Accounting and finance in plain language.

Accounts Payable (AP)

Money your business owes to vendors and suppliers for goods or services received but not yet paid for. Appears as a current liability on the balance sheet.

Accounts Receivable (AR)

Money owed to your business by customers for goods or services you have delivered but not yet been paid for. Appears as a current asset on the balance sheet.

Accrual Accounting

An accounting method that records revenue when earned and expenses when incurred, regardless of when cash actually changes hands. Contrast with cash-basis accounting. Most established businesses use accrual.

Balance Sheet

A financial statement showing what your business owns (assets), what it owes (liabilities), and the owner's equity at a specific point in time. Assets always equal liabilities plus equity.

Cash Basis Accounting

An accounting method that records revenue when cash is received and expenses when cash is paid. Simpler than accrual but less accurate for businesses with significant AR, AP, or inventory.

Chart of Accounts (COA)

The complete list of accounts your business uses to categorize every financial transaction. A well-structured COA is the foundation of useful financial reporting.

Cost of Goods Sold (COGS)

The direct costs of producing the goods or services your business sells. Includes materials, direct labor, and directly allocable production costs. Revenue minus COGS equals gross profit.

Depreciation

The accounting process of allocating the cost of a long-lived asset over its useful life. Buildings, equipment, and vehicles are depreciated; land is not.

EBITDA

Earnings Before Interest, Taxes, Depreciation, and Amortization. A measure of operating profitability often used in business valuation and lender conversations.

General Ledger (GL)

The master record of every financial transaction in your business, organized by account. Every transaction flows into the GL, and financial statements are built from it.

Gross Profit

Revenue minus cost of goods sold. Shows how much money the business makes from its core activity before operating expenses are considered.

Income Statement (P&L)

A financial statement showing revenue, expenses, and resulting profit (or loss) over a specific period. Also called the Profit & Loss statement or statement of operations.

Journal Entry

The formal record of a financial transaction in accounting records. Every transaction is recorded as a journal entry with offsetting debits and credits.

Net Income

The bottom line: revenue minus all expenses, including taxes. The amount of profit the business actually generated during the period.

Operating Expenses (OpEx)

Ongoing expenses required to run the business day-to-day, separate from COGS. Includes rent, utilities, administrative salaries, software, insurance, and similar costs.

Reconciliation

The process of matching transactions in your accounting records to an external source (a bank statement, credit card statement, or loan statement). Monthly reconciliation is the foundation of trustworthy books.

Retained Earnings

The cumulative profits the business has earned and kept (rather than distributed to owners). Appears as an equity account on the balance sheet.

Trial Balance

A report that lists every account in the general ledger with its current balance. Used to verify that the books are in balance before preparing financial statements.

Accounts Receivable Aging

A report grouping your outstanding receivables by how long they have been unpaid (0–30 days, 31–60 days, and so on). A key indicator of collection health and cash-flow risk.

Burn Rate

The rate at which a business is spending its cash reserves, typically measured per month. Commonly used by pre-profit businesses to communicate runway.

Cash Flow Statement

A financial statement showing how cash moved in and out of the business over a period, broken into operating, investing, and financing activities. Tells a different story than the income statement.

Days Sales Outstanding (DSO)

The average number of days it takes to collect payment after a sale is made. Lower is better for cash flow.

Free Cash Flow

Cash generated by operations minus the capital investment required to maintain or grow the business. A common measure of real financial health.

Liquidity

The ability of your business to meet its short-term obligations with available cash or assets that can be quickly converted to cash.

Quick Ratio

Current assets (excluding inventory) divided by current liabilities. A measure of short-term liquidity more conservative than the current ratio.

Runway

How long your business can continue operating at current burn rate before running out of cash. Critical for pre-profit and early-stage businesses.

Thirteen-Week Cash Flow Model

A rolling cash forecast that projects weekly inflows and outflows over the next 13 weeks. Widely used by CFOs to manage short-term liquidity and identify cash crunches before they happen.

Working Capital

Current assets minus current liabilities. The cash and near-cash resources available to fund day-to-day operations. Working capital requirements often grow with revenue.

Contribution Margin

Revenue minus variable costs for a specific product, service, or segment. Shows how much each unit of sale contributes to covering fixed costs and generating profit.

Gross Margin

Gross profit expressed as a percentage of revenue. A key measure of the profitability of what you sell, independent of overhead.

Key Performance Indicator (KPI)

A measurable metric that tracks progress toward a specific business objective. Good KPIs are tied to decisions, not just reported.

Month-End Close

The process of finalizing all financial transactions for a month, reconciling accounts, recording adjustments, and producing financial statements. Typically takes 5–20 business days depending on complexity and tier.

Net Margin

Net income as a percentage of revenue. The bottom-line profitability of the entire business.

Operating Margin

Operating income as a percentage of revenue. A measure of profitability after all operating expenses but before interest and taxes.

Variance Analysis

The process of comparing actual financial results to budget or forecast, identifying the differences, and understanding why they occurred. A standard controller-level function.

Year-Over-Year (YoY)

Comparing a financial metric to the same period in the prior year. Useful for seasonal businesses and growth trend analysis.

1099 Form

An IRS form used to report payments made to independent contractors and certain other non-employee vendors. Required for payments of $600 or more in a year to most recipients.

Accountable Plan

An IRS-compliant structure for reimbursing business expenses to employees and owners tax-free. Must meet specific substantiation, business-connection, and return-of-excess requirements.

Bonus Depreciation

A tax provision allowing businesses to deduct a large percentage of the cost of eligible assets in the year they are placed in service, rather than spreading the deduction over the asset's useful life.

Cost Segregation

A tax strategy that identifies components of a real estate asset that can be depreciated over shorter periods (5, 7, or 15 years) rather than the standard 27.5 or 39 years, accelerating tax deductions.

Entity Structure

The legal and tax classification of your business (sole proprietor, LLC, S-Corporation, C-Corporation, partnership). Entity structure affects how income is taxed, how owners are compensated, and liability exposure.

Estimated Tax Payments

Quarterly tax payments required by the IRS for business owners and self-employed individuals whose tax liability is not covered by withholding. Due in April, June, September, and January.

Pass-Through Entity

A business structure (such as an S-Corporation, partnership, or LLC taxed as a partnership) where income flows through to the owners' personal tax returns rather than being taxed at the business level.

Reasonable Compensation

For S-Corporation owner-employees: the salary the IRS requires you to pay yourself for services performed, before taking distributions. A key audit risk area that requires defensible analysis.

S-Corporation Election

An IRS election (via Form 2553) that allows an eligible corporation or LLC to be taxed as an S-Corporation, eliminating self-employment tax on distributions above reasonable compensation.

Section 179 Deduction

A tax provision allowing businesses to deduct the full cost of qualifying assets (such as equipment or vehicles) in the year placed in service, up to annual limits.

Tax Nexus

The level of business activity in a state that triggers tax filing obligations. Nexus rules vary by state and tax type (income tax, sales tax, franchise tax).

Tax Planning vs. Tax Preparation

Preparation is the compliance work of filing returns based on what already happened. Planning is the proactive work of shaping what happens before the year closes.

Capital Expenditure (CapEx)

Money spent to acquire, upgrade, or maintain long-lived assets (equipment, buildings, technology). Capitalized on the balance sheet rather than expensed immediately.

Debt Service Coverage Ratio (DSCR)

Net operating income divided by total debt service (principal and interest). A key metric lenders use to evaluate whether a business can afford its debt payments.

Enterprise Value

The total value of a business, usually measured as market equity value plus debt minus cash. A common starting point for valuation and acquisition conversations.

Exit Planning

The long-horizon process of preparing a business and its owner for a sale, succession, or other exit event. Multi-year strategy that affects entity structure, compensation, and reinvestment decisions.

Financial Forecast

A forward-looking projection of expected revenue, expenses, and cash flow. Different from a budget: a forecast reflects current expectations; a budget reflects a plan and targets.

Fractional CFO

A senior finance executive engaged on a part-time, ongoing basis rather than as a full-time hire. Provides strategic financial leadership for businesses that need it but do not yet require a full-time CFO.

Fractional Controller

A senior accounting professional engaged on a part-time, ongoing basis to oversee internal accounting staff, own month-end close, and provide senior oversight and quality control of the financials. Different from a CFO, focused on accuracy and control rather than strategy.

Letter of Intent (LOI)

A non-binding document outlining the basic terms of a proposed transaction (typically a business sale or acquisition). Used to confirm alignment before moving to full due diligence.

Purchase Price Allocation

The process of dividing the total purchase price in a business acquisition among the individual assets acquired (goodwill, tangible assets, intangible assets). Has significant tax implications.

Quality of Earnings (QoE)

A due-diligence analysis that examines the sustainability and accuracy of a business's reported earnings. Typically performed by or for a buyer before closing.

Working Capital Peg

In a business sale: the agreed level of working capital that must be left in the business at closing. Shortfalls or surpluses vs. the peg are settled in the final purchase-price adjustment.

ARR (Annual Recurring Revenue)

The annualized value of recurring subscription revenue. A common metric for SaaS, MSP, and subscription-based businesses.

Cap Rate

Net operating income divided by property value, expressed as a percentage. Used in real estate to evaluate return on investment and compare properties.

Customer Acquisition Cost (CAC)

The total cost of acquiring a new customer, typically including sales and marketing expenses, divided by the number of customers acquired.

Customer Lifetime Value (LTV or CLV)

The total revenue expected from a customer over the length of their relationship with the business. Commonly compared to CAC as a ratio (LTV:CAC).

MRR (Monthly Recurring Revenue)

The monthly value of recurring subscription revenue. A core metric for SaaS, MSP, and subscription businesses.

Net Operating Income (NOI)

In real estate: gross rental income minus operating expenses (but before debt service and income taxes). Used to compute cap rates and evaluate property performance.

Realization Rate

In professional services: the ratio of collected revenue to billable work produced. Measures how much of the work you produce actually turns into paid revenue.

Same-Store Sales

A retail and multi-unit metric comparing revenue at locations that have been open for a comparable period in both the current and prior year. Isolates organic growth from new-unit growth.

Unit Economics

The revenue and costs associated with a single unit of business: a product, a customer, a location, or a service line. The foundation of scalable profitability analysis.

Utilization Rate

In professional services: the percentage of available work hours that are billable to clients. A key driver of firm profitability.

Work in Progress (WIP)

In professional services and construction: the value of work performed but not yet billed to clients. Tracked as an asset on the balance sheet.

Client Portal

A secure digital workspace for exchanging documents and communications with your accounting team. Enlightened Order uses Financial Cents.

Internal Controls

Policies and procedures designed to ensure the accuracy of financial reporting, prevent fraud, and safeguard assets. A controller-level responsibility.

Segregation of Duties

The control principle of separating responsibilities so that no single person can initiate, approve, record, and reconcile a transaction. Critical for fraud prevention.

QBO (QuickBooks Online)

Intuit's cloud-based accounting software, the most common platform used by small and mid-sized businesses in the U.S.

Sub-Ledger

A detailed record of transactions for a specific account (such as accounts receivable or inventory) that rolls up to a single line in the general ledger.