The DIY Bookkeeping Dictionary: Key terms you need to know

vigating the world of bookkeeping can feel like learning a new language. With so many terms thrown around—COGS, equity, accounts payable—it’s easy to get lost in the jargon.

That’s why we’ve put together The DIY Bookkeeping Dictionary to demystify those key terms and help you keep your books in top shape.

Keep this guide handy for when you’re reconciling accounts, lodging your BAS, or even just trying to decipher your financial reports. Because at Dollars + Sense, we believe in empowering you with the knowledge to manage your finances confidently—even if you’re doing it yourself.

Accounting Period

The accounting period is like the story arc for your financial year.

It’s the time frame during which you record all your business transactions, from invoicing clients to paying suppliers, culminating in the production of formal financial statements.

Typically, an accounting period spans one year, giving you a clear snapshot of your business’s financial health when it’s time to reconcile accounts and pay your taxes. Think of it as the season finale for your books, where everything gets tied up neatly (we hope) before the new cycle begins.

Why It Matters:
Tracking finances over a consistent accounting period helps you stay compliant and gives you the insights needed for smart financial planning.

Accounts Payable

Accounts payable is just a fancy way of saying “bills you’ve got to pay”.

It covers the short-term debts your business owes to vendors or suppliers for goods and services already received but not yet paid for.

Imagine it as the pile of invoices sitting on your desk, reminding you that while your suppliers have delivered the goods, it’s your turn to settle up.

Accounts payable are recorded on your balance sheet as liabilities, which is a technical term for “stuff we owe.”

Why It Matters:
Keeping an eye on accounts payable helps you manage cash flow effectively and ensures you maintain good relationships with your suppliers (because no one likes late payments).

Accounts Receivable

This one’s a bit more fun—accounts receivable is the money that customers owe you.

It’s the opposite of accounts payable; instead of money going out, it’s the cash waiting to come in.

When you send out an invoice for products or services, that amount becomes part of your accounts receivable.

The money is credited to this account until it’s paid, at which point it gets debited to your cash account.
Basically, it’s a friendly reminder that you’re owed some well-earned income.

Why It Matters:
Staying on top of accounts receivable is key to healthy cash flow. If customers aren’t paying up, your business’s ability to operate smoothly could take a hit.

Arrears

Arrears is just a polite way of saying, “Hey, you owe us—or we owe you—money that’s overdue”.

If a bill hasn’t been paid by the due date, it’s considered to be in arrears.

This applies whether your business owes the money, or someone owes it to you. Think of it as the financial equivalent of unfinished business.

Why It Matters:
Understanding arrears can help you identify overdue payments quickly, enabling you to take action—whether that’s chasing up a late customer or paying off a lingering debt to avoid penalties.

Assets

Assets are everything your business owns that could be converted to cash, from the obvious (like your bank balance) to the less tangible (like intellectual property).

Assets can be physical things like equipment and vehicles, or they can be intangible, like trademarks or goodwill.

You’ll find most of them listed on your balance sheet, representing the resources your business can leverage to keep things running smoothly or expand operations.

Why It Matters:
Assets aren’t just shiny things you own; they’re essential for determining your business’s value and can be used as collateral for loans, making them critical for financial planning.

Audit Trail

An audit trail is like a financial breadcrumb trail, showing every transaction in the order it happened.

It’s a detailed list that tracks the who, what, when, and where of your financial activities, making it easy to trace each step of a transaction from start to finish.

Whether it’s an invoice payment or a bank transfer, the audit trail ensures that nothing slips through the cracks.

Why It Matters:
A well-maintained audit trail helps you catch errors, detect fraud, and provide a clear history for auditing purposes. It’s all about transparency and accountability, keeping your financial records rock solid.

Australian Taxation Office (ATO)

The Australian Taxation Office (ATO) is the tax boss of the land, responsible for collecting revenue and enforcing the country’s tax laws.

From registering for your ABN (Australian Business Number) and TFN (Tax File Number) to lodging tax returns and paying GST, the ATO is the government agency you’ll be dealing with on a regular basis.

Think of it as the referee ensuring everyone plays by the rules—whether it’s a small business, a big corporation, or an individual taxpayer.

Why It Matters:
The ATO keeps a close eye on compliance, and it’s essential for your business to stay on the right side of the law. Engaging with the ATO properly helps you avoid fines and ensures smooth sailing when it comes to taxes.

Balance Sheet

Think of the balance sheet as your business’s financial selfie—captured at a specific point in time.

It’s a snapshot that shows what your business owns (assets), what it owes (liabilities), and the owner’s stake in it (equity).

The tricky part? Making sure the assets always equal liabilities plus equity. It’s a balancing act—hence the name.

Don’t stress if it sounds complicated; that’s why double-entry bookkeeping exists, ensuring every debit has a matching credit.

Why It Matters:
A well-prepared balance sheet provides a bird’s-eye view of your business’s financial health, helping you make informed decisions about growth, investment, and debt management.

Billing

Billing is what keeps the money flowing.

It’s the process of sending invoices to your customers for products or services you’ve provided.

It might sound straightforward, but doing it right is crucial.

Late or incorrect invoices can delay payment, and if your business relies on steady cash flow (whose doesn’t?), that’s not a risk you want to take.

Why It Matters:
Accurate and timely billing is essential for keeping cash flowing in, so you can cover expenses and reinvest in your business’s growth.

Budget

A budget is your financial game plan.

It’s where you forecast your income and outline where that money will go over a given period—often a year.

It’s like having a GPS for your business finances, guiding you on how to spend wisely and save for those unexpected rainy days.

Sticking to a budget can help keep your business on course, avoiding financial pitfalls that might otherwise catch you off guard.

Why It Matters:
Budgeting isn’t just about cutting costs; it’s about making sure your money is working as hard as you are. It helps you plan for growth and avoid nasty surprises.

Business Activity Statement (BAS)

A Business Activity Statement (BAS) is the form you submit to the ATO to report your tax obligations, including GST, PAYG (Pay As You Go) withholding, and other liabilities.

How often you need to lodge a BAS—monthly or quarterly—depends on your annual turnover and other factors.

Lodging your BAS correctly and on time isn’t just about ticking boxes; it’s about keeping your business compliant and avoiding late fees or interest charges.

Why It Matters:
Efficiently managing your BAS lodgements ensures you stay in the ATO’s good books. It’s a key part of running a compliant business and keeping your cashflow healthy.

Capital

Capital isn’t just a fancy word for money; it’s the lifeblood of your business.

It refers to the funds you, the owner, invest in the business—whether it’s your own savings, profits reinvested, or cash from shareholders.

Capital can be used for just about anything, from expanding operations to covering unexpected costs. Think of it as the fuel in your business engine; without it, you’re not going anywhere.

Why It Matters:
Capital allows your business to grow and adapt. Whether you’re reinvesting profits or raising funds, managing your capital well is crucial for sustainable success.

Capital Gains Tax (CGT)

Capital Gains Tax (CGT) is a tax you pay on the profit made when selling a fixed or non-current asset, like property or shares.

If you sell the asset for more than you originally paid, the difference (your capital gain) is subject to CGT.

Not all assets are affected, and there are some exemptions and discounts available, especially if the asset was held for more than 12 months.

Think of it as the ATO’s way of getting a share of your investment windfall.

Why It Matters:
Understanding CGT helps you plan the timing of asset sales and manage potential tax liabilities. Knowing the rules can help you minimise tax and keep more of your profits.

Cashflow

Cashflow is like the heartbeat of your business—it shows the movement of money in and out, day-to-day.

Positive cashflow means more money is coming in than going out, and that’s what you want to aim for.

But if the cashflow gets negative, you could find yourself in a tight spot.

Regularly tracking cashflow helps ensure you can cover your expenses, pay your employees, and keep your business thriving.

Why It Matters:
Healthy cashflow keeps the wheels turning. It’s the difference between being able to pay your bills on time and scrambling to make ends meet.

Chart of Accounts

A chart of accounts is essentially your bookkeeping map.

It’s a list of categories used to organise financial transactions, helping you keep track of revenue, expenses, assets, and liabilities.

Think of it as your filing system for all things financial, making sure everything is neatly categorised and easy to find when you need it.

Without a well-organised chart of accounts, your financial records can become a chaotic mess.

Why It Matters:
A clear chart of accounts makes financial reporting simpler, which means you’ll spend less time digging through numbers and more time focusing on your business.

Closing Balance

The closing balance is the amount of money left in your account at the end of an accounting period.

It’s the final figure you arrive at after adding up all your debits and credits.

If you think of your financials as a story, the closing balance is the last sentence in that chapter.

Why It Matters:
Knowing your closing balance helps you start the next accounting period on the right foot. It’s also crucial for preparing financial statements and reconciling your accounts.

Costs of Goods Sold (COGS)

COGS is the amount you spend directly to create the products or services you sell.

It covers the costs of materials, labour, and production—basically, everything that goes into getting your product ready for sale.

COGS is often the largest expense for businesses, and it’s subtracted from your total revenue to calculate your gross profit.

Why It Matters:
Tracking COGS accurately helps you set the right prices and manage your profit margins. It’s essential for understanding your true profitability.

Creditors

Creditors are the people or businesses your company owes money to.

Whether it’s suppliers, lenders, or service providers, creditors are those who’ve extended credit to your business.

You’ll find them listed as liabilities on your balance sheet, reminding you that not all the money in your bank account is yours to spend.

Why It Matters:
Managing your creditors is crucial for maintaining good business relationships and ensuring your business stays on solid financial ground.

Debtors

Debtors are the flip side of creditors—they’re the people or businesses that owe money to you.

Whenever a customer hasn’t paid for a product or service yet, they become a debtor.

Keeping track of debtors is all about making sure you collect what’s owed to you, and on time.

After all, you’ve done the work or delivered the goods, so it’s only fair that you get paid.

Why It Matters:
Staying on top of your debtors helps maintain a healthy cashflow and ensures your business isn’t left out of pocket.

Deferred Revenue (Income in Advance)

Deferred revenue, also known as income in advance, is money your business has received for services or products that haven’t been delivered yet.

Think of it as payment upfront for future work—like when customers pay for a year’s worth of membership fees before the service has been provided.

While it feels great to see that cash come in, it’s technically a liability until you fulfil the obligation.

Why It Matters:
Properly managing deferred revenue ensures that your financial statements accurately reflect your business’s financial position. It helps you recognise revenue when it’s actually earned, keeping your books compliant and transparent.

Depreciation

Depreciation is a reminder that things don’t last forever—even your business assets.

It represents the gradual reduction in value of a fixed asset (like machinery, vehicles, or office equipment) over time, due to wear and tear or obsolescence.

Depreciation lets you spread out the cost of an asset over its useful life, giving you a more accurate picture of your business expenses.

Why It Matters:
Accounting for depreciation helps you prepare realistic financial statements and can reduce your tax liability by allowing you to claim depreciation as an expense.

Equity

Equity is your ownership stake in the business—what’s left over after subtracting liabilities from assets.

It’s the value that belongs to the business owners or shareholders.

When you reinvest profits or add more capital, you’re increasing the equity in the business.

If equity is growing over time, it’s usually a sign that the business is in good health.

Why It Matters:
Equity isn’t just a number on a balance sheet; it’s a measure of your business’s value and financial strength. It’s essential for securing investment or loans.

Expenses

Expenses are the costs that keep your business running day to day, from office supplies to payroll to rent.

Essentially, they’re all the money going out to keep the lights on and the wheels turning.

They reduce your taxable income and can be claimed as deductions when lodging your tax return—so keeping them well-documented is a must.

Why It Matters:
Managing expenses effectively helps control costs and maximise profitability, while also ensuring your business stays compliant come tax time.

Financial Statements

Financial statements are like the report cards of your business, showing how well (or not-so-well) things are going.

They include key documents like the balance sheet, income statement (profit and loss), and cashflow statement.

These statements give a clear picture of your business’s financial performance and position over a specific period.

They’re not just for show—you need them to lodge your taxes and make informed decisions.

Why It Matters:
Accurate financial statements help you understand where your business stands, plan for the future, and stay compliant with tax obligations.

Fiscal Year

A fiscal year is your business’s official accounting year, a 12-month period used for financial reporting and budgeting.

Unlike the calendar year, it doesn’t have to start in January—it can begin in any month, depending on what works best for your business.

In Australia, many businesses use the fiscal year from 1st July to 30th June, aligning with the country’s tax reporting requirements.

Why It Matters:
Setting your fiscal year helps you organise financial records, meet tax deadlines, and compare financial performance consistently year over year. It’s the timeline around which all your financial planning revolves.

Gains and Losses

Gains and losses track the financial impact of events that aren’t part of your everyday operations, like selling an old piece of equipment or foreign currency transactions.

Gains add to your profit, while losses, well, take away from it.

They can fluctuate and don’t always correlate with your main revenue streams, but they do impact your overall profitability.

Why It Matters:
Understanding gains and losses helps you see the bigger financial picture and assess the true performance of your business.

General Ledger

The general ledger is your bookkeeping hub.

It’s where all your financial transactions are summarised and categorised, from sales and expenses to assets and liabilities.

Think of it as the backbone of your bookkeeping system—every transaction gets recorded here, making it the go-to place for understanding your financial activity.

Why It Matters:
The general ledger keeps all your financial records organised and accurate, ensuring that your financial statements are reliable.

Goods and Services Tax (GST)

The Goods and Services Tax (GST) is Australia’s 10% tax on most goods and services sold or consumed within the country.

If your business has an annual turnover of $75,000 or more ($150,000 for non-profits), you’ll need to register for GST. This means you’ll be charging GST on your sales and remitting it to the ATO.

But it’s not all one-sided—you can also claim back the GST you’ve paid on your business expenses, making sure you don’t pay more tax than you have to.

Why It Matters:
Getting your GST right is crucial for your business’s compliance and cashflow. Properly managing your GST obligations helps you avoid penalties and maximises the tax credits you’re entitled to.

Gross Profit

Gross profit is your revenue minus the costs of goods sold (COGS).

It’s essentially the money left over from sales after covering the direct costs of making or delivering your product or service.

If you think of your business as a cake, gross profit is the portion you get to enjoy before slicing off any other expenses.

Why It Matters:
Gross profit shows how efficiently your business is producing or delivering goods and can help guide pricing and cost-management strategies.

Income Statement (also known as Profit & Loss Statement)

The income statement sums up your revenues and expenses over a set period, revealing your net profit or loss.

It’s like a scoreboard for your business, showing whether you’ve made money or spent more than you earned.

The income statement provides insight into your financial performance and helps identify trends or areas for improvement.

Why It Matters:
Reviewing your income statement regularly can help you make smarter business decisions, from cutting unnecessary expenses to planning for growth.

Interim Reports

Interim reports are like a half-time update for your business’s financials.

These financial statements are produced partway through the accounting period, often quarterly, to give you (and anyone with a vested interest, like lenders or investors) a snapshot of how the business is performing before the end of the financial year.

Why It Matters:
Interim reports help you stay on top of your financial performance throughout the year and make adjustments before the final buzzer sounds at year-end.

Inventory

Inventory is the collection of products or materials that your business has on hand to sell or use in production.

It’s what’s sitting on the shelves waiting for a customer, or stored away for future use.

Managing inventory well is key to keeping your cashflow healthy—too much, and you’re tying up capital; too little, and you’re missing out on sales.

Why It Matters:
Tracking inventory accurately ensures you meet customer demand without overstocking, helping you balance cashflow and profitability.

Journals

In bookkeeping, journals are where you record daily transactions before they get posted to the general ledger.

Think of them as your business’s daily diary entries, capturing sales, purchases, payments, and receipts.

Each type of transaction typically goes in its own journal (like sales or cash receipts) to keep everything organised.

Why It Matters:
Journals provide a clear and chronological record of all your business activities, which helps ensure accuracy when transferring information to the general ledger.

Liabilities

Liabilities are the financial obligations your business has—essentially, debts you owe to others.

This includes things like unpaid invoices, loans, or credit card balances.

Liabilities show up on your balance sheet and are typically split into short-term (due within a year) and long-term (due after a year).

Why It Matters:
Understanding your liabilities is crucial for managing debt and keeping your business’s financial position stable.

Loss

A loss occurs when your expenses exceed your income, resulting in negative profitability for a given period.

It’s not the kind of thing anyone wants to see on their books, but recognising and managing losses is an important part of business.

Losses can happen for many reasons—declining sales, unexpected expenses, or economic downturns.

Why It Matters:
Tracking losses helps you identify problem areas in your business and take action to prevent further financial decline.

Margin

Margin is the difference between what it costs you to produce a product or service and what you sell it for.

It’s essentially your profit on each sale. If it costs $30 to produce an item and you sell it for $70, the margin would be $40.

It’s a key indicator of profitability and helps you figure out whether your pricing strategy is on point.

Why It Matters:
Knowing your margins helps you make smart pricing decisions and keep your business profitable. It’s also a useful measure for identifying areas where you can cut costs or improve efficiency.

Net Profit

Net profit is what’s left in your pocket after all business expenses have been deducted from your gross profit.

It’s the “bottom line” figure that shows whether your business is actually making money.

If gross profit is the cake, net profit is what’s left after everyone’s had a slice.

Why It Matters:
Tracking net profit helps you understand your true profitability and guides decision-making when it comes to cutting expenses or investing in growth.

Opening Balances

Opening balances are the amounts carried over from the previous accounting period, essentially the “starting point” for your accounts when you begin a new period.

If you’re switching to a new accounting system or starting a new financial year, you’ll need to transfer these balances to keep things consistent.

Why It Matters:
Accurate opening balances ensure that your financial records are complete and up-to-date, making reconciliation and reporting easier.

Overheads

Overheads are the day-to-day operating costs of your business that don’t directly relate to producing goods or services.

Think rent, utilities, insurance, and office supplies.

They’re the expenses you need to cover to keep the doors open, but that don’t fluctuate much based on production or sales levels.

Why It Matters:
Managing overheads efficiently can help you keep costs under control, improve profitability, and make more informed budgeting decisions.

PAYG (Pay As You Go)

PAYG, or Pay As You Go, is Australia’s system for paying income tax in instalments throughout the year.

Both businesses and employees make regular tax payments based on estimates provided by the ATO.

These instalments are then credited against the final tax amount owed when you lodge your tax return.

It’s like paying your tax bill in bite-sized chunks rather than in one lump sum at the end of the year, helping you manage cashflow and avoid surprises.

Why It Matters:
Staying on top of your PAYG obligations keeps your business compliant and ensures you don’t end up with a huge tax bill at year-end. It’s all about making tax more manageable.

Payroll

Payroll is the process of calculating and distributing wages to your employees.

It also includes withholding taxes and other deductions like superannuation or pension contributions.

If your business has even one employee, you’ll need a payroll system in place to ensure compliance with tax laws and timely payments.

Why It Matters:
Accurate payroll management keeps your employees happy and your business compliant. Mess it up, and you could face penalties—or unhappy staff.

Petty Cash

Petty cash is a small stash of money kept on hand for minor, everyday expenses—think office supplies, stamps, or coffee runs. It’s not meant for big purchases but for those little costs that pop up when using a card just isn’t practical.

Petty cash should still be tracked, though, with receipts kept for every purchase to keep your books accurate.

Why It Matters:
Tracking petty cash helps prevent unaccounted-for expenses and ensures that even the small outlays are recorded in your bookkeeping.

Profit and Loss

The profit and loss (P&L) statement, also known as the income statement, summarises your revenues, costs, and expenses over a specific period.

It’s the scoreboard that shows whether you’ve made a profit or incurred a loss.

If you’ve been focusing on growth or trimming expenses, this report will tell you how well those efforts have paid off.

Why It Matters:
The P&L statement helps you assess the overall financial performance of your business and is essential for tax purposes, budgeting, and planning for growth.

Purchase Ledger

The purchase ledger is where you record all your business’s purchase transactions, from supplier invoices to service fees.

It’s a detailed list of every bill your business has to pay and serves as the record-keeper for your accounts payable.

Keeping this ledger up-to-date ensures you know exactly what you owe and to whom.

Why It Matters:
An organised purchase ledger helps you stay on top of payments and avoid late fees, while also providing a clear picture of your business’s expenditure.

Reconciliation

Reconciliation is the process of comparing your internal financial records with external statements, like your bank account or credit card statements, to ensure they match up.

It’s a bit like detective work, finding any discrepancies and making sure every dollar is accounted for.

If it doesn’t add up, you know there’s a mistake somewhere that needs fixing.

Why It Matters:
Regular reconciliation helps catch errors, prevent fraud, and ensure that your financial records are accurate and reliable.

Remittance

A remittance is a payment sent to settle an invoice or bill.

When you send a remittance to a supplier, you’re basically saying, “Here’s the money I owe you”.

It’s often accompanied by a remittance advice, which details which invoices are being paid.

Think of it as a payment confirmation that helps both parties keep their records straight.

Why It Matters:
Providing remittance advice ensures transparency and helps maintain good relationships with suppliers by clearly showing which payments are being made.

Retained Profits

Retained profits are the earnings that your business keeps rather than distributing to shareholders or owners.

Think of it as money you set aside for a rainy day—or for future growth, investments, or to pay off debts.

Instead of withdrawing the profits, they stay in the business to help it flourish.

Why It Matters:
Reinvesting retained profits can boost your business’s long-term growth and financial stability, giving you a cushion for unexpected expenses or new opportunities.

Revenue

Revenue is the total amount of money your business brings in from selling goods or services before any expenses are deducted.

It’s the top-line number on your profit and loss statement, showing how much cash is flowing into the business.

More revenue is generally a good sign—but it’s what you do with it (and how much of it you keep) that really matters.

Why It Matters:
Tracking revenue helps you understand your business’s earning potential, measure growth, and set realistic financial goals.

Sales Ledger

The sales ledger is where you record all sales transactions for your customers, including invoice details and payments received.

It’s like a journal that tracks who owes you what, making sure that no sale or payment goes unnoticed.

If you’re sending invoices, you need a sales ledger to keep your accounts receivable organised.

Why It Matters:
An accurate sales ledger ensures you don’t miss out on collecting payments and helps you maintain healthy cashflow.

Subsistence

Subsistence covers the expenses you incur when travelling for business, such as meals, accommodation, and travel costs.

It’s about more than just covering costs; it’s about staying compliant with tax rules regarding business travel deductions.

Just remember: only business-related expenses count—no sneaking in that spa treatment!

Why It Matters:
Properly tracking subsistence helps you claim valid tax deductions and ensures that your business’s travel expenses are accounted for.

Superannuation

Superannuation, or “super,” is Australia’s compulsory retirement savings system.

As an employer, you’re required to pay a percentage of each eligible employee’s earnings into a nominated super fund.

These contributions are designed to help employees save for their retirement, and the current minimum rate is set by the government (currently 11% of an employee’s ordinary time earnings, as of 2024).

Super isn’t just for employees, though—self-employed individuals can also contribute to their own super fund to boost their retirement savings.

Why It Matters:
Paying super correctly and on time is not just a legal obligation—it also helps you avoid penalties and keep your employees happy. Plus, it’s a key part of being a responsible employer.

Write Off

A write-off occurs when you determine that a debt or an asset is no longer recoverable and remove it from your books.

For instance, if a customer is unable to pay an overdue invoice, you may need to write it off as a bad debt.

Similarly, outdated or damaged inventory can be written off. It’s about accepting a loss and moving forward.

Why It Matters:
Writing off bad debts or unusable assets allows you to maintain accurate financial records and claim tax deductions where applicable.