Clear definitions of bookkeeping terms every freelancer should know. No accounting degree required — each term explained with a real-world example from a freelancer's daily work.
An invoice is a formal document a freelancer or business sends to a client listing services provided, amounts owed, payment terms, and payment instructions. It serves as both a payment request and a legal record of the transaction.
A receipt is a document that confirms payment has been received. It's issued after a client pays an invoice and serves as proof of payment for both the freelancer and the client.
Bookkeeping is the systematic recording, categorization, and organization of all financial transactions in a business. For freelancers, it means tracking every payment received, every expense incurred, and maintaining accurate records for tax filing and business decisions.
Accounts receivable (AR) is money owed to you by clients for work already completed but not yet paid. For freelancers, it's the total of all outstanding (unpaid) invoices at any given time.
Accounts payable (AP) is money you owe to others — suppliers, contractors, software subscriptions — for goods or services you've received but haven't paid for yet.
Cash flow is the movement of money into and out of your freelance business over a specific period. Positive cash flow means more money came in than went out. Negative cash flow means the opposite.
Payment terms specify when and how a client must pay an invoice. Common terms include 'Due on Receipt' (pay immediately), 'Net 15' (pay within 15 days), and 'Net 30' (pay within 30 days of the invoice date).
An invoice is overdue when the payment due date has passed and payment has not been received. Overdue invoices are the most common cash flow problem for freelancers.
Currency conversion is the process of converting money from one currency to another at an agreed exchange rate. For freelancers with international clients, it means tracking income and expenses across multiple currencies and converting everything to a single base currency for reporting.
Expense categorization is the process of assigning each business expense to a category (e.g., Tools & Software, Travel, Office Supplies) for tracking, budgeting, and tax deduction purposes.
CSV import is the process of loading transaction data from a CSV file (exported by a bank or payment platform) into a bookkeeping system. AI-powered CSV import auto-detects the file's format, columns, and data types without requiring manual mapping.
OCR (Optical Character Recognition) is AI technology that reads text from images — screenshots, photos of receipts, scanned documents — and converts it into structured, searchable data. In bookkeeping, OCR extracts transaction details from payment screenshots and paper receipts.
A freelancer is a self-employed individual who sells services to clients on a project, hourly, or retainer basis, rather than working as a permanent employee. Freelancers are responsible for their own bookkeeping, taxes, and business operations.
A tax deduction (or write-off) is a business expense that can be subtracted from your taxable income, reducing the amount of tax you owe. For freelancers, common deductions include home office costs, equipment, software subscriptions, and professional services.
Reconciliation is the process of comparing your bookkeeping records against your actual bank statements to ensure they match. Every transaction in your books should correspond to a real transaction on your bank statement, and vice versa.