Bookkeeping Basics: key terms, formulas and examples

Bookkeeping records every transaction in a ledger. Accrual accounting records revenue when earned and costs when incurred, not when cash moves.

Key terms

Invoice

A bill sent to a customer listing what they owe.

Fiscal year

A 12-month period used for accounting and taxes.

Accrual accounting

Recording income and costs when earned or incurred, not when cash moves.

Retained earnings

Profit kept in the company instead of paid out.

Gross profit

Revenue minus the direct cost of what was sold.

Ledger

The book that records all of a company's accounts and transactions.

Formulas