Glossary

Bookkeepers are translators. The client says "I owe my landlord," you write "Accrued Liabilities, Rent." The client asks "did the books close?" You reach for the GL, the trial balance, and the closing entries. Half the job is knowing what each piece of jargon points at. The other half is explaining it back in language the client can act on.

This glossary is the working reference for that translation work. Each term has a bookkeeper-level definition, the QBO accounts that touch it, and cross-links to the chart-of-accounts deep dives. It's organized in thematic clusters: foundational triangle, balance sheet pair, accounting methods, reporting, QBO-specific. That's how bookkeepers actually navigate. Let's start with the three terms everything else ties back to.

The Foundational Triangle: GL, Double-Entry, Trial Balance

Three terms form the spine of every accounting system: the general ledger, double-entry bookkeeping, and the trial balance. Get these three cold and the rest of the glossary becomes vocabulary on top of a framework. Skip them and every other term feels arbitrary.

The general ledger is the master record of every transaction posted to every account. It's not a single report. It's the underlying database that QBO reports pull from. When you run a P&L, a balance sheet, or a customer detail report, you're seeing slices of the GL filtered to a specific question. The GL itself is organized by account: every transaction that hit Cash, every transaction that hit AR, every transaction that hit Revenue. Most articles get this wrong by treating GL as a report rather than the system of record.

Double-entry bookkeeping is the rule that makes the GL trustworthy: every transaction has two sides, debit and credit, that must be equal. Receive $1,000 cash for a sale: Cash up $1,000 (debit), Revenue up $1,000 (credit). Pay a $500 bill: AP down $500 (debit), Cash down $500 (credit). The accounting equation (Assets = Liabilities + Equity) only stays in balance if every entry has matching debits and credits. Single-entry systems lack this check, which is why no real accounting software uses them.

The trial balance is the report that proves debits equal credits across the GL. Run it monthly. If it doesn't balance, the GL has an error. Usually a transposition ($4,500 entered as $5,400, difference always a multiple of 9), an omitted half of a journal entry, or a posting to the wrong account type. The trial balance is also the bridge to the financial statements.

If you're tired of fighting GL imbalances and uncategorized transactions, Growthy's auto-categorization handles the categorization mechanics so the trial balance comes out clean every month.

Balance Sheet Terms: AP, AR, and the Working Capital Pair

Accounts payable (AP) and accounts receivable (AR) are the two terms bookkeepers categorize most often. They're also the two clients most commonly confuse with their counterparts. AP is money you owe vendors for goods or services already received but not yet paid. It's a current liability. AR is money customers owe you for invoices issued but not yet collected. It's a current asset. They sit on opposite sides of the balance sheet and behave like mirror images.

The most common AP confusion is mixing it with expense. The expense was recognized when the vendor delivered the service (under accrual accounting). AP reflects the unpaid portion. Pay a $1,200 phone bill already entered: AP decreases $1,200, Cash decreases $1,200. No new expense, because the expense was booked when the bill was first entered. AP also isn't credit cards. They get separate liability accounts in QBO because the workflow differs.

The most common AR confusion is mixing it with revenue. Revenue posts when an invoice is created (accrual basis). AR records the unpaid balance. Invoice $5,000 in March, payment in May: March revenue is $5,000 and March AR includes the $5,000. When payment lands in May, AR decreases $5,000 and Cash increases $5,000. No second revenue entry. Customer deposits are a separate trap: they're a liability until earned, not negative AR.

Aging reports cut both AP and AR into 30/60/90/120+ buckets. AP aging tells you which vendors are overdue and which relationships might be at risk. AR aging tells you which customers are slow-paying and which receivables are headed toward write-off as bad debt. A bookkeeper running monthly aging reports catches cash-flow problems three months before a CFO would.

Accounting Methods: Accrual vs Cash

The choice between cash and accrual accounting drives every other categorization decision. When revenue posts, when expenses post, whether you book year-end accruals, and how the financial statements compare across periods. Cash basis recognizes transactions when money moves. Accrual basis recognizes transactions when earned or incurred. That's the matching principle.

Most small businesses run cash for tax filing and accrual for management reporting, using the same QBO data with the report toggle. Cash basis is simpler for tax filing and avoids the complexity of year-end accruals. Accrual basis gives a true period picture. If you invoiced $40,000 in December but didn't collect until January, accrual books show $40,000 of December revenue. Cash books show $40,000 of January revenue. The QBO P&L has a Cash/Accrual toggle that switches between the two views from the same underlying GL.

The IRS gross receipts threshold for cash-method eligibility is $31M for TY2025 under §448(c), indexed annually. Verify the TY2026 figure before publishing anything that cites the threshold. IRS inflation adjustments come out in late Q4. Most small service businesses can stay on cash basis indefinitely. The practical trigger to switch tax filings is usually a lender or investor demanding GAAP-compliant accrual statements, not the §448(c) cap.

The matching principle is the reason accrual books book year-end accruals. Prepaid expenses (insurance paid in December for the next 12 months), accrued expenses (December utility bill received in January), and deferred revenue (annual subscriptions paid upfront). Each one shifts a piece of revenue or expense from the period the cash moved into the period it was earned or incurred.

Reporting Terms: P&L, Bank Rec

Two terms surface in every monthly close: the income statement (P&L) and the bank reconciliation. The P&L is the period report. Revenue at the top, expenses in the middle, net income at the bottom. It answers the question "did we make money this month?" The bank reconciliation is the monthly check that proves the cash balance in QBO matches the bank's records.

A standard P&L flows revenue minus COGS to gross profit, gross profit minus operating expenses to operating income, operating income plus or minus other income and expenses to net income. Each section reveals something different. Revenue trends show growth or contraction. Gross margin shows pricing power and COGS efficiency. Operating income shows core business profitability before financing decisions. Net income shows what's left after everything. A comparative P&L (this month vs last month, this year vs last year, common-size as percent of revenue) is where bookkeepers earn their fees. Anyone can run the report. Interpreting the trends is the work.

Bank reconciliation is the single best fraud detection tool a small business has. A monthly bank rec catches unauthorized ACH withdrawals, duplicate charges, transposition errors, and embezzlement patterns within 30 days. The QBO Reconcile workflow (Banking → Reconcile) walks through it: enter the statement balance and ending date, mark cleared transactions, drive the difference to zero, finalize. A clean rec means the difference is exactly $0. Anything else means an error or timing difference (outstanding checks, deposits in transit) needs explanation.

Outstanding checks (issued but not yet cashed) and deposits in transit (recorded in QBO but not yet on the bank statement) are timing differences, not errors. They show up as adjustments in the reconciliation and clear in the next month. Outstanding checks aged 90+ days warrant investigation. They may have been lost, never delivered, or written off.

QBO-Specific Terms: Undeposited Funds and Uncategorized Expense

Two terms don't appear in any textbook but show up in every QBO file: undeposited cash and QBO uncategorized. Both are QBO-native concepts, both confuse bookkeepers new to QBO, and both should have near-zero balances in a clean book.

Undeposited Funds is QBO's holding account for payments received but not yet deposited as a batch. It exists for a legitimate reason. When three customers each pay $1,000 and you take all three checks to the bank as a single $3,000 deposit, the bank statement shows one $3,000 line while QBO has three $1,000 customer payments. Undeposited Funds bridges the timing. Receive Payment posts to UF, then Bank Deposit pulls the three from UF and posts a single $3,000 to Cash. A clean book has near-zero in UF at month-end. Anything stuck there means a payment was received but the matching Bank Deposit was never created.

Uncategorized Expense is the QBO catchall for transactions imported via bank feed but never assigned to a real category. Every $0 line in Uncategorized Expense is a transaction that needs categorization. A Profit & Loss with a $14,000 Uncategorized Expense balance is a P&L no one can use. The cleanup workflow is straightforward: drill into the account from the P&L, edit each transaction, assign the right category. The prevention workflow is bank rules. Banking → Rules → Create Rule, vendor pattern match, auto-categorize.

How Growthy Eliminates Uncategorized Expense

Growthy uses pattern learning to assign transactions to the right account on import, so Uncategorized Expense stays at $0 instead of growing every month. The model watches how you categorize the first instance of each vendor, then applies that pattern to future transactions from the same vendor. It's not a rule engine. You don't write conditional logic. The model learns from your actual categorization behavior, per client.

Per-client mapping is the part that matters. The same Amazon transaction might be Office Supplies for a law firm client, COGS for an e-commerce client, and Software for a SaaS client, depending on what each client actually buys. Growthy keeps those mappings separate, so a pattern learned on one client doesn't bleed into another. For gray-zone first occurrences, the model defers to you with a suggested category. Confirm or correct, and the next one follows the same pattern automatically.

What it doesn't do: replace bookkeeper judgment on edge cases (acquisition legal fees that should be capitalized, S-corp owner health insurance, multi-year prepaid contracts). What it does: kill the 500-clicks-per-day grind on the 90% of transactions that follow obvious patterns.

FAQ

What's the difference between accounts payable and an expense?

Accounts payable is a liability. Money you owe vendors for goods or services already received but not yet paid. The expense is recognized when the service is rendered or the goods are received (under accrual accounting). The AP balance reflects the unpaid amount. When you pay the bill, AP decreases and Cash decreases. The expense was already booked when the bill was entered.

Why does double-entry bookkeeping require equal debits and credits?

Because every transaction affects at least two accounts in opposite directions. When you receive $1,000 of cash for a sale, Cash (asset) goes up $1,000 and Revenue goes up $1,000. Debit Cash, credit Revenue. The accounting equation (Assets = Liabilities + Equity) only stays in balance if every entry has matching debits and credits. The trial balance is the report that proves it does.

When should a small business switch from cash to accrual accounting?

Switch to accrual when you're approaching the §448(c) gross receipts threshold for cash-method eligibility ($31M for TY2025, indexed for TY2026). Or when you have material AR or inventory that distorts cash-basis financials. Or when lenders or investors require GAAP statements. Most small businesses can stay on cash basis for tax filing while running accrual books in QBO for management reporting.

How often should I do a bank reconciliation?

Monthly, every month, with no exceptions. The longer you wait, the harder errors are to track down and the more likely fraud is to go undetected. A monthly bank rec is the single best internal control a small business has. It catches transposition errors, missing transactions, and unauthorized charges before they compound.

Why does my trial balance not balance?

The most common causes: a transposition error (entering $4,500 as $5,400, where the difference is always a multiple of 9), an omitted half of a journal entry, posting to the wrong account type, or a manual journal entry with unequal sides. Find the difference, divide by 9 to test for transposition, divide by 2 to test for a reversed entry, then search for transactions matching the difference.

Explore the Full Guide

• Accounts Payable (AP): What It Is & How It Works. AP vs Expense vs Accrued split, QBO Bills/Vendors workflow, aging interpretation.
• Accounts Receivable (AR): What It Is & How It Works. AR vs Revenue timing, bad debt allowance, QBO Invoice/payment matching.
• Accrual vs Cash Accounting: Which Method and Why It Matters. Real §448(c) thresholds, the cash-for-tax-accrual-for-books pattern.
• Bank Reconciliation: What It Is, Why It Matters, How to Do It. The #1 fraud detection tool, QBO Reconcile workflow, transposition shortcut.
• General Ledger (GL): The Backbone of Your Accounting System. T-accounts, posting from journals, GL vs subsidiary ledgers, QBO reports.
• Double-Entry Bookkeeping: How Debits & Credits Actually Work. The accounting equation, debit/credit rules by account type, common journal entries.
• Trial Balance: What It Is, How to Read It, and What to Do When It's Off. Troubleshooting framework with mathematical shortcuts (the divide-by-9 transposition test).
• Income Statement (P&L): How to Read & Use Your Profit and Loss. Section-by-section interpretation, comparative analysis, QBO class/location P&L.
• Uncategorized Expense: What It Means & How to Fix It. Bulk recategorization workflow, bank rules prevention, the $0-balance goal.
• Undeposited Funds: What It Is & Why Your Books Are Off. Legitimate use case, cleanup workflow, reconciliation interaction.

Growthy is bookkeeping software, not a CPA firm. This content is educational, not professional advice. Full disclaimer.

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Related: Accounts Payable (AP), Accounts Receivable (AR), Accrual vs Cash Accounting, Bank Reconciliation