Bookkeeping terms can feel like a puzzle, but they don’t have to. Knowing basic bookkeeping terms and definitions like assets, liabilities, and cash flow helps you stay in control of your business finances. Let’s make sense of them in this guide!
Basic Bookkeeping Terms and Definitions With Examples
Here’s a breakdown of the bookkeeping terminology with examples, so you can keep track of your money and make informed business decisions.
Assets
The resources your business owns.
Example: Cash, equipment, and inventory. (things that hold value for your business)
Liabilities
What your business owes to external parties.
Example: Loans, unpaid bills, or money you need to pay suppliers.
Equity
The remaining interest an owner holds in a business after subtracting its liabilities from its total assets.
Example: If your business owns $50,000 in assets but owes $20,000, your equity is $30,000.
Revenue
Income generated from normal business operations.
Example: Sales from products or services.
Expenses
The costs of running your business.
Example: Rent, electricity bills, and employee salaries.
Cash Flow
Money going in and out of your business.
Example: If you make $5,000 in sales but spend $3,000 on expenses, your cash flow is positive ($2,000 left).
Profit & Loss (P&L) Statement
A financial report summarising how much money you made vs. how much you spent.
Example: A report showing your revenue, expenses, and whether you made a profit or loss in a month.
Accounts Payable
Money your business needs to pay suppliers for purchases made on credit.
Example: A supplier sent you products, but you haven’t paid them yet.
Accounts Receivable
Money customers owe your business for sales made on credit.
Example: You sold a product or service but haven’t been paid yet - this is money you expect to receive.
General Ledger
A record of every financial transaction in your business.
Example: Think of it as your business’s financial diary - it tracks every dollar earned or spent.
Balance Sheet
A financial statement showing a company’s assets, liabilities, and equity as of a specific date.
Example: A report showing what your business owns (assets), owes (liabilities), and what’s left (equity).
Depreciation
The gradual loss of value of a long-term asset over time.
Example: A company car loses value each year - it’s recorded as depreciation.
What We Think
The importance of bookkeeping can’t be overstated, but it can feel overwhelming for many small business owners, especially with all the technical terms. Understanding the basics makes a huge difference.
You don’t need to be an accountant - just knowing key terms like assets, liabilities, and cash flow helps you make better financial decisions and avoid costly mistakes. The goal isn’t to memorise every term but to understand how they impact your business.
How JAFA Can Help
Keeping up with bookkeeping terms is one thing, managing your finances efficiently is another. That’s where JAFA comes in.
We use AI technology for bookkeeping to automate the process, track your income and expenses, and provide real-time financial insights. This way, you don’t need to stress over complicated terms - JAFA does the heavy lifting so you can focus on running your business with confidence.
Contact our expert accountants in Birmingham, UK, either by booking a FREE discovery call or calling us on +44 121 227 6277.
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