Learn / Accounting basics
Accounting basics, in plain English
Ten concepts, each explained in one sentence — plus why it actually matters to your business. No degree required, no jargon allowed.
The mini-glossary
Everything your accountant assumes you know
Invoice vs. receipt
An invoice asks for money; a receipt confirms money arrived.
Why it matters
Customers and tax agencies treat them very differently. An invoice creates a record that you’re owed something — which is how you track who still hasn’t paid. A receipt is proof of a completed payment, which is what you keep for expenses and audits.
Cash vs. accrual
Cash accounting generally records income when received and expenses when paid; accrual follows the applicable recognition rules.
Why it matters
An invoice date alone does not decide when revenue is earned. A completed June service may be June revenue under accrual accounting if recognition conditions are met, even if payment arrives later. Financial reporting and federal tax rules can differ, including exceptions for particular transactions.
Profit vs. cash
Profit is what you earned on paper; cash is what’s actually in the bank.
Why it matters
A business can be profitable and still miss payroll, because earned money can be stuck in unpaid invoices or sitting on a shelf as inventory. Watching both numbers — not just one — is the single habit that keeps profitable businesses alive.
Profit & loss (P&L)
The report showing what you earned, what you spent, and what was left, over a period of time.
Why it matters
It’s the fastest read on whether your business model works. Revenue at the top, costs in the middle, profit at the bottom — check it monthly and you’ll know your business better than most owners ever do.
Balance sheet
A snapshot of what your business owns, what it owes, and what’s left over — on one specific day.
Why it matters
The P&L tells you how the period went; the balance sheet tells you where you stand. It’s where cash, unpaid invoices, inventory, and debt appear in one place — and it’s the first thing a lender asks to see.
Reconciliation
Checking that your books and your bank statement agree, transaction for transaction.
Why it matters
Account for outstanding checks, deposits in transit, bank charges, and errors. Matching adjusted balances helps establish a reliable cash record, but does not rule out offsetting mistakes or errors elsewhere in the books.
Every term on this page is something Bokeping does for you — you just get to understand what it did.
Cost of goods sold (COGS)
Inventory costs assigned to the goods sold, including applicable production costs.
Why it matters
Subtract it from revenue and you get gross profit, the number that funds everything else. If COGS creeps up faster than your prices, the business shrinks quietly — tracking it per item is how you notice in time.
Receivable & payable
Accounts receivable is who owes you; accounts payable is who you owe.
Why it matters
Together they’re the future of your bank account. A growing pile of receivables means revenue is stuck in transit; a bill list you never look at means surprises. Glance at both weekly and the bank balance stops being a mystery.
Double-entry
Every transaction is recorded in two places, so the books always balance.
Why it matters
It sounds like accountant fussiness; it’s actually an error-catching machine that’s worked for five hundred years. When every dollar has a source and a destination, mistakes surface as imbalances instead of hiding. It’s the difference between a ledger and a list.
Credit note
A document that reduces what a customer owes you — a refund’s paperwork twin.
Why it matters
When you issue a refund or fix a billing mistake, deleting the original invoice destroys history. A credit note keeps the record honest: the invoice happened, the correction happened, and the books show both.
Want the long version of profit vs. cash?Read the post
Learn by doing
The fastest way to learn bookkeeping is with your own numbers. Start free — Bokeping keeps the jargon out of your way as you go.
Ready to know your money?
Free plan, no card needed. Bring your QuickBooks or spreadsheet history, invite your accountant, and start reading your own books today.