements via account codes.
CIS (Construction Industry Scheme)
The HMRC tax-deduction scheme for the UK construction industry under which contractors deduct money from sub-contractor payments and pay it to HMRC on the sub-contractor's behalf, alongside the construction-industry reverse-charge VAT introduced 1 March 2021.
COGS (Cost of goods sold)
The direct cost of producing the goods or services sold during a period: raw materials, direct labour, sub-contractor fees, and freight inwards, deducted from revenue on the income statement to produce gross profit.
Contra account
An account on the balance sheet or income statement that offsets a related primary account, presented with the opposite normal balance to reduce the net carrying value of the primary account, such as accumulated depreciation offsetting fixed assets or allowance for doubtful debts offsetting accounts receivable.
Credit note
A commercial document issued by a supplier to a customer that reduces an earlier invoice, used to record refunds, returns, discounts, billing errors, or adjustments to previously invoiced goods or services, and which carries a VAT or GST adjustment where the original invoice did.
D
5 termsDebit note
A commercial document issued by a customer to a supplier to record an upward adjustment to a payable, or by a supplier to a customer to record an increase in an invoice, used to formalise additional charges, undercharges, or interest on overdue accounts.
Deferred revenue
A current liability on the balance sheet representing cash received from a customer for a good or service the business has not yet delivered, recognised as revenue only when delivery occurs in keeping with the revenue recognition principle.
Depreciation
The accounting practice of spreading the cost of a tangible fixed asset (vehicles, equipment, fixtures, IT hardware) over its useful life as an expense, rather than deducting the full purchase price in the year of acquisition.
Dividend
A distribution of profit from a company to its shareholders, paid in cash (most commonly) or in additional shares, debited to retained earnings on the balance sheet and constituting taxable income to the recipient under each jurisdiction's specific dividend tax regime.
Double-entry bookkeeping
The accounting system in which every financial transaction is recorded as at least one debit and at least one credit of equal value, so the books are always self-balancing and every account in the trial balance reconciles to the others.
E
3 termsEBITDA
Earnings before interest, tax, depreciation, and amortisation: a profitability metric calculated as operating profit plus depreciation and amortisation, used to compare the core operating performance of businesses with different capital structures and accounting policies.
Equity
The residual interest of the owners in the assets of a business after deducting all liabilities, comprising share capital, share premium, retained earnings, and other reserves, presented at the bottom of the balance sheet and reconciled in the statement of changes in equity.
Expense report
A document submitted by an employee to record out-of-pocket business expenses paid personally for reimbursement, typically itemising the date, vendor, amount, category, and business purpose of each expense, supported by receipts.
F
3 termsFBT (Fringe Benefits Tax)
The Australian Tax Office's tax on non-cash benefits provided by employers to employees (or associates of employees), such as company cars, low-interest loans, entertainment, accommodation, and reimbursement of private expenses, separate from the employee's income tax and PAYG.
Fiscal year
A 12-month accounting period used by a business or government to calculate annual financial statements, tax returns, and budgets, which may align with the calendar year or with a country-specific tax year (UK 6 April, AU 1 July, NZ 1 April, CA and SG mostly calendar year).
Fixed assets
Long-lived tangible and intangible assets a business holds for use in operations rather than for resale, presented as non-current assets on the balance sheet at cost less accumulated depreciation or amortisation, and including vehicles, equipment, buildings, software, and goodwill.
G
6 termsGeneral ledger
The complete record of every financial transaction posted by a business, organised by account in keeping with the chart of accounts, from which the trial balance and ultimately the financial statements are derived.
Goodwill
An intangible asset arising from a business acquisition, equal to the excess of the purchase price over the fair value of the identifiable net assets acquired, representing the value of intangibles that cannot be separately identified (reputation, customer loyalty, workforce, synergies).
Gross profit
Revenue minus the direct cost of producing the goods or services sold (cost of sales or COGS), representing the margin available to cover operating expenses, interest, and tax before net profit is calculated.
GST (Goods and Services Tax)
A broad-based consumption tax on most goods and services in Australia (10%), New Zealand (15%), Canada (5% federal), and Singapore (9%), reclaimed on business purchases by registered businesses through input tax credits or refunds.
GST Voucher
A Singapore government cash transfer administered by the Ministry of Finance to offset the GST burden for lower- and middle-income Singapore Citizens, paid annually as a combination of cash, U-Save utility rebates, MediSave top-ups, and one-off enhancements tied to GST rate increases.
GST/HST credit
A quarterly tax-free payment from the CRA to low-income individuals and families in Canada to offset the GST or HST they pay on consumer purchases, calculated from the prior year's tax return and paid in July, October, January, and April.
H
2 termsHST (Harmonized Sales Tax)
A single combined federal and provincial sales tax used in five Canadian provinces (Ontario, New Brunswick, Nova Scotia, Prince Edward Island, and Newfoundland and Labrador), which combines the 5% federal GST with the provincial component into one harmonized rate of 13% or 15%.
HST netfile
The CRA's secure online service that lets Canadian GST/HST registrants file their returns directly through the CRA website using the four-digit access code printed on their personalised return package or their CRA My Business Account.
I
7 termsIncome statement
A financial statement summarising revenue, costs of sales, gross profit, operating expenses, and net profit (or loss) over a defined accounting period, used to assess the profitability of a business and as the starting point for tax computations.
Input tax credit (ITC)
The amount of GST or HST a registered business reclaims on its taxable purchases through its periodic GST/HST or BAS return, reducing the net tax payable to the relevant tax authority, the functional equivalent of input VAT in the UK system.
Input VAT
The VAT a UK business pays on its purchases of goods and services, which is reclaimed on the VAT return as a reduction of the net VAT payable to HMRC, provided the business is VAT-registered and the supply is for taxable business use.
Intangible assets
Non-physical fixed assets a business holds for use in operations, including software, patents, trademarks, customer relationships, goodwill, and brand names, presented on the balance sheet at cost less accumulated amortisation or at fair value less impairment.
Inventory
Goods held by a business for sale in the ordinary course of operations or for use in producing such goods, presented as a current asset on the balance sheet at the lower of cost and net realisable value, and released to cost of sales on the income statement as the goods are sold.
Invoice
A commercial document issued by a seller to a buyer that itemises a transaction (goods or services supplied), the amount due, and the payment terms, used as both a request for payment and a record of the underlying sale.
IR35 (off-payroll working rules)
The UK HMRC tax legislation that determines whether a worker providing services through their own limited company (a personal service company) should be treated as an employee for tax purposes, with the determination shifting to the end client for medium and large private-sector engagements since 6 April 2021.
L
2 termsLedger
An accounting record containing every transaction posted to a specific account or set of accounts, with the general ledger being the master record containing all accounts and subsidiary ledgers being detailed records for specific control accounts (accounts receivable, accounts payable, fixed assets).
Liability
An obligation of the business arising from past events, the settlement of which is expected to result in an outflow of economic benefits, presented on the balance sheet split between current liabilities (settled within 12 months) and non-current liabilities (longer than 12 months).
M
2 termsMileage allowance
A per-mile or per-kilometre payment to employees or self-employed individuals to reimburse the cost of using their personal vehicle for business travel, set at flat rates by each tax authority to cover fuel, insurance, road tax, servicing, and depreciation in a single figure.
MTD (Making Tax Digital)
HMRC's digital tax programme requiring UK businesses to keep accounting records digitally and submit tax returns from functional compatible software using digital links between systems, with no manual rekeying permitted between data steps.
N
2 termsNet profit
The bottom line of the income statement: revenue minus cost of sales minus operating expenses minus interest minus tax, representing the residual profit available to shareholders after every expense and obligation has been recognised.
NIC (National Insurance Contributions)
The UK social-insurance contribution withheld from employee wages alongside PAYE income tax, paid by both employees (primary NIC) and employers (secondary NIC), funding the state pension, NHS, contributory benefits, and the wider social-security system.
O
2 termsOperating expenses (OpEx)
The day-to-day costs of running a business that are not directly tied to producing the goods or services sold: salaries, rent, utilities, marketing, software subscriptions, professional fees, and similar overhead, sitting between gross profit and operating profit on the income statement.
Output VAT
The VAT a UK business charges on its sales of goods and services, collected from customers and paid to HMRC on the quarterly VAT return, with the net VAT due being output VAT minus input VAT for the period.
P
9 termsPAYE (Pay As You Earn)
The UK and New Zealand income-tax collection system in which employers deduct income tax and (in the UK) National Insurance Contributions from employee wages at each pay and remit the deductions to HMRC (UK) or Inland Revenue (NZ).
PAYG (Pay As You Go)
The Australian Tax Office's two-part collection regime: PAYG Withholding for amounts employers withhold from employee wages and remit to the ATO, and PAYG Instalments for the business's own income-tax pre-payments made through the BAS or IAS based on prior-year tax.
Payroll
The end-to-end process of calculating employee pay (salary, wages, overtime, bonuses, allowances), withholding income tax and social contributions, paying net pay to employees, and remitting withheld amounts to the tax authority and other agencies.
Petty cash
A small amount of cash held on premises by a business to pay for minor incidental expenses (postage, refreshments, small office supplies) where issuing a cheque or processing a card payment would be disproportionate to the value, controlled through a petty-cash imprest system.
Prepayment
An asset on the balance sheet representing cash paid in advance for a good or service to be received in a later period, recognised as an expense only when the underlying benefit is consumed, in keeping with the accruals concept.
Profit and loss (P&L)
A financial statement summarising revenue, expenses, and the resulting profit or loss over a defined period, identical in substance to the income statement and the most commonly used term for the document in AU, NZ, and UK practice.
Profit margin
A ratio measuring the percentage of revenue that converts to profit at each stage of the income-statement cascade: gross margin (gross profit / revenue), operating margin (operating profit / revenue), and net margin (net profit / revenue).
Proforma invoice
A preliminary document issued by a seller to a buyer before a transaction is finalised, showing the goods or services proposed and the expected total, used as a quote or commitment to supply but carrying no payment obligation and no input tax recovery rights.
Purchase order (PO)
A commercial document issued by a customer to a supplier authorising the purchase of specific goods or services at agreed prices and terms, used as the formal commitment that triggers the supplier's fulfilment and underlying contract for the transaction.
R
5 termsReconciliation
The bookkeeping process of confirming that the balance shown in the accounting system for a given account matches an independent source, most commonly comparing the bank ledger to the bank statement and clearing any unmatched items.
Retained earnings
The cumulative net profit of a business that has not been distributed to shareholders as dividends, presented as a component of equity on the balance sheet and updated each period as the net profit (or loss) from the income statement closes into it.
Retained profit
The UK GAAP everyday synonym for retained earnings: the cumulative net profit of a business that has not been distributed to shareholders as dividends, presented as a component of equity on the balance sheet.
Revenue recognition
The accounting principle and framework that determines when revenue can be recorded on the income statement, codified in IFRS 15 (and the equivalent FRS 102 Section 23, ASPE Section 3400, AASB 15) and based on the five-step model of contract, performance obligations, transaction price, allocation, and recognition.
Reverse charge VAT
A VAT accounting mechanism that shifts the obligation to account for VAT from the supplier to the customer, used in the UK for most B2B services from overseas suppliers and for construction-industry payments between VAT-registered businesses since 1 March 2021.
S
6 termsSales invoice
An invoice issued by a business to a customer for goods or services supplied, in everyday UK and AU bookkeeping practice often used as a synonym for invoice but specifically denoting the customer-facing sales side of the transaction (as distinct from a purchase invoice).
Share capital
The portion of equity on the balance sheet representing money shareholders have contributed in exchange for shares, comprising the nominal (par) value of issued shares with any premium above par sitting in a separate share premium account.
Single Touch Payroll (STP)
The Australian Tax Office's real-time payroll reporting framework, mandatory for all employers since 1 January 2022 under STP Phase 2, requiring each pay run to be reported to the ATO at the moment the pay is processed via STP-enabled accounting software.
Statement of cash flows
The formal name in IFRS and the Canadian ASPE framework for the financial statement that reconciles net profit to actual cash movements, splitting cash flow into operating, investing, and financing sections over a defined accounting period.
Statement of changes in equity
A financial statement showing how each component of owners' equity (share capital, share premium, retained earnings, reserves) moved over the period, linking the net profit on the income statement to the closing equity on the balance sheet.
Super (Superannuation)
The Australian compulsory employer-funded retirement savings system, requiring employers to pay a percentage of each employee's ordinary time earnings into a complying super fund, with the rate currently 12% from 1 July 2026 and quarterly remittance through SuperStream-compliant clearing houses.
T
5 termsTax invoice
A formal invoice issued by a GST or VAT registered supplier that contains the specific information the tax authority requires to support an input tax credit claim by the customer, distinct from a simple receipt or sales invoice.
Trade payables
The strict subset of accounts payable that relates to invoices for goods or services bought as part of the business's primary trading activity, distinguishing it from non-trade payables such as rent, utilities, professional fees, or tax liabilities.
Trade receivables
The strict subset of accounts receivable that relates to invoices for goods or services sold as part of the business's primary trading activity, distinguishing it from non-trade receivables such as employee loans, amounts due from sale of fixed assets, or tax refunds receivable.
Trial balance
A periodic report listing every general ledger account with its closing debit or credit balance, used by bookkeepers to confirm the total debits equal the total credits and to spot anomalies before financial statements are produced.
Turnover
The total revenue a business generates from its primary trading activities over a defined period, presented as the top line of the income statement, with the term 'turnover' being the legacy UK label that FRS 102 has replaced with 'revenue' (though everyday UK usage persists).
W
2 termsWorking capital
The difference between current assets and current liabilities on the balance sheet, representing the short-term operating liquidity of the business and the cash tied up in the normal operating cycle of receivables, inventory, and payables.
Write-off
The accounting action of reducing the carrying value of an asset (most commonly a bad debt, obsolete inventory, or impaired fixed asset) to zero or to its recoverable amount, recognising the loss as an expense on the income statement in the period the write-off is identified.
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