If you've ever stared at your QuickBooks dashboard and thought "what the heck does any of this mean," you're not alone.

Bookkeeping is full of jargon that sounds way more complicated than it actually is. And honestly? I think that's half the reason people avoid dealing with their books in the first place.

So here's a glossary of the most common bookkeeping terms you'll run into—translated into actual human language.

Accounts Payable (AP)

What it means: Money you owe to other people or businesses.

Think of it like your business credit card bill, invoices from vendors, or that payment you owe your web designer. If you haven't paid it yet, it's sitting in Accounts Payable.

Accounts Receivable (AR)

What it means: Money other people owe you.

This is income you've earned but haven't been paid for yet. If you sent an invoice two weeks ago and the client hasn't paid, that's Accounts Receivable.

Accrual Basis vs. Cash Basis

What it means: Two different ways of tracking when income and expenses "count."

Cash basis = you record income when you actually receive the money, and expenses when you actually pay them. Simple.

Accrual basis = you record income when you earn it (even if you haven't been paid yet) and expenses when you incur them (even if you haven't paid the bill yet). More accurate for bigger businesses, but way more complicated.

Most small businesses start with cash basis because it's easier to wrap your head around.

Assets

What it means: Things your business owns that have value.

This includes cash in your bank account, equipment, inventory, or even money people owe you (see: Accounts Receivable). Basically, anything that could theoretically be turned into cash.

Balance Sheet

What it means: A snapshot of what your business owns vs. what it owes at a specific moment in time.

It shows your assets, liabilities, and equity. Think of it like a financial selfie. It tells you where you stand right now, but it doesn't show you how you got there.

Chart of Accounts

What it means: A list of all the categories you use to organize your income and expenses.

This is the backbone of your bookkeeping. Every transaction gets sorted into one of these categories so you can actually see where your money's going. Examples: "Office Supplies," "Client Gifts," "Software Subscriptions."

Cost of Goods Sold (COGS)

What it means: The direct costs of making or delivering whatever you sell.

If you're a product-based business, this includes materials and production costs. If you're service-based, it might include subcontractor fees or platform fees. It does not include things like your rent or your email marketing software—those are operating expenses.

Depreciation

What it means: Spreading out the cost of a big purchase over several years instead of expensing it all at once.

If you buy a $3,000 laptop, you don't write off the whole $3,000 this year. You depreciate it—meaning you write off a portion each year over its "useful life." Your accountant handles this at tax time, but it'll show up in your books.

Equity

What it means: The value of what you actually own in your business after you subtract what you owe.

It's basically: Assets – Liabilities = Equity. If you sold everything and paid off all your debts, equity is what you'd walk away with.

Expense

What it means: Money you spend to run your business.

Pretty straightforward. This includes everything from your Canva subscription to your quarterly tax payment to that coffee you bought during a client meeting.

Gross Profit vs. Net Profit

What it means: Two different ways to measure profit.

Gross profit = Revenue minus Cost of Goods Sold. It tells you how much you're making before you pay for all the other stuff (rent, marketing, software, etc.).

Net profit = What's left after you subtract all your expenses. This is your actual take-home profit. The real number.

Income (or Revenue)

What it means: Money your business earns.

This is what you charge clients, what you make from product sales, interest income, all of it. If money's coming in, it's income.

Invoice vs. Receipt

What it means: They sound similar, but they're opposites.

An invoice is what you send to a client to request payment. It says "you owe me this much."

A receipt is proof that payment was made. It says "you paid me this much."

If you're the one getting paid, you send invoices. If you're the one paying, you get receipts.

Journal Entry

What it means: A manual record of a financial transaction in your bookkeeping system.

Most of your transactions get recorded automatically when you link your bank account to QuickBooks. But sometimes you need to manually adjust something—like recording a transfer between accounts or fixing a mistake. That's a journal entry.

(And yes, they can get messy. That's why I'm here.)

Liabilities

What it means: Money your business owes.

This includes loans, credit card balances, unpaid invoices to vendors, and taxes you owe. If you have to pay it back, it's a liability.

Operating Expenses

What it means: The costs of running your business day-to-day that aren't directly tied to making your product or delivering your service.

This includes rent, utilities, software subscriptions, marketing, office supplies—basically everything that isn't Cost of Goods Sold. These are the expenses that keep the lights on.

Owner's Draw vs. Salary

What it means: Two different ways to pay yourself.

A salary is a regular paycheck with taxes withheld, and it's required if you're an S-Corp or C-Corp.

An owner's draw is when you just... take money out of the business. No payroll taxes, no set schedule. This is common for sole proprietors and LLCs.

Your business structure determines which one you should use. (And if you're not sure, talk to your accountant.)

Profit and Loss Statement (P&L)

What it means: A report that shows how much you made, how much you spent, and whether you actually made a profit during a specific time period.

This is the report most business owners actually care about. It answers the question: "Am I making money or not?"

Reconciliation

What it means: Matching your bookkeeping records to your bank statements to make sure everything lines up.

This is how you catch duplicate charges, missing transactions, or random fees you forgot about. It's tedious, but it's necessary. (And yes, I do this for my clients every month.)

Retained Earnings

What it means: Profit that stays in your business instead of being paid out to you.

If your business made $50,000 in profit last year and you only took $30,000 as owner's draw, that remaining $20,000? That's retained earnings. It's still yours—it's just sitting in the business for now.

The Bottom Line

You don't need to memorize all of this. But the next time someone throws around a term like "reconciliation" or "COGS," you'll at least know what they're talking about.