The world of bookkeeping is full of specialized jargon and easily confused abbreviations.

Operational expenses can include salaries, rent, utilities, and supplies.

Here, we’ll demystify 26 tricky terms you’re likely to encounter as a small-business owner:

1. Accounting Period: The term for which financial transactions are recorded and reported in the books of a business. This period is usually a month, a quarter, or a year.
2. Allocation: The process of distributing costs or expenses to specific accounts or departments based on a predetermined formula or basis.
3. Bad Debt Expense (BDE): A provision made by a business to account for uncollectable or potentially uncollectable debts.
4. Bank Reconciliation: The process of matching the balances in a company’s bank or other financial account with its corresponding financial records, identifying any discrepancies, and making the necessary adjustments.
5. Billing: The process of invoicing customers for goods or services provided and recording the corresponding revenues in the books of the business.
6. Bookkeeping: The process of recording and organizing financial transactions.
7. Certified Bookkeeper/Certified Public Bookkeeper (CB/CPB): Certified Bookkeeper is a professional designation awarded by the American Institute of Professional Bookkeepers (AIPB). Certified Public Bookkeeper is a professional designation awarded by the National Association of Certified Public Bookkeepers (NACPB).
8. Chart of Accounts (COA): A list of all the accounts used by a business to record its financial transactions. The COA is used to organize and classify financial transactions and helps in the preparation of financial statements.
9. Commission: A fee paid to a person or entity for performing a service or making a sale, usually calculated as a percentage of the revenue generated.
10. Credit/Debit: Credits are entries made on the right side of an account to reflect either increases a liability or equity account, or decreases an asset or expense account. Debits are entries made on the left side of an account to reflect either increases an asset or expense account, or decreases a liability or equity account.
11. Deposit: A sum of money paid into a bank account for safekeeping, to earn interest, or to secure a purchase or as an investment.
12. Double-Entry/Single-Entry: Double-entry bookkeeping is a system of bookkeeping in which every financial transaction has two equal and opposite entries in debit and credit accounts. Single-entry bookkeeping involves using only one entry for each inflow or outflow transaction.
13. Fixed Expense: A recurring expense that remains constant over a period of time, such as subscriptions and loan payments.
14. General Ledger (GL): A record of all the financial transactions of a business, organized by account.
15. Interest: The amount charged by a lender for the use of borrowed money, typically expressed as a percentage of the principal.
16. Inventory: The total value of goods and materials held by a business for sale or use in production.
17. Journal Entry: A record of a financial transaction in a journal, typically including the date, accounts affected, and the amounts debited or credited.
18. Opening Balance/Closing Balance: The opening balance is the amount of money in an account at the beginning of an accounting period. The closing balance is the amount of money in the account at the end of the period.
19. Operating Expense: The cost a business incurs during the course of normal business operations, which can include both fixed and variable expenses. Examples include insurance and professional fees.
20. Overhead Expense: The costs of running a business that are not directly related to its production of goods or services, such as rent and utilities.
21. Petty Cash: A small amount of cash that is kept on hand by a business to cover small expenses, such as office supplies or travel expenses.
22. Receipt: A written or electronic record of a financial transaction, typically including the date, amount, and description of the transaction, indicating that money, goods, or services have been received.
23. Undeposited Funds: Money received by a business that has not yet been deposited into a bank account or other financial account.
24. Variable Expense: An expense that fluctuates based on the level of business activity, such as the cost of raw materials and sales commissions.
25. Withdrawal: The removal of funds from a bank account or other financial account.
26. Zero-Proof Bookkeeping: A bookkeeping system in which each transaction is subtracted from the ending balance. Accounting records are verified when a balance of zero is reached.

Defining Success

If you’re ready to put your knowledge into action, consult your financial institution.