Top Bookkeeping Terms Explained

When you’ve spent a chunk of your working life employed, things like bookkeeping and accounting never usually come up – out of sight out of mind, as they say.

It’s a safety net we often take for granted until we’re newly self-employed and the responsibility of managing our taxes (along with all the jargon that comes with it) hits us.

Don’t be hard on yourself, though. Lots of us are taught how to become employable, and truly little on how to set up our own business, sort out our bookkeeping, and keep HMRC happy!

Whether you’re new to the bookkeeping world or need a refresher on the jargon you hear on a day-to-day basis, we’re here to help. Next time you pick up the phone to call your bookkeeper, you’ll know exactly what they’re talking about.

Accounts Payable/Receivable

Accounts Payable: Referred to as AP for short – this is the money that your business owes to another business. Things like goods, services, and supplies fall into this category.

Accounts Receivable: Referred to as AR for short, the opposite of Accounts Payable. This is the money a customer owes your business for any products or services.


Accruals can be either money earnt that’s yet to be paid to your business, or incurred expenses yet to be recorded in your bookkeeping records as a transaction.

For example, if you’re working with a customer who’s only paid a deposit or is yet to pay the full amount for your services, the revenue will be recorded as an accrual within your company’s financial statements.

Balance Sheet

A balance sheet is essentially a financial statement that provides details on your assets, liabilities, and capital to give a crystal-clear snapshot of what your business owns versus what it owes.

Cash Flow Forecast

Your cash flow forecast is a prediction or estimation of how much money your business is likely to have available over a specific period. This is handy if you’re looking to apply for things like finance or investment as investors are likely to ask for this type of information.

Staying up to speed on where your business is at financially is also essential for planning, so you know how much cash you need available and when, in order to run your business.

Chart of Accounts

This refers to all the accounts your organisation should have so that financial transactions can be better organised. These include assets, liabilities, equity, income, costs of goods sold, and expenses. Each transaction coming in or going out of the business will come under one of these.

Credit Note

Credit notes are sometimes issued to customers when items are returned or if the original invoice was issued for the wrong price. They’re a bit like a negative invoice, and will cancel part or all of the original invoice amount. If you work closely with other businesses, you might issue them a credit note if they’ve been overcharged on their invoice.

Closing Balance

A closing balance is the amount that remains in a business account once an accounting period has ended (typically at the end of a month or year). The amount could be a positive or negative figure.


When you complete your bookkeeping, you want to ensure it is as accurate as possible. So, every time you enter a transaction, it’ll be entered twice in your accounts: once as a ‘debit’, and once as a ‘credit’. It’s a way of showing

For example, if a Graphic Designer purchases a laptop for £700, they’ll credit their expense account for £700 and debit their cash account for £700.


Similarly, if you made £700 in sales, you’d enter a cash debit of £700 into your account, and a revenue credit of £700.


This is a customer or client that owes money to your business.


Deductibles are just like expenses. They’re purchases that can be claimed as a business expense to reduce profit figures, resulting in reducing your tax bill.


These are a payment from your company’s profits distributed amongst its shareholders depending on the quantity and type of shares they own. Paying dividends can be a tax efficient way to take money out of a limited company.


Directors Loan

A Director’s loan is money taken out of your company’s account that isn’t classed as a salary, dividends, or expenses – it’s a ‘loan’ that you can borrow as a director, that you’ll need to eventually pay back.


This is how much owners have put into the business, and how much of it they own. For example, a shareholder who owns all of the shares in a company owns all of the equity.


Every transaction you record in your bookkeeping is an ‘entry’.

Financial Statements

Your accountant will create financial reports for you at the end of the financial year. In this report, you’ll be able to assess how well your business performed, and its overall value so HMRC can calculate exactly how much tax you owe. (Or, if you use Pandle, you can view your real-time reports in just a few clicks!).

Gross/Net Profit

Gross profit: Your business’ total revenue, minus the cost of making the sales in the first place.

Net profit: The figure you get once you have deducted business expenses from the gross profit figure.

General Ledger Account

Every financial transaction that happens in your business is stored in your general ledger account. It’s a way of recording the total amounts of all of the financial accounts in the business.


Your inventory involves listing and counting your assets that are either used in production, or products in various stages of production (before it becomes stock).

This includes the raw materials and components needed to make your stock, or machines and large equipment used to supply your products and goods that are still in production and don’t class as stock yet – known as a work in progress (WIP).


An invoice records a transaction between a buyer and a seller. This can be for goods or services, and provides information on how much the recipient owes, how they can pay, and the payment deadline.


A liability is something your business owes. For instance, invoices from suppliers that haven’t been paid yet, credit card balances, or any outstanding loans.

Month End Close

To keep accurate business records, a business compiles its financial accounting information to review at the end of each month. It means you can make sure that your accounts are accurate at the end of each month, rather than waiting till the end of the year to check things over. It basically means making sure that everything balances correctly, and that you’ve recorded everything you need to.

Opening Balance

This is the amount in your account at the start of the accounting period. The first day is generally the day after the closing balance/last day of the accounting period.


This is the process of comparing two sets of financial records to ensure that they correspond with each other. For instance, checking that the transactions on your bank statement match the transactions recorded in your bookkeeping. These days, good bookkeeping software (like Pandle!) will automate most of the bank reconciliation process if it pulls transaction data straight from your bank using a Bank Feed.


This is a regular transaction that appears in your accounts. An example of this is salary payments or software subscriptions.


Unlike double-entry bookkeeping, single-entry means you’ll track things like liabilities and business assets one single time.

Wage adjustments/journals

Wage adjustments are used to record the payments you make to your employees. It’s an ‘adjustment’ because you’re updating the amounts in your financial accounts to show that you’ve made a transfer or soon will.

The amount can include basic wages and tax, as well as National Insurance and pension contributions. Rather than waiting for payday, it is best practice to enter wage adjustments as soon as possible, to plan and manage your cash flow more effectively.


You’ve probably heard this one often, even if you’ve only been employed. It means exactly what it sounds like, the end of the financial year. All reconciliations must be complete by this date, and everything categorised appropriately. You will also need to gather any paperwork and process any sales or PAYE taxes too.

This won’t cover everything your bookkeeper or accountant will chat to you about, but we hope it’s a good starting point! If you’re looking for good bookkeeping software you’ve come to the right place, sign up to create your free Pandle account today.

Rachael Anderson

A creative content writer specialising across business, finance and software topics. I have a love for all things writing, and creating engaging, easy to understand content that helps everyday people!

Notify of
Inline Feedbacks
View all comments