Accounting Glossary
Clear, jargon-free definitions of every accounting and bookkeeping term you need to know. Search by letter, category, or keyword.
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Glossary terms
Accounts Payable (AP)
Money your business owes to suppliers and vendors for goods or services received but not yet paid for. Tracked as a current liability on the balance sheet. HelloBooks automates AP with purchase orders, GRN matching, and vendor bill management.
Accounts Receivable (AR)
Money owed to your business by customers who received goods or services on credit. Tracked as a current asset. HelloBooks manages AR through invoicing, payment tracking, aging reports, and automatic reminders.
Accrual Accounting
An accounting method that records revenue when earned and expenses when incurred, regardless of when cash changes hands. Required by GAAP for most businesses above a certain size. Contrasts with cash-basis accounting.
Balance Sheet
A financial statement showing what your business owns (assets), owes (liabilities), and the owner's stake (equity) at a specific point in time. Assets = Liabilities + Equity. HelloBooks generates balance sheets automatically from your transactions.
Bank Reconciliation
The process of matching your accounting records to your bank statement to ensure they agree. HelloBooks AI auto-categorizes and matches transactions from 11,000+ banks via Plaid, reducing reconciliation from hours to minutes.
Cash Flow Statement
A financial report showing how cash moves in and out of your business through operations, investing, and financing activities. Essential for understanding whether your business generates enough cash to cover expenses.
Chart of Accounts (COA)
An organized list of every account used to record financial transactions in your general ledger. Categories include assets, liabilities, equity, revenue, and expenses. HelloBooks creates a standard COA automatically when you set up your entity.
Cost of Goods Sold (COGS)
The direct costs of producing goods or services sold by your business — materials, labor, and overhead. Deducted from revenue to calculate gross profit. HelloBooks tracks COGS through inventory and purchase management.
Credit Note
A document issued by a seller to reduce the amount a buyer owes. Used for returns, overpayments, or post-sale discounts. In GST systems, credit notes adjust tax liability and must be reported in GSTR-1.
Debit Note
A document issued when the amount on the original invoice needs to increase — for additional charges, price revisions, or supplementary services. Opposite of a credit note.
Depreciation
The gradual reduction in value of a fixed asset over its useful life. Common methods include straight-line and declining balance. In the US, Section 179 allows immediate expensing of qualifying assets.
Double-Entry Bookkeeping
An accounting system where every transaction is recorded in at least two accounts — a debit and a credit — ensuring the accounting equation (Assets = Liabilities + Equity) always balances. HelloBooks uses double-entry automatically.
General Ledger (GL)
The master record of all financial transactions for a business, organized by account. Every entry in the GL follows double-entry bookkeeping. HelloBooks maintains your GL automatically from invoices, bills, payments, and journal entries.
Gross Profit
Revenue minus cost of goods sold (COGS). Represents the profit before operating expenses, taxes, and interest. Gross profit margin (gross profit / revenue) indicates pricing efficiency.
Journal Entry
A record of a financial transaction in the general ledger, showing debits and credits. Manual journal entries handle adjustments, corrections, and non-standard transactions that don't originate from invoices or bills.
Net Profit
The bottom line — revenue minus all expenses including COGS, operating costs, interest, and taxes. Also called net income. The P&L statement's final figure.
Profit & Loss Statement (P&L)
Also called an income statement. Shows revenue, expenses, and profit or loss over a period. Essential for understanding business performance. HelloBooks generates P&L reports automatically with AI-powered insights.
Trial Balance
A report listing all general ledger accounts and their balances to verify that total debits equal total credits. Used to check for errors before preparing financial statements.
Invoice
A document sent to a customer requesting payment for goods or services. Includes seller and buyer details, items, amounts, taxes, and payment terms. HelloBooks supports AI-powered smart invoicing with multi-channel delivery.
Proforma Invoice
A preliminary invoice sent before delivery as an estimate or quotation. Not a demand for payment — used for customs, advance payments, and price confirmation. Can be converted to a tax invoice in HelloBooks.
Purchase Order (PO)
A formal document sent to a vendor authorizing a purchase. Specifies items, quantities, agreed prices, and delivery terms. HelloBooks supports 3-way matching: PO to GRN to vendor invoice.
Recurring Invoice
An invoice automatically generated and sent on a schedule — weekly, monthly, quarterly. Ideal for subscription services, retainers, and maintenance contracts. HelloBooks automates creation, delivery, and payment tracking.
Sales Order
A confirmation document sent to a customer after they accept a quote, before delivery and invoicing. HelloBooks converts quotes to sales orders to invoices in a seamless workflow.
Goods Receipt Note (GRN)
A document confirming that goods ordered via a purchase order have been physically received and inspected. Part of 3-way matching (PO → GRN → Invoice) to prevent overpayment. HelloBooks has full GRN with validation rules.
Three-Way Matching
A verification process that matches the purchase order, goods receipt note, and vendor invoice to ensure you only pay for what was ordered and received at the agreed price. Prevents fraud and errors.
FIFO (First In, First Out)
An inventory valuation method where the oldest stock is sold first. During inflation, FIFO results in lower COGS and higher reported profits compared to LIFO.
Form 1099
An IRS information return used to report various types of income other than wages. 1099-NEC is for non-employee compensation ($2,000+ to a contractor for payments made in 2026 onward; $600+ for 2025 and earlier). Businesses must file by January 31. HelloBooks tracks contractor payments for 1099 reporting.
Form W-2
An IRS form reporting wages paid to employees and taxes withheld. Employers must provide W-2s to employees by January 31 and file copies with the SSA.
Sales Tax Nexus
The connection between a business and a state that requires the business to collect and remit sales tax. Nexus can be physical (office, warehouse) or economic (exceeding revenue/transaction thresholds). HelloBooks includes a nexus calculator.
Section 179 Deduction
An IRS provision allowing businesses to deduct the full purchase price of qualifying equipment and software in the year of purchase, rather than depreciating over time. HelloBooks includes a Section 179 calculator.
Estimated Quarterly Taxes
Quarterly tax payments made by self-employed individuals and businesses to cover income tax and self-employment tax. Due April 15, June 15, September 15, and January 15.
GST (Goods and Services Tax)
India's unified indirect tax replacing multiple central and state taxes. After the GST 2.0 rationalisation (effective 22 September 2025) it applies at 0%, 5%, 18%, and 40% rate slabs, plus special rates for precious stones and metals (0.25% / 1.5% / 3%). Includes CGST (central), SGST (state), and IGST (inter-state). HelloBooks fully supports GST compliance.
CGST & SGST
Central GST (CGST) and State GST (SGST) are levied equally on intra-state supplies. For example, 18% GST on a local sale = 9% CGST + 9% SGST. Both go to different government levels.
IGST (Integrated GST)
GST levied on inter-state supplies and imports. IGST equals the full GST rate (e.g., 18% IGST vs 9% CGST + 9% SGST). The central government distributes the state portion to the destination state.
GSTIN
A 15-digit GST Identification Number assigned to every registered taxpayer in India. Format: 2 digits state code + 10 digits PAN + 1 digit entity number + 1 blank + 1 check digit. Must appear on all GST invoices.
GSTR-1
A monthly or quarterly return filed by registered dealers reporting all outward supplies (sales). Must be filed by the 11th of the following month. HelloBooks exports GSTR-1 data directly from your invoices.
GSTR-3B
A monthly self-declaration return summarizing outward supplies, input tax credit claimed, and net tax payable. Filed by the 20th of the following month. HelloBooks generates GSTR-3B summaries from your transaction data.
Input Tax Credit (ITC)
The GST paid on business purchases that can be offset against GST collected on sales. Reduces your net GST liability. ITC is only available if the supplier has filed their return and the invoice is valid.
HSN Code
Harmonized System of Nomenclature — a 4-8 digit code classifying goods for GST purposes. Required on GST invoices based on annual turnover. HelloBooks includes a searchable HSN code database.
SAC Code
Service Accounting Code — a 6-digit code classifying services under GST (similar to HSN for goods). Required on service invoices. Example: 998311 for management consulting.
TDS (Tax Deducted at Source)
Tax deducted by the payer at the time of payment to the government. Common TDS rates: 1% (purchase of goods above Rs. 50 lakh), 2% (contractors), 10% (professional services). HelloBooks tracks TDS on purchases and sales.
TCS (Tax Collected at Source)
Tax collected by the seller from the buyer at the time of sale. Applies to specific goods (scrap, minerals) and e-commerce operators. HelloBooks supports TCS calculation and reporting.
E-Invoice (India)
An electronic invoicing system where B2B invoices are registered on the GST Invoice Registration Portal (IRP). Each invoice gets an IRN (Invoice Reference Number) and signed QR code. Mandatory for businesses above Rs. 5 crore turnover.
E-Way Bill
An electronic document required for transporting goods worth more than Rs. 50,000 within or between states. Generated on the GST portal. HelloBooks auto-generates e-way bills with delivery challans.
Reverse Charge Mechanism (RCM)
The Indian GST provision making the recipient, rather than the supplier, liable to pay tax on specified supplies, including certain services such as legal and goods transport agency services, and purchases from unregistered suppliers. The recipient pays in cash and may then claim input tax credit subject to the usual conditions.
Plaid
A financial technology company that connects applications to bank accounts. HelloBooks uses Plaid to provide live bank feeds from 11,000+ US financial institutions for automatic transaction import and categorization.
Stripe Connect
Stripe's platform for marketplace and SaaS payments. HelloBooks uses Stripe Connect to enable invoice payment links — customers click "Pay Now" and pay via credit card, with funds going directly to the business's Stripe account.
Razorpay
India's leading payment gateway for online payments. HelloBooks integrates with Razorpay via OAuth to enable UPI, card, net banking, and wallet payments on invoices for Indian businesses.
UPI (Unified Payments Interface)
India's real-time inter-bank payment system that enables instant mobile payments using virtual payment addresses. Processes 10+ billion transactions monthly. Supported in HelloBooks via Razorpay.
MRR (Monthly Recurring Revenue)
The predictable revenue a subscription business earns each month. Calculated by multiplying the number of paying customers by the average revenue per user (ARPU). Key SaaS metric.
ARR (Annual Recurring Revenue)
The annualized version of MRR (MRR x 12). Used by SaaS companies to measure predictable yearly revenue. A key metric for valuation and growth tracking.
Burn Rate
The rate at which a company spends cash, typically measured monthly. Gross burn is total monthly spending. Net burn is spending minus revenue. Used to calculate runway (cash / net burn = months of runway).
Working Capital
Current assets minus current liabilities. Measures a business's ability to pay short-term obligations. Positive working capital means the business can cover its near-term debts.
Bookkeeping
The day-to-day recording of a business's financial transactions — sales, purchases, receipts, and payments — into organized accounts. Bookkeeping is the foundation that accounting builds on: accurate books feed the general ledger, financial statements, and tax filings. HelloBooks automates bookkeeping by importing bank feeds, categorizing transactions with AI, and posting double-entry records in real time.
Cash Flow
The net movement of money into and out of a business over a period. Positive cash flow means more money is coming in than going out; negative cash flow signals the opposite. Distinct from profit — a profitable business can still run out of cash. HelloBooks tracks cash flow live and projects runway from your invoices, bills, and bank balances. See also the Cash Flow Statement.
Audit Trail
A chronological, tamper-evident record of every change made to a financial transaction — who created it, who edited it, what changed, and when. Essential for audits, fraud prevention, and regulatory compliance (SOX, GST, GAAP). HelloBooks maintains an immutable audit trail on every invoice, bill, journal entry, and payment.
Closing Entries
Journal entries made at the end of an accounting period to transfer balances from temporary accounts (revenue, expenses, dividends) into permanent equity accounts, resetting the temporary accounts to zero for the next period. Part of the month-end and year-end close. HelloBooks generates closing entries automatically.
Month-End Close
The process of finalizing a business's books at the end of each month — reconciling bank and credit-card accounts, posting accruals and adjustments, reviewing the trial balance, and locking the period. A faster close means timelier financial reporting. HelloBooks shortens the close with automated reconciliation and a guided close checklist.
Overhead
The ongoing operating costs of running a business that are not directly tied to producing a specific product or service — rent, utilities, insurance, administrative salaries, and software. Overhead is allocated across products to understand true profitability. HelloBooks tracks overhead by category for accurate cost and margin reporting.
Break-Even Point
The level of sales at which total revenue equals total costs, so the business makes neither a profit nor a loss. Calculated as fixed costs ÷ (price per unit − variable cost per unit). Knowing your break-even point tells you the minimum you must sell to stay solvent. HelloBooks surfaces break-even analysis from your cost and pricing data.
Budget
A financial plan that estimates expected revenue and expenses over a future period, used to set targets and control spending. Comparing actual results to budget (variance analysis) reveals where a business is over- or under-performing. HelloBooks lets you build budgets per department or project and tracks budget-vs-actual automatically.
Amortization
The gradual write-off of the cost of an intangible asset (patents, goodwill, software licences) over its useful life — the intangible-asset equivalent of depreciation. Amortization also describes spreading loan repayments into equal periodic instalments of principal and interest. HelloBooks posts amortization schedules automatically.
Aging Report
A report that groups unpaid invoices (accounts receivable) or bills (accounts payable) by how long they have been outstanding — typically 0–30, 31–60, 61–90, and 90+ day buckets. It highlights overdue balances and collection risk. HelloBooks generates AR and AP aging reports in real time with automated payment reminders.
Accrued Expenses
Costs a business has incurred but not yet been billed for or paid, recorded as a liability so the expense lands in the period it belongs to. Typical examples are wages earned but unpaid at month end, interest, and utilities consumed before the invoice arrives. Reversed when the actual bill is booked.
Accrued Revenue
Revenue earned by delivering goods or services that has not yet been invoiced to the customer, recorded as an asset. Common on milestone contracts and retainers where work is performed in one period and billed in the next. The opposite situation to deferred revenue.
Allowance for Doubtful Accounts
A contra-asset account that reduces accounts receivable by the portion management expects never to collect. Estimated from historical loss rates or an aging analysis, it keeps receivables stated at realisable value instead of face value. Also called the provision for bad debts.
Asset
A resource the business controls that is expected to produce future economic benefit. Split into current assets, convertible to cash within a year, such as cash, receivables and inventory, and non-current assets like equipment, property and intangibles. One side of the accounting equation: Assets = Liabilities + Equity.
Liability
An obligation to pay money or deliver value to someone else as a result of a past transaction. Current liabilities fall due within a year, for example payables, accrued expenses and short-term debt; non-current liabilities, such as term loans, fall due later.
Equity
The owners residual claim on the business after every liability is settled: Equity = Assets minus Liabilities. Made up of capital contributed by owners plus accumulated retained earnings, less any drawings or distributions. Also called net worth or shareholders funds.
Retained Earnings
The cumulative profit a business has earned since inception, less every dividend or distribution paid out. It sits in equity on the balance sheet and is the link between the profit and loss statement and the balance sheet each period.
Owners Draw
Money or assets a sole proprietor or partner takes out of the business for personal use. A draw reduces equity rather than appearing as a business expense, so it never affects reported profit, and it is not payroll. Owners of corporations take salary or dividends instead.
Capital Expenditure (CapEx)
Spending to acquire or improve a long-lived asset, capitalised on the balance sheet and then depreciated over its useful life rather than expensed at once. Buying a delivery van is capital expenditure; fuelling it is an operating expense.
Operating Expense (OpEx)
The day-to-day cost of running the business, charged against profit in the period it is incurred: rent, salaries, software subscriptions, utilities and professional fees. Contrasted with capital expenditure, which is capitalised and depreciated.
Prepaid Expenses
Amounts paid in advance for goods or services the business has not yet consumed, carried as a current asset and released to expense as the benefit is used. Annual insurance premiums, software licences and advance rent are the usual cases.
Deferred Revenue
Cash collected from a customer before the goods or services have been delivered, held as a liability until the obligation is met. Standard for subscriptions, annual plans and deposits. Recognised as revenue progressively as delivery occurs.
Unearned Revenue
Another name for deferred revenue: a customer payment received in advance of performance, carried as a liability because the business still owes the goods or services. It becomes revenue only once the obligation is satisfied.
Bad Debt
A receivable the business has concluded it will not collect. Recognised either directly as an expense when a specific invoice is abandoned, or through an allowance for doubtful accounts that estimates losses in advance.
Write-Off
The accounting entry that removes an asset carrying no remaining value from the books, such as an uncollectible invoice or obsolete stock. Distinct from a write-down, which reduces an asset to a lower value without removing it.
Contra Account
An account deliberately carrying the opposite balance to the account it is paired with, so both the gross figure and the reduction stay visible. Accumulated depreciation offsets fixed assets; allowance for doubtful accounts offsets receivables; sales returns offset revenue.
Sub-Ledger
A detailed ledger holding the individual transactions behind a single general-ledger account, such as one line per customer in accounts receivable. The sub-ledger total must agree with its general-ledger control account.
Control Account
A general-ledger account whose balance summarises an entire sub-ledger, for example the receivables control account standing for every customer balance. Comparing the two is a routine check that no detail entry has been lost or double-counted.
Suspense Account
A temporary holding account for transactions that cannot yet be classified, perhaps an unidentified bank receipt or an entry pending documentation. It should be investigated and cleared to zero before the books are closed.
Clearing Account
A transit account used to hold amounts briefly while a transaction moves between systems or stages, such as undeposited funds or a payroll clearing account. By design it nets to zero once both sides of the transaction are posted.
Petty Cash
A small cash float kept on site for minor expenses too trivial for a purchase order or card payment. Controlled with receipts for every disbursement and periodic replenishment back to the agreed float.
Imprest System
A petty-cash control method that fixes the float at a set amount and tops it back up by exactly the receipts presented. Because cash on hand plus vouchers must always equal the float, any shortfall is visible immediately.
Reconciliation
Comparing two independent records of the same transactions and resolving every difference, most commonly the accounting ledger against a bank statement. Reconciliation is what makes a balance trustworthy rather than merely recorded.
Intercompany Transactions
Transfers of goods, services, loans or cost allocations between entities under common ownership. Each entity records its own side, and the matching amounts must be eliminated on consolidation so group results are not inflated.
Consolidation
Combining the financial statements of a parent and its subsidiaries into one set of accounts presenting the group as a single economic entity. Intercompany balances, sales and unrealised profits are eliminated in the process.
Statement of Retained Earnings
A statement reconciling opening retained earnings to the closing figure by adding the period profit and deducting dividends or distributions. It explains the movement linking the profit and loss statement to the balance sheet.
Statement of Cash Flows (Indirect Method)
A cash flow statement that starts from net profit and adjusts for non-cash items such as depreciation and for movements in working capital to arrive at operating cash flow. The indirect method is the common presentation because it reuses figures already in the ledger.
Financial Statements
The standard set of reports describing a business: the balance sheet, the profit and loss statement, the cash flow statement, the statement of changes in equity, and the accompanying notes. Together they show position, performance and cash generation.
Adjusting Entries
Journal entries posted at the end of a period so that revenue and expenses fall in the right period under accrual accounting. The usual categories are accruals, prepayments, depreciation, and provisions such as doubtful debts.
Revenue Recognition
The rules determining when a sale may be recorded as revenue, which is when control of the goods or services passes to the customer rather than when cash arrives. Misapplying it is one of the most common causes of restated accounts.
ASC 606
The US GAAP revenue standard, Revenue from Contracts with Customers. It applies a five-step model: identify the contract, identify the performance obligations, determine the transaction price, allocate it to the obligations, then recognise revenue as each obligation is satisfied.
IFRS 15
The IFRS revenue standard, Revenue from Contracts with Customers, substantially converged with ASC 606 and built on the same five-step model. It replaced earlier, industry-specific revenue guidance with one principles-based approach.
GAAP
Generally Accepted Accounting Principles, the accounting framework used for US financial reporting and maintained by the Financial Accounting Standards Board. More rules-based than IFRS, and required for SEC registrants.
IFRS
International Financial Reporting Standards, issued by the International Accounting Standards Board and used or permitted in well over a hundred jurisdictions. More principles-based than US GAAP, with differences in areas such as inventory costing and development costs.
Cash Basis Accounting
Recording revenue when cash is received and expenses when cash is paid. Simple and a close proxy for cash position, but it ignores receivables, payables and inventory, so it can misstate profitability in any period. Eligibility is restricted by size and entity type in most tax systems.
Modified Cash Basis
A hybrid that keeps cash-basis treatment for most items while applying accrual treatment to selected ones, typically capitalising and depreciating fixed assets and recording long-term debt. Used for internal reporting; not a recognised framework for audited statements.
Accruals
The principle that transactions are recorded when they occur economically rather than when cash moves, and the entries that implement it. Accrual accounting is required under both GAAP and IFRS for general-purpose financial statements.
Matching Principle
The rule that expenses are recognised in the same period as the revenue they helped generate. It is why cost of goods sold moves with sales and why prepayments are released over the periods that benefit.
Materiality
The threshold above which an omission or error would change a reasonable users decision about the business. It governs how much precision and disclosure a given item justifies, and is judged in context rather than by a fixed percentage.
Going Concern
The assumption that the business will continue operating for the foreseeable future, which is what permits assets to be carried at cost rather than liquidation value. Where significant doubt exists, management and auditors must disclose it.
Fiscal Year
The twelve-month period a business uses for reporting and tax, which need not match the calendar year. India uses 1 April to 31 March; the UK tax year for individuals ends 5 April; many US businesses use the calendar year, and retailers often pick a trading low point.
Cost Accounting
The practice of capturing, assigning and analysing the cost of producing goods or delivering services, so that pricing, margin and efficiency decisions rest on real figures. Internal by nature, it is not bound by external reporting standards.
Current Ratio
Current assets divided by current liabilities, a measure of whether a business can meet obligations falling due within a year. Above 1 means current assets cover current liabilities; what counts as healthy varies sharply by industry.
Quick Ratio
A stricter liquidity test than the current ratio, dividing only cash, marketable securities and receivables by current liabilities. Inventory and prepayments are excluded because they cannot be relied on to convert to cash quickly. Also called the acid-test ratio.
Debt-to-Equity Ratio
Total liabilities divided by shareholders equity, showing how much of the business is funded by creditors against owners. A higher ratio raises returns when trading well and magnifies losses when it does not.
EBITDA
Earnings before interest, taxes, depreciation and amortisation: a proxy for operating cash generation that strips out financing and accounting policy choices. Widely used in valuation, but it is not a GAAP or IFRS measure and ignores both capital spending and working capital.
Operating Income
Profit from core trading activity: gross profit less operating expenses, before interest and tax. Also called operating profit or EBIT, it isolates how well the business performs independently of how it is financed.
Net Income
The final profit figure after every expense, including cost of sales, operating costs, interest and tax. Also called net profit or the bottom line, and the figure that flows into retained earnings.
Gross Margin
Gross profit as a percentage of revenue, calculated as revenue less cost of goods sold divided by revenue. It measures how much of each sale survives direct costs and is the first place to look when pricing or supplier costs move.
Contribution Margin
Revenue less variable costs, the amount each additional sale contributes toward fixed costs and then profit. The basis of break-even analysis: fixed costs divided by contribution margin per unit gives the volume needed to break even.
Fixed Costs
Costs that do not vary with output over the relevant range, such as rent, insurance and salaried staff. They create operating leverage, so profit rises faster than revenue once they are covered and falls faster when volume drops.
Variable Costs
Costs that move more or less in proportion to volume, such as materials, per-unit labour, packaging and payment processing fees. Subtracting them from revenue gives contribution margin.
Accounts Payable Turnover
Total purchases or cost of sales divided by average accounts payable, showing how many times a year the business settles its supplier balances. A falling ratio can signal either deliberate cash conservation or genuine payment strain.
Days Payable Outstanding (DPO)
The average number of days a business takes to pay its suppliers, calculated as average accounts payable divided by cost of sales, times the days in the period. Stretching DPO funds working capital but risks supplier relationships and early-payment discounts.
Days Sales Outstanding (DSO)
The average number of days taken to collect payment after a sale, calculated as average accounts receivable divided by revenue, times the days in the period. Rising DSO is usually the earliest warning of a cash-flow problem.
Job Costing
Assigning materials, labour and overhead to a specific job, project or contract so profitability can be read per job rather than only in aggregate. Standard practice in construction, agencies, manufacturing to order and professional services.
Purchase Price Variance (PPV)
The difference between the price actually paid for a purchase and the standard or expected price, times the quantity bought. A persistent unfavourable variance points at supplier pricing, buying practice, or an out-of-date standard cost.
Inventory Valuation
Determining the monetary value of stock on hand, which sets both the balance-sheet asset and cost of goods sold. The method chosen, FIFO, LIFO or weighted average, changes reported profit when input prices move, so it must be applied consistently.
LIFO (Last In, First Out)
An inventory costing method that charges the most recently purchased stock to cost of sales first. In a rising-price environment it reports higher cost of sales and lower profit than FIFO. Permitted under US GAAP but prohibited under IFRS.
Weighted Average Cost
An inventory method valuing every unit at the average cost of all units available, recalculated as new stock arrives. It smooths the effect of price volatility and is permitted under both GAAP and IFRS.
Perpetual Inventory
An inventory system that updates quantities and cost of sales continuously as each sale and receipt is recorded, so stock figures are available at any moment. Physical counts still matter, but they verify the records rather than create them.
Periodic Inventory
An inventory system that establishes stock levels and cost of sales only by counting at the end of each period. Cheaper to run than a perpetual system, but shrinkage and errors stay invisible between counts.
Landed Cost
The full cost of getting a purchased item into saleable position: supplier price plus freight, insurance, customs duty, handling and any non-recoverable taxes. Pricing on supplier invoice alone systematically understates true cost on imported goods.
Dunning
The structured sequence of reminders sent to a customer with an overdue balance, escalating in tone and channel over time. Automating dunning is one of the most reliable ways to reduce days sales outstanding.
Collections
The process of pursuing payment on overdue invoices, from reminders and statements through payment plans to legal action or external agencies. Effective collections depend on accurate aging data and a consistent escalation policy.
Credit Memo
A document issued to reduce the amount a customer owes, used for returns, overcharges, agreed discounts or service failures. It can offset a future invoice or support a refund, and in VAT and GST systems it also adjusts the tax reported.
Remittance Advice
A note sent by a payer listing exactly which invoices a payment covers. Without it, part-payments and bulk transfers have to be allocated by guesswork, which is a common source of reconciliation delay.
Statement of Account
A periodic summary sent to a customer showing opening balance, invoices raised, payments and credits applied, and the closing balance owed. Unlike an invoice it is not a demand for a specific sum but a reconciliation tool.
Payroll Liabilities
Amounts owed as a result of running payroll but not yet paid out: net wages, income tax withheld, social-security and pension contributions, and any garnishments. They are liabilities held on behalf of employees and agencies, not business expenses in their own right.
Payroll Journal Entry
The entry recording a pay run, debiting gross wages and employer contributions to expense and crediting net pay plus each withholding and contribution liability. Settling those liabilities later is a separate entry that clears them to zero.
FICA
The US Federal Insurance Contributions Act tax funding Social Security and Medicare, withheld from employee wages and matched by the employer. The Social Security portion applies only up to an annual wage base, and an additional Medicare amount applies above a set income level; both figures are published yearly by the IRS and SSA.
FUTA
The US Federal Unemployment Tax Act levy, paid by employers only and never withheld from employees, funding federal administration of unemployment benefits. It applies to a per-employee annual wage base, and employers paying state unemployment tax on time generally qualify for a substantial credit. Current rates and the wage base come from IRS Form 940 guidance.
SUTA
State Unemployment Tax Act contributions, paid by employers to the state funds that finance unemployment benefits. Each state sets its own wage base and assigns an experience-rated percentage reflecting the employers claims history, so the cost differs by state and by employer.
Form W-4
The IRS form on which a US employee tells their employer how much federal income tax to withhold, reflecting filing status, dependents, multiple jobs and other adjustments. Employees should refile after life or income changes so withholding stays close to actual liability.
PAYE
Pay As You Earn, the UK system under which employers deduct income tax and National Insurance from wages and report them to HMRC in real time on or before each payday. Tax codes issued by HMRC determine how much is withheld for each employee.
PAYG
Australias Pay As You Go arrangements. PAYG withholding is tax an employer withholds from employee wages and remits to the ATO; PAYG instalments are periodic prepayments a business or individual makes against its own expected income tax.
Single Touch Payroll (STP)
The Australian regime requiring employers to report salary, tax withheld and superannuation to the ATO electronically each time they run payroll, rather than in an annual summary. Employees see the reported figures through their myGov income statement.
Form W-9
The IRS form on which a US person gives their name, address and taxpayer identification number to a business that will pay them, so the payer can report those payments correctly. Collecting a W-9 before the first payment is what makes accurate 1099 reporting possible, and a missing one can trigger backup withholding.
Form 1099-MISC
The IRS information return for miscellaneous payments such as rent, prizes, awards and certain legal or medical payments. Non-employee compensation moved to Form 1099-NEC, so contractor fees no longer belong here.
Form 1099-K
The IRS information return filed by payment settlement entities, including card processors and payment apps, reporting gross payment volume received by a business or seller. Gross volume excludes refunds and fees, so it will not match revenue, and the reporting threshold has changed repeatedly; check current IRS guidance for the year in question.
Schedule C
The schedule attached to IRS Form 1040 on which a sole proprietor or single-member LLC reports business income and expenses. Net profit flows to the owners personal return and is also the starting point for self-employment tax.
Form 1120-S
The US income tax return for an S corporation, which generally pays no federal income tax itself and instead passes income, deductions and credits to shareholders. Each shareholder receives a Schedule K-1 showing their share.
Form 1065
The US return of partnership income, filed by partnerships and most multi-member LLCs. The partnership reports results but does not pay the tax; each partner receives a Schedule K-1 and reports their share on their own return.
Schedule K-1
The statement issued by a partnership, S corporation or trust telling each partner, shareholder or beneficiary their share of income, deductions and credits. Recipients need it to complete their personal returns, so late K-1s commonly force extensions.
Estimated Tax
Periodic prepayments of US federal and state income tax made by those whose income is not subject to sufficient withholding, including the self-employed and many business owners. Paid on a quarterly schedule set by the IRS, with underpayment penalties for falling short.
Safe Harbor (Estimated Tax)
A rule that protects a taxpayer from underpayment penalties if their prepayments meet a defined minimum, generally measured against either the current years liability or the prior years tax, with a higher prior-year test for higher earners. The precise percentages are set by the IRS and should be checked for the year concerned.
Nexus
The connection between a business and a US state sufficient to create a tax obligation there. Physical nexus arises from premises, staff or inventory; economic nexus arises from exceeding a states sales or transaction thresholds, which differ by state and are published by each revenue department.
Marketplace Facilitator
A platform that facilitates third-party sales and is required by state law to collect and remit sales tax on those sales instead of the seller. It relieves sellers of collection on marketplace orders but not of their own direct-channel obligations or registration requirements.
Use Tax
A tax owed by the purchaser on taxable goods or services bought without sales tax being charged, typically from an out-of-state seller. It is the counterpart to sales tax, set at the same rate, and is self-assessed on the buyers return.
Resale Certificate
A document a buyer gives a supplier to purchase inventory free of sales tax because the goods will be resold rather than consumed. The seller must keep the certificate on file; without valid documentation the seller carries the uncollected tax on audit.
Exemption Certificate
Documentation supporting a sale made without sales tax because the buyer or the use qualifies for exemption, for example a non-profit, government body or manufacturing input. Rules and forms are state-specific, and the seller bears the burden of holding a valid certificate.
VAT
Value Added Tax, a consumption tax charged at each stage of supply where businesses collect tax on sales and reclaim tax on purchases, so the net burden falls on the final consumer. Used across the UK, the EU, the Gulf and much of the world; India and Canada run GST variants of the same mechanism.
Input VAT
VAT a business pays on its purchases and expenses, generally recoverable against the VAT it charges on sales provided the purchase relates to taxable supplies and a valid tax invoice is held. Non-business and exempt-related purchases are typically blocked.
Output VAT
VAT a business charges its customers on taxable sales and must account for to the tax authority. The amount payable each period is output VAT less recoverable input VAT; where input exceeds output, a refund position arises.
Reverse Charge VAT
A mechanism shifting responsibility for accounting for VAT from the supplier to the customer, used for cross-border services and in sectors prone to fraud such as UK construction. The customer records both the output and the input side, so there is often no net cash effect.
Making Tax Digital (MTD)
HMRCs programme requiring UK businesses to keep digital records and file returns through compatible software using a digital link rather than manual re-entry. Established for VAT, with Income Tax Self Assessment being phased in by income band and start date set by HMRC.
Self Assessment
The UK system under which individuals, including the self-employed, company directors and landlords, report income to HMRC on a tax return and pay the tax due. Filing and payment deadlines, and the payments-on-account mechanism, are set by HMRC.
BAS
The Business Activity Statement lodged with the Australian Taxation Office to report and pay GST, PAYG withholding, PAYG instalments and other obligations. Lodgement frequency, monthly, quarterly or annual, depends on turnover and registration.
HST
Harmonised Sales Tax, the single tax applied in Canadian provinces that have combined the federal GST with their provincial sales tax into one rate administered by the Canada Revenue Agency. Registrants claim input tax credits in the same way as under GST.
QST
Quebec Sales Tax, levied in addition to the federal GST and administered by Revenu Quebec rather than the Canada Revenue Agency. It works on the same input-credit principle, but registration and filing are separate from the federal system.
PST
Provincial Sales Tax, charged by Canadian provinces that have not harmonised with the federal GST, such as British Columbia, Saskatchewan and Manitoba. Unlike GST and HST it is generally a single-stage retail tax with narrower input recovery.
Zero-Rated Supply
A supply taxed at zero per cent where the supplier may still reclaim input tax, in India covering exports and supplies to Special Economic Zones. Zero-rating preserves input credit, which is what distinguishes it from an exempt supply.
Exempt Supply
A supply on which no GST is charged and for which related input tax credit cannot be claimed. Because credit is blocked, embedded tax becomes a cost, making exemption materially different from zero-rating.
Composition Scheme
A simplified GST option for smaller Indian taxpayers that substitutes a flat rate on turnover for normal rate-wise tax, with reduced filing. Participants cannot collect GST from customers or claim input tax credit, and eligibility turnover limits and rates are set by the GST Council.
Place of Supply
The rule determining where a supply is treated as made, which decides whether CGST and SGST or IGST applies. It turns on goods movement or, for services, on recipient location and specific rules for immovable property, events, transport and digital services. Getting it wrong produces tax paid under the wrong head.
ITC Reversal
Giving back input tax credit already claimed, required where goods are used for exempt or personal purposes, where a supplier is not paid within the prescribed period, on credit notes received, or for stock written off. Reversals are reported in the GST return and may carry interest.
E-Way Bill Threshold
The consignment value above which an electronic waybill must be generated before goods are moved in India. A central threshold applies to inter-state movement while states set their own intra-state limits and exemptions, so the applicable figure must be checked against the current CBIC notification and the relevant state rule.
IRN
The Invoice Reference Number, a unique hash returned by the Invoice Registration Portal when an e-invoice is registered, together with a signed QR code. An invoice requiring e-invoicing has no legal validity without a valid IRN.
Form 26AS
An annual tax statement from the Indian Income Tax Department showing tax deducted at source, tax collected at source, advance tax and self-assessment payments credited against a PAN. Reconciling it before filing is what catches credits a deductor has reported incorrectly or not at all.
Annual Information Statement (AIS)
A broader statement than Form 26AS, presenting information the Income Tax Department holds about a taxpayer including interest, dividends, securities and property transactions, with a facility to submit feedback on entries that are wrong.
Advance Tax
Indian income tax paid during the year in instalments rather than at filing, required once estimated liability after credits exceeds a prescribed amount. Instalment due dates and the cumulative percentage payable by each are set in the Income-tax rules, with interest charged for shortfall or deferment.
TAN
The Tax Deduction and Collection Account Number, a ten-character identifier that any person deducting or collecting tax at source in India must obtain and quote on TDS returns, challans and certificates. Separate from PAN, and required before any TDS can validly be deposited.
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