Bookkeeping Glossary

Accrual Basis

An accounting method where income is recorded when it is earned (when you invoice) and expenses are recorded when they are incurred, regardless of when cash actually moves. Most useful for businesses with significant AR or AP.

Cash Basis

An accounting method where income is recorded when cash is received and expenses are recorded when cash is paid. Simpler and more common for small businesses. You pay tax when you collect, not when you invoice.

Chart of Accounts (CoA)

The master list of categories used to organize every financial transaction in QuickBooks. NCO builds this for your business type. It is the backbone of all your financial reports.

Cost of Goods Sold (COGS)

The direct costs of delivering your product or service — subcontractor labor on a job, materials used in a project, or inventory sold. Gross Profit equals Revenue minus COGS.

Gross Profit

Revenue minus Cost of Goods Sold. Shows how much you earn from your core business activity before overhead costs.

Net Income

The bottom line after all expenses — COGS, operating expenses, and other costs — are subtracted from revenue. What the business actually made.

Reconciliation

The monthly process of matching every transaction in QuickBooks to your official bank statement. NCO completes this for you. If QuickBooks and the bank statement do not match, something is missing or duplicated.

Owner's Draw

Money taken out of the business by the owner for personal use. Not a business expense — does not reduce taxable income. Coded to an equity account in QuickBooks.

Retained Earnings

Cumulative profit the business has earned since inception that has not been distributed to the owner. Shows up on the balance sheet under Equity.

Accounts Receivable (AR)

Money customers owe you for work already delivered but not yet paid. A current asset on the balance sheet.

Accounts Payable (AP)

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

Depreciation

The process of spreading the cost of a long-term asset over its useful life instead of deducting the full cost in the year of purchase. NCO tracks your depreciable assets and calculates depreciation for your tax return.

Schedule C

The IRS form attached to your personal tax return where sole proprietors and single-member LLC owners report business income and expenses.

Monthly Close

The process of finalizing your books for a completed month — categorizing all transactions, reconciling accounts, and generating financial reports. NCO completes this within the first 10 to 15 business days of the following month.

Profit and Loss Statement (P&L)

A financial report showing your revenue, expenses, and net income for a specific period. The primary tool for understanding whether your business is making money.

Balance Sheet

A snapshot of your business's financial position at a specific date, showing what you own (assets), what you owe (liabilities), and what remains (equity).