Glossary

Recording income when it's earned and costs when they're incurred, regardless of when the cash moves.

Recording income and costs when the money actually moves. Simpler, and what most small owner-operated businesses use.

The list of buckets your money is sorted into — assets, liabilities, equity, income, and expenses.

A holding account for money that is on its way. Card sales sit in Square clearing until the payout lands in your bank and clears them.

What the things you sold cost you. Beans and milk for a café; product for a salon; inventory for a shop.

The two sides of every entry. Not good and bad — just left and right, and they must be equal.

Bookkeeping where every transaction touches at least two accounts, so the books can be checked against themselves.

Something you bought to use for years — an espresso machine, a laptop — rather than consume this month. It's depreciated over time instead of expensed at once.

One recorded transaction, made of balanced debit and credit lines, with its evidence attached.

Closing a month or year so nothing new can post into it. Late items land in the current period instead.

Where a value came from: which receipt, which scan or email, which person, at what time.

Checking your books against your bank until the two agree, and explaining anything that doesn't.

Paying enough tax during the year — often measured against last year's bill — to avoid an underpayment penalty.

Social Security and Medicare on your business profit, owed in addition to income tax when you work for yourself.

How a sale was paid — card, cash, gift card. Different tenders land in different accounts, which is why the distinction matters.

A list of every account's debit and credit totals. If the two columns match, the ledger is internally consistent.