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Basic accounting terms 101


Whether you’re a startup, a sole trader or a growing business, getting to grips with your bookkeeping and accounts can be a daunting task. But with a few key terms under your belt, keeping on top can be that bit easier.

We’ve broken down some basic accounting terms for you, and sorted them into a (very) rough accounting journey. Of course all business’ accounts vary, but this guide aims to get you started.

Still struggling with something specific? Give us a call – we’d love to help.


The amount your business earns before paying its expenses, typically the money received from the sales of goods and services.


Expenses are monthly costs that help to keep your business running. They can be broken down into:

  • Fixed: expenses that remain the same, short-term, regardless of fluctuation in sales. For example, lease and POS system payments.
  • Variable: an expense that varies in proportion to sales and production, including salaries and materials.
  • Operating: expenses that aren’t directly related to the production of your goods or services. This might consist of legal and financial fees or travel costs.


Any supplier, service provider or vendor providing goods or services to your business. For example, the company who sources your raw materials.

Accounts payable (AP)

Money that’s owed by your business to your creditors. This could be an invoice for a delivery of raw materials.

Net income

Also known as your net profit. Your net income is what’s left after you’ve removed your total expenses from your total revenue.


Resources owned by your business. These can be current assets, which are expected to be used within a year, for example raw materials. Or they can be non-current assets, which you expect to hold for over a year. With non-current assets, think investments, for example.


Your business’ debts and obligations. Liabilities differ from expenses, and they’re typically longer term debts than monthly expenses. For example, a liability could be a long-term loan or your employees’ wages.

Balance sheet

The balance sheet is how much the business owns (it’s assets), how much it owes (it’s liabilities), and the amount left over for its owners (equity).

Financial statements

Year-end reports compiled at the end of each financial year. Your financial statements indicate how well the business is doing and its value. They’re also used to calculate the income tax owed. Bookkeepers need to have reconciliations completed, transactions recorded, sales taxes and PAYE processed and all paperwork available for the statements to be completed.

Cloud accounting

The most secure way to manage business accounts is to keep them online, in the cloud. Data and software is encrypted and protected, and is accessible by you anywhere, anytime, from any device.


An estimate of your business’ future performance and position. It’s typically based on financial statements and stated assumptions.


When your business distributes profits to your shareholders. This money is only taken from the pot remaining after all expenses, liabilities and taxes have been paid.

If you’re looking for some accounting support, we’d be delighted to help. We’re a friendly team of accountants and business advisors who are passionate about helping businesses of all shapes and sizes. We’re all about making your life easier by giving you the knowledge and tools you need to make your business fly.

Get in touch.

Grenfell James Technology Adoption Index

How does your business perform against others adopting financial tech? Find out with our interactive diagnostic:


How does your business receive invoices?


Invoices are mainly received in paper form


Invoices are mainly received by email


Invoices are emailed then automatically forwarded to a designated mailbox


How are purchase invoices processed?


Invoices are entered manually


Invoices are attached to manually raised invoices


Automated software (e.g. ReceiptBank, 1Tap, HubDoc etc) collates invoices


How are accounts processed?


Using Excel/paper-based


Using Computer-based, offline software


Using cloud-based accountancy software


How often is business data revised?


Data is updated annually


Data is updated quarterly


Data is updated monthly or more often


How is banking updated for your business?


Banking is updated manually


Banking is updated by imports


Banking is updated via a live feed


How are bank payments made?


Bank payments are manual


Bank payments are made using bulk imports


Bank payments are made directly via accounting software


How are bank receipts reconciled?


Receipts are chased and reconciled manually


Receipts are chased and reconciled automatically


A third-party platform is used to chase debts and collect fees


How often are management reports produced?


No reports are provided


Reports are provided but often too late to be valuable


Reports are automated with real-time information

Score 8-12:

Curious Exploration

Your financial technology phase is Curious Exploration

% of respondent businesses are in this phase too.

Switching accountancy systems may seem like an upheaval, but can be much more straightforward than most businesses imagine. From talking to our clients, they have found moving from paper invoicing and desktop-based accounting software to the cloud and apps quickly makes the transition process a worthwhile investment of time. Digital accounting solutions bring in streamlined processes, up-to-date business data and greater confidence in the accuracy of information when making financial decisions.

Grenfell James works with your team to fully assess the needs of your business and minimise the impact of any transitions for solutions we recommend.

Find out more about App Advisory


Score 13-19:

Measured Discovery

Your financial technology phase is Measured Discovery

% of respondent businesses are in this phase too.

Once cloud accountancy software is in place, there’s still plenty of scope to improve your accountancy processes and make sure your business is maximising the benefits of adopting a digital accounting solution. Grenfell James assesses each business to understand how any implemented solutions are being used, identify areas for improvement and the needs of the business overall to support your business goals and achieve success.

Our team of experts can discuss a range of time-saving automation and get different apps and cloud-based solutions talking to create and manage a digital accountancy eco-system to help your business grow.

Find out more about App Advisory


Score 20-24:

Bold Innovation

Your financial technology phase is Bold Innovation

% of respondent businesses are in this phase too.

You know the benefits of accounting technology and the impact it can have on your business goals. If you want to take it a step further, our team can conduct a systematic review of your processes, apps and business goals to ensure your digital accountancy ecosystem is keeping pace with the changing needs of a growing business.