Small Business Accounting Glossary

How to use this glossary

You don't need to be an accountant to run a business well, but you do need to understand the words your accountant, bookkeeper and software use. These are the terms that appear in almost every set of small business accounts, grouped by where you'll meet them. Definitions are stable; any rates or thresholds behind them (GST registration, depreciation rules) should always be checked against the ATO's current guidance.

The core statements

Profit and loss statement (P&L)

Also called an income statement. It shows revenue earned and expenses incurred over a period, ending in net profit or loss. It answers "did we make money?" — not "do we have money?", which is a cash flow question.

Balance sheet

A snapshot at a point in time of what the business owns (assets), what it owes (liabilities) and what's left over (equity). The two sides always balance: assets equal liabilities plus equity.

Cash flow

The actual movement of money in and out of your bank accounts. Profitable businesses fail from cash flow problems more often than from lack of profit — a big invoice booked as revenue is not cash until it's paid.

Trial balance

A working report listing every account and its balance, used to confirm the books balance before statements are prepared. If your bookkeeper mentions it, they're doing quality control.

Everyday operating terms

Revenue

Income earned from your normal business activity, before any costs. Sometimes called turnover or sales.

Operating expenses

The ongoing costs of running the business — rent, wages, software, insurance — as distinct from the direct cost of producing what you sell (cost of goods sold).

Net profit

What remains after all expenses, including tax and interest, are deducted from revenue. Gross profit, by contrast, deducts only direct costs.

Margin

Profit expressed as a percentage of revenue. Gross margin tells you how much each sale contributes; net margin tells you how efficiently the whole business converts revenue into profit.

Accounts payable

Money you owe suppliers for goods or services already received. Its mirror is accounts receivable — money customers owe you. The gap between when you pay and when you get paid drives your working capital needs.

Working capital

Current assets minus current liabilities — the buffer that funds day-to-day operations. Fast-growing businesses often feel poor because growth consumes working capital before profit arrives.

Assets and adjustments

Fixed asset

A long-lived item the business owns and uses — equipment, vehicles, fit-out — rather than something bought to resell.

Depreciation

Spreading the cost of a fixed asset over its useful life, so each year's accounts carry a fair share of the cost. Tax depreciation rules (including any instant write-off concessions) change; the ATO publishes what currently applies.

Liability

Anything the business owes: loans, unpaid bills, accrued employee leave, tax collected but not yet remitted. That last one catches people out — GST and PAYG withholding sitting in your account is not your money.

Equity

The owners' stake: what would be left if all assets were sold and all liabilities paid. It grows through retained profit and shrinks through losses and drawings.

Journal entry

The basic unit of double-entry bookkeeping — a recorded transaction with equal debits and credits. Most are automated by your software; manual journals are how accountants make adjustments.

Compliance terms

GST

The broad-based tax on most goods and services sold in Australia. Registration becomes compulsory once turnover passes the ATO's current threshold; registered businesses charge GST, claim credits on purchases, and report through the BAS.

BAS (Business Activity Statement)

The ATO form that reports GST, PAYG withholding and instalments, lodged on the cycle the ATO sets for your business — commonly quarterly.

KPI (Key Performance Indicator)

A metric chosen because it genuinely reflects business health — days sales outstanding, gross margin, revenue per employee. Good bookkeeping exists so KPIs are trustworthy.

From vocabulary to visibility

Once the terms are familiar, the next step is making sure your numbers are current and connected enough to act on — most owners we meet have accurate annual accounts but no weekly visibility. That's a systems problem, not an accounting one; our guide to the modern SME back office covers what good looks like, and our finance services handle the doing. This page is general information, not advice on your specific tax position.