Bookkeeping Terms

Accredited Investor
A person or entity that can invest in securities not registered with the Securities and Exchange Commission (SEC) is called an accredited investor. The individual or entity needs to meet certain income and net worth requirements to be termed as an accredited investor.
An accounting technique that lowers the book value of a loan or an intangible asset regularly over a specified period of time is called amortization. In simple terms, it refers to the spreading of payments over time.
Angel Investo
Private investors that finance small businesses in exchange for equity or convertible debt are known as angel investors. These investors generally back startups at the initial stages when they need it the most.
Annual Contract Value (ACV)
The value of an ongoing customer contract calculated by averaging and normalizing over one year is known as Annual Contract Value (ACV). The ACV can be extremely useful in accurately measuring the dollar value of all your customer accounts.
Annual Recurring Revenue (ARR)
This metric indicates the predictable and recurring revenue you can expect for your business. ARR is the value of contracted recurring revenue components of a business’ term subscriptions normalized for a period of one year.
Basis Point
A basis point is a simplified unit of measure in finance that denotes a change in the interest rate of a financial instrument equal to 0.01%. Basis points are particularly useful in the finance industry to find the difference between two interest rates.
The invoice amount billed to customers is known as billings. Billings can be generated for a specific period of time like one month or a full year. In simple terms, billings is the actual collection of money from your customers.
Board of Directors
The group of people that heads an organization and looks after the strategy and management side of things is known as the Board of Directors. They meet periodically to assess the performance of a business and to make plans for the future.
This is a simple metric that showcases the value of a contract signed with a customer for a specific period of time. It indicates the amount that your customers must pay you for the service you provide.
Burn Multiple
Burn multiple is a capital efficiency metric that indicates how efficiently your company can generate revenue using the capital raised through funding rounds. In simple terms, it gives you an insight into the amount of revenue you are generating per dollar burned.
C Corporation (C Corp)
C Corporations refer to publicly traded companies that are owned by shareholders. These are unique business structures wherein owners are taxed separately from the entity.
Cap Table
Also known as a capitalization table, this is a document that contains all the details about the ownership of a company. It has a list of all the securities or shares in a company. These include stocks, convertible notes, warrants, as well as equity grants.
Capital Expenditures (CapEx)
Money invested by an organization to acquire or upgrade fixed, physical, non-consumable assets is known as capital expenditure or CapEx. These assets can be a building, a computer or even a new business.
Cohort Analysis
This is a form of behavioral analysis that collects data from one subset and groups it into related groups instead of looking at the data as one unit. Such a group is known as a cohort.
Contribution Margin
Contribution Margin is nothing but the selling price per unit minus variable cost per unit. This measure showcases the contributions of a specific product to the overall profitability of a company.
Convertible Note
A convertible note is a common debt instrument that is often used by angel or seed investors that are looking to fund an early-stage startup. It is a type of bond that the holder can convert into a number of shares of common stock in the issuing company.
Cost Per Click (CPC)
This is an advertising metric that determines the amount of money your business spends for a customer to click on your ads. Cost per click helps you understand how effective your advertising campaigns are.
Cost of Goods Sold (COGS)
Cost of Goods Sold (COGS) shows a company’s costs of producing the goods sold. This amount is inclusive of the expenses of the materials and labour used to produce the goods.
The sale of related, supplementary products or services based on the customer’s interest in one of your products is known as cross-selling. It is a great way of boosting customer loyalty and enhancing customer relationships, which in turn helps your business grow.
Data Room
A data room stores privileged data, generally for mergers and acquisitions transactions or any other legal proceedings. It is a secure place that can be used for storing documents, sharing files, keeping sensitive information secure and carrying out financial transactions.
Deferred Revenue
Money that is received in advance for products or services that are going to be provided in the future is known as deferred revenue. Common examples of deferred revenue are – rent payments received in advance, payment of annual subscriptions at the start of the year, etc.
Delaware Annual Report
Delaware Annual Report refers to a document that consists of specific business details. It is a form that is submitted during the payment of the Delaware franchise tax. The address of the corporation’s physical location is needed to submit this form.
Delaware Franchise Tax
An annual tax amount to be paid by Delaware LLC or a Delaware LP is known as Delaware Franchise Tax. Also known sometimes as a privilege tax, this is a fee corporations need to pay for doing business in the Delaware state.
The decrease in the value of an asset over time is known as depreciation. This decrease is triggered by numerous factors such as the asset’s use, wear and tear, or obsolescence. Unfavorable market conditions can also be an aspect causing the depreciation of an asset.
Doing Business As (DBA)
This is a simple business term which refers to doing business using a name that is not similar to the name of the business owner. It is also known as ‘Fictitious Name Filing’ because the name used is a fictitious name and is not the same as the legal name of the company.
Fair Market Value (FMV)
Fair market value (FMV) in real estate is defined as the price that a property will sell for in an open market. This value is agreed upon between the seller and buyer depending on the location and other factors associated with the property.
Forecasts are nothing but predictions or estimations about a future event or condition based on the study and analysis of available data. Forecasts generally are referred to by companies when making critical business decisions.
Fractional CFO
Fractional CFO, as the name suggests, is a person who lends his/her financial expertise to a startup or organization on a contractual basis. Also known as part-time CFO, this person is generally someone with extensive CFO-level experience.
Free Cash Flow (FCF)
The cash that an organization generates after considering cash outflows that support its operations and maintain its capital assets is known as Free Cash Flow (FCF). In simple terms, FCF is nothing but the cash left after a company has paid for all of its operating and capital expenses.
Full-Time Employee (FTE)
A Full-time Employee (FTE) is an employee with regularly scheduled working hours and one who is paid on a monthly basis. The exact days and duration of work can differ from company to company but in most cases, FTEs work for at least 40 hours per week.
Generally Accepted Accounting Principles (GAAP)
Generally Accepted Accounting Principles or GAAP is a collection of the common and most-followed accounting standards and rules for financial reporting. It is essential for companies, especially large organizations to keep their books GAAP-compliant.
Go-to-Market (GTM)
Go-to-market (GTM) is a common strategic plan that explains in detail how a company can engage with customers and persuade them to buy their products or services. A well-rounded GTM strategy can be instrumental for businesses to attract more customers and gain a competitive advantage.
Gross Margin
Gross Margin is equivalent to net sales minus the cost of goods sold. It is also known as profit margin as it indicates the amount of profit made before deducting selling, general and administrative expenses.
Gross Merchandise Value (GMV)
This metric indicates the total value of sales over a specified period of time. Gross Merchandise Value (GMV) is most commonly used in the eCommerce industry and is also referred to as Gross Merchandise Volume.
Gross Retention
Gross Retention is a measure of the amount of revenue you are maintaining when the activity that increases your average customer value isn’t factored in. It indicates the success of a company in terms of retaining its existing customers.
Key Performance Indicator (KPI)
The quantitative or qualitative measurement of certain parameters to asses the performance and efficiency of a person or organization is known as Key Performance Indicator (KPI). These parameters are generally compared with an agreed standard or target.
Last Twelve Months (LTM)
As the name suggests, Last Twelve Months (LTM) describes the timeframe of the last twelve months. It is often used in reference to a financial metric such as revenue, debt to equity ratio, etc in order to evaluate a company’s performance.
Limited Liability Company (LLC)
A limited liability company (LLC) is a hybrid business structure that is a combination of the pass-through tax model of partnerships and sole proprietorships with the protection of individual assets provided by the C corporation. Owners of an LLC are called as members.
Lock-Up Period
A particular window of time when investors cannot redeem or sell shares of an investment is known as a Lock-up period. This is specifically useful for hedge funds as well as for start-ups/ IPOs.
Magic Number
This is a sales efficiency metric that indicates the amount of revenue gained from every sales and marketing dollar spent. It is generally compared with a benchmark figure to understand how efficient your sales and marketing efforts are.
Month Over Month (MoM)
Month-over-month (MOM) growth refers to the change in the value of a specific metric as a percentage of its previous month’s value. This metric is generally used to measure the growth rate of monthly revenue, active users, number of subscriptions, and other key metrics.
Monthly Recurring Revenue (MRR)
Monthly Recurring Revenue (MRR) refers to the predictable total revenue that is generated by your business from all the active subscriptions in one month. It also includes revenue generated from recurring charges pertaining to discounts, coupons, and recurring add-ons but excludes one-time fee payments.
Net Dollar Retention (NDR)
Net Dollar Retention (NDR) or Net Revenue Retention (NRR) is the rate of changes in recurring revenue. This change is caused due to the fluctuations in revenue generated by the existing customer base.
Net Profit
The amount of money earned by your business after deducting all the operating, interest, and tax expenses over a specific period of time is known as Net Profit. To find out net profit, it is first essential to know the gross profit generated by a company.
Option Pool
A block of an organization’s equity that is reserved for early investors or employees is known as option pool. It is generally used to attract capital or talent when a company is in its early stages and not yet generating enough revenue.
Outsourced CFO
As the name suggests, an outsourced CFO refers to a finance leader outside your organization who takes charge of the finance, business, accounting, and operational aspects of your business. An outsourced CFO can be associated with your organization full-time, part-time or for the duration of a specific project.
Outsourced Controller
An outsourced controller is a financial expert, not belonging to your company, who takes on a number of roles associated with your company’s reporting. He/ she keeps your books up-to-date and ensures that accurate financial reporting is carried out in a timely manner.
Payback Period
The total number of years required to recover the original cash investment is defined as the payback period. Put simply, the payback period is the period of time taken for a machine, facility, or any other asset to recover its investment costs.
Pitch Deck
A presentation deck that is used when pitching your idea to an audience is known as a pitch deck. Pitch decks are generally used to present your business idea to potential investors so that they understand your business model properly and decide whether to make an investment or not.
Post-Money Valuation
The estimated worth of a company after outside financing and/ or capital injections are added to its balance sheet is known as post-money valuation. It is the approximate market value given to a startup after securing funding from venture capitalists or angel investors.
Pre-Money Valuation
The value of a company before it goes public or secures external funding is known as pre-money valuation. In simple words, pre-money valuation is the worth of a company before it receives any investment.
Pro Rata
Pro Rata is a Latin term that means “proportional” or “in proportion”. Pro Rata is used to define a process wherein anything that is being allocated is distributed in equal portions depending on an individual’s share of the overall object.
Qualified Small Business Stock (QSBS)
QSBS is the share of a qualified small business (QSB) as defined by the Internal Revenue Code (IRC). It is an active domestic C corporation whose gross assets are below $50 million on and immediately after its stick issuance.
Quick Ratio
Quick ratio refers to a company’s capacity to pay its existing liabilities without the need to sell its inventory or obtain funds. It is considered to be a conservation measure as compared to that of the current ratio, which consists of current assets as coverage for current liabilities.
Repeat Customer Rate
As the name suggests, repeat customer rate is the percentage of customers that are coming back to your store or doing business with you again. It is calculated by dividing your repeat customers by the total number of customers.
This is a metric that generally measures customer loyalty or the ability of a business to retain its customers. It can also be used in reference to the loyalty of employees towards the employer.
Revenue Recognition
This is a generally accepted accounting principle that identifies the particular conditions in which revenue is recognized. It also determines how to account for this revenue.
Right of First Refusal (ROFR)
Right of First Refusal or ROFR refers to a contractual entitlement of a party to enter into a business transaction with a person, company or entity before anyone else can.
Runway or cash runway is the amount of time a business has to remain solvent without raising any additional funds. In simple terms, it the time period for which a business is able to function before their cash runs out.
S Corporation (S Corp)
Subchapter S Corporation or S Corp is a special tax status granted by the IRS enabling a corporation to pass their corporate income, credits and deductions to their shareholders. It is also sometimes known as Small Business Corporation.
Sales Pipeline
Sales pipeline refers to the tool that converts leads into sales. It provides a visual representation of the different stages of the sales process, right from when a prospect becomes a qualified lead to when this lead gets converted into sale.
Sales and Marketing Efficiency
This is a measure of how much revenue a business generates based on their sales and marketing efforts. Sales and marketing efficiency can be calculated by dividing your gross revenue or gross new annual recurring revenue by your sales and marketing expenses.
Serviceable Available Market (SAM)
Serviceable Available Market or SAM is the part of the total addressable market (TAM) that can actually by reached. It is the segment of the TAM which is targeted by your products and services and is within your geographical reach.
Serviceable Obtainable Market (SOM)
This is an estimate of the portion of revenue within a particular product or service segment that an organization is able to capture. In simple terms, it the estimate of market share for a specific product or service that a company can attract.
Simple Agreement for Future Equity (SAFE)
Simple agreement for future equity or SAFE is a financial agreement which can be used by a startup company to raise capital in its seed-financing rounds. SAFE is termed by many as one of the more founder-friendly alternatives to convertible notes.
Special Purpose Vehicle (SPV)
Special Purpose Vehicle or SPV is a subsidiary organization that is established to undertake a particular business activity. SPVs are generally utilized in specific structured finance applications, such as asset securitization, joint ventures, property deals, or to isolate parent company assets, operations, or risks.
Venture Capital Associate
Venture Capital Associates are specialists who look after finding deals, meeting entrepreneurs, and evaluating business opportunities. They are primarily responsible for sourcing new deals for a firm and looking after the functioning of existing deals.
Venture Capital Partner
Venture Capital Partners are professionals in a VC firm that help the firm in building and managing investments. Although called ‘partners’, they are not a full-time and permanent member of the partnership.
Venture Capital Principal
These professionals help managing partners in identifying investment opportunities for the fund and in conducting due diligence of target companies. Venture Capital Principals also help in managing portfolio companies and carry out a number of other duties.
Vesting Acceleration
Vesting Acceleration is something that enables an employee to speed up the schedule in order to gain access to restricted company stock or stock options that are issued as an incentive. As the rate is generally faster than the standard vesting schedule, the employee receives the monetary benefit much faster.
Earnings per Share Ratio
Earnings per share ratio is a metric that describes the amount of an organization’s net income which is theoretically available for payment to the holders of its common stock.
Basic EPS
Basic EPS can be calculated using the following formula –
Basic EPS = (Net income – preferred dividends) ÷ weighted average of common shares outstanding during the period.
Diluted EPS
Diluted EPS refers to the metric that is calculated and used to gauge the quality of a company’s earnings per share (EPS) in the case that all convertible securities are exercised.
Book Value
In finance, book value refers to the value of an asset as per its balance sheet records. In the case of assets, the value is based on the original cost of the asset lest any depreciation, amortization or impairment costs are made against the asset.
Dividend Per Share
Dividend per share (DPS) refers to the sum of declared dividends that is issued by a company for every ordinary share outstanding. This metric is calculated by dividing the total dividends paid out by a business over a period of time by the number of outstanding ordinary shares issued.
Margin Ratios
Margin Ratios are the ratios that describe the ability of an organization to convert sales into profits at various degrees of measurement. Examples include – gross profit margin, operating profit margin, net profit margin, cash flow margin, EBIT, EBITDA, EBITDAR, NOPAT, operating expense ratio, and overhead ratio.
Gross Margin
Gross margin is a metric that is obtained by dividing the difference between revenue and cost of goods sold by the revenue generated. It is expressed in the form of percentage.
Operating Margin
Operating margin is the ratio of operating income to net sales. It is also known as operating income margin, operating profit margin, EBIT margin and return on sales, and is generally expressed in percentage.
Profit Before Tax (PBT) & Profit After Tax (PAT)
PBT is a measure of the profits generated by a company before the company pays its corporate income tax. On the other hand, PAT is the profit generated by an organization after deducting the tax amount from the total profits.
Return Ratios
This is a subset of financial ratios that determine how effectively an investment is being managed. Return ratios are helpful in assessing if the highest possible return is being generated on an investment.
Return on Net Worth (RoNW)
Also known as Return on Equity (RoE), this is a measure of the amount of profit or earnings that is generated by a company on the basis of its shareholders’ equity. It is calculated using the following formula –
RoNW = Net profit/ Shareholders’ equity
Return on Capital Employed (ROCE) is an accounting ratio that is mainly used in finance, valuation, and accounting. This metric measures the relative profitability of companies after taking into consideration the amount of capital used.
Return on Assets
The percentage of how profitable a company’s assets are in generating revenue is known as Return on Assets. It is calculated by dividing the net income of a company by its total assets.
Liquidity Ratios
The ability of a company to pay its debt obligations without raising external capital is known as liquidity ratio. Commonly used liquidity ratios include quick ratio, current ratio, and days sales outstanding.
Current Ratio
This is a liquidity ratio which measures and determines whether a company has enough resources to meet its short-term obligations or not. It is calculated by dividing current assets of a company by its current liabilities.
Leverage Ratio
A financial metric that describes the amount of debt a company has taken on the assets or the equity of the business. High ratios indicate that the company has taken a huge loan as compared to its capability.
Debt to Equity
Debt to Equity ratio refers to a financial ratio that measures the relative proportion of a shareholder’s equity and debt that is used to finance a company’s assets.
Interest Coverage
The ability of a company to honour its debt payments is known as interest coverage. The interest coverage ratio is a financial measure that indicates how easily a company can pay off the interest on its outstanding debt.
Turnover Ratios
Turnover ratio represents the total number of assets or liabilities that an organization replaces in relation to its sales.
Asset Turnover
Asset turnover is an indicator of how efficiently a company is generating revenue using its assets. It is calculated by dividing the value of a company’s sales or revenues by the value of its assets.
Inventory Turnover
This is a financial measure that indicates how many times a company has sold and replaced its inventory during a given period of time. It is calculated by dividing cost of goods sold by total or average inventory.
AR Turnover
Accounts receivable turnover refers to the number of times an organization collects its receivables in a specific time period. It is an accounting metric that describes how effective an organization is in extending credit as well as collecting debts.
AP Turnover
Accounts payable turnover indicates the number of times a company pays off its pending payables in a given period of time. It describes how efficient a company is at paying its suppliers as well as short-term debts.
Valuation Ratios
Also called as market value ratio, valuation ratio is a measure of how aptly shares in a company are valued and what kind of returns an investor may get.
Price to Earnings
Price to Earnings or PER is the relation between a company’s share price and its earnings per share. It is measured by dividing the market value price per share by the organization’s earnings per share.
Price to Book Value
Price to book value is a financial metric that compares the market and book value of the company. It is the ratio of market value of a company’s shares over its book value of equity.

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