89 entries, written for the founder who runs the company
Founder glossary
The terms investors, auditors and tax preparers use about your company, explained for the founder who runs it. Each entry covers what the term means, why it matters, how it shows up in a normal month, and where to read more.
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Start with a guide
All 43 founder guidesEach guide is one read that uses a handful of these terms in context, and links every one of them here.
- 21 terms · 6 min readChart of accounts for startups: a starting template
- 16 terms · 4 min readAudit-ready books before your Series A
- 16 terms · 7 min readHow to read an income statement (P&L)
- 15 terms · 5 min readForm 1120: what to give your tax preparer, and when
- 15 terms · 7 min readBalance sheet explained for startups
- 14 terms · 5 min readCash flow statement explained: why profit isn’t cash
Every entry
Filter by section or type to search. The diagrams are shapes, never anyone’s real numbers.
US GAAP
The accounting rules investors, lenders and auditors expect your numbers to follow.
- US GAAPASC 105-10Generally accepted accounting principles. In the US that means the FASB Accounting Standards Codification, which sets how companies recognize, measure and present their numbers.
- Accrual basisCON 8Revenue is recorded when it's earned and expenses when they're incurred, whatever day the cash moves.
- Revenue recognitionASC 606Revenue is recognized as you deliver what the customer is paying for, not when the invoice goes out or the cash lands.
- Deferred revenueASC 606Money a customer has paid, or owes on a non-cancellable invoice, for something you haven't delivered yet. It's a liability until you earn it.
- LeasesASC 842A lease longer than twelve months goes on the balance sheet: a right-of-use asset, and a liability for the payments you owe.
- Prepaid expensesASC 340-10Cash paid before you use what it buys, like a year of software or insurance. It's an asset that runs down month by month.
- Contract costsASC 340-40Costs you pay only because a customer signed, usually sales commissions, are capitalized and expensed over the period the contract benefits you. That period can include renewals you expect.
- Fixed assetsASC 360Equipment and other long-lived purchases above your capitalization threshold are recorded as assets, then depreciated over their useful life.
- Income statementASC 220Revenue less expenses for a period. Also called the profit and loss statement, or P&L.
- Balance sheetASC 210What the company owns and owes on a single date. Assets equal liabilities plus equity, always.
- Cash flow statementASC 230Where cash came from and where it went during a period, split into operating, investing and financing activities.
- Accounts receivableASC 310Money customers owe you for work you've delivered and invoiced but haven't been paid for yet. It's an asset.
- Accounts payableASC 405Bills from vendors you've received and approved but haven't paid yet. It's a liability.
- Accrued expensesASC 405Costs you've incurred by month end but haven't been billed for yet, like legal work, usage-based software or payroll that spans the month end.
- Retained earningsASC 505Every year's profit or loss since the company started, added up and kept in equity. For most startups it's negative and called an accumulated deficit.
- Stock-based compensationASC 718Options and stock granted to employees and contractors are an expense. Each award is measured at its fair value on the grant date and expensed over the period the person has to work to earn it.
- Allowance for credit lossesASC 326An estimate of the receivables you don't expect to collect, booked against receivables before any customer actually defaults. GAAP calls the model CECL: current expected credit losses.
- Capitalized softwareASC 350-40Some costs of building software you use to run your business, including a SaaS platform customers access but don't take possession of, are recorded as an asset and amortized once it's ready to use.
- Income tax provisionASC 740The income tax expense in your financial statements: tax owed for this year, plus the future tax effect of differences between your books and your tax return.
- ChargebacksASC 606-10-32The reversal of a card payment after the cardholder disputes it with their bank. The disputed amount and a dispute fee are pulled from your processor balance while the card issuer decides.
Controls & close
How the books stay correct once a month is signed off.
- Period locksControlOnce a month is signed off, nobody can post into it. The numbers you sent the board stay the numbers.
- ReversalsControlA posted entry is never edited or deleted. A mistake is cancelled by an equal and opposite entry, and the right entry is posted after it.
- Audit trailControlA permanent record of every entry: who made it, when, why, and the document behind it.
- Lead scheduleConventionA summary page for one financial statement line: each account that rolls into it, with prior and current balances and any adjustments, cross-referenced to the reconciliations that prove each balance.
- ReconciliationControlMatching each line in your books to an outside record, like the bank, Stripe or payroll, until nothing is left over.
- Monthly closeConventionFinishing a month's books: every account reconciled and tied, adjustments booked, statements produced and signed off.
- Chart of accountsConventionThe list of accounts every transaction is sorted into, grouped as assets, liabilities, equity, revenue and expenses.
- CPA reviewQuarterlyEach quarter a licensed CPA checks your reconciliations, schedules, revenue recognition and account classifications, and sends written findings.
- Debits and creditsConventionEvery transaction touches at least two accounts. One side is a debit, the other a credit, and the two totals are always equal.
- Journal entryConventionThe record of one transaction: the date, the accounts, the debit and credit amounts, a memo, and the document behind it.
- Trial balanceConventionA list of every account in the general ledger with its balance on one date, debits in one column and credits in the other. The two columns total the same.
- Cost of revenueConventionThe costs of delivering what you sold. For a SaaS company that's usually hosting, third-party software inside the product, payment processing and customer support.
- CutoffControlMaking sure revenue and expenses land in the month they belong to, especially the transactions on either side of month end.
- MaterialitySAB 99Whether an amount or an error is big enough, or important enough, to change what a reasonable reader of your statements would decide.
- Quality of earningsConventionA diligence report, usually prepared by an accounting firm for a buyer or investor, that tests whether reported earnings are real and repeatable. It restates EBITDA for errors and one-off items and sets a normal level of working capital.
Tax & compliance
Filing deadlines, and what each filing needs from your books.
- Form 1099-NECIRSThe IRS form that reports what you paid a US contractor for services. For payments made in 2026, you file one for each contractor paid $2,000 or more in the year (the IRS can adjust that for inflation from 2027); for 2025 payments the line was $600. Payments to corporations (other than for legal services), and payments made by card or through a payment processor, generally don't need one.
- Delaware franchise taxDelawareAn annual tax, filed with an annual report, that every Delaware stock corporation owes by March 1, whether or not it made money.
- Form 1120IRSThe federal income tax return for a C corporation. It's due on the 15th day of the fourth month after year end, so April 15 for a calendar-year company; Form 7004 extends the filing, not the payment, by six months.
- Sales tax nexusWayfair, 2018The connection to a state, through sales volume, employees or inventory, that obliges you to collect its sales tax on whatever that state taxes. Whether SaaS is taxable varies by state.
- R&D tax creditIRC § 41A federal credit for qualified research spending, such as wages for engineers building new software. A young company with little revenue can apply part of it against payroll tax instead of income tax.
- Section 174 R&E expensingIRC § 174AThe tax rule for research and experimental spending, including software development. For tax years beginning after December 31, 2024, domestic research costs can once again be deducted in the year they're paid or incurred.
- Net operating lossIRC § 172A tax loss: deductions larger than income for the year. A federal loss from a tax year beginning after 2017 carries forward with no expiry and can offset up to 80% of taxable income in a later year.
- Form 1099-KIRC § 6050WThe information return a card processor, payment app or online marketplace files to report the gross payments it settled to you in a year. Card payments are reported at any amount; payment apps and marketplaces report only above $20,000 and 200 transactions.
- Worker classificationIRS common-law testDeciding whether a worker is an employee or an independent contractor. The IRS asks whether the company has the right to control how the work is done, not what the contract says, and several states apply stricter tests.
- Voluntary disclosure agreementState taxAn agreement in which a business that owes a state tax it never filed comes forward before the state contacts it. In return the state limits how many years back it collects and waives most penalties. Most states offer one, most often used for sales tax.
Finance & metrics
The numbers investors ask for, and how each one comes out of your books.
- Burn rateMetricHow much cash the company uses in a month. Gross burn is all cash going out; net burn is cash out less cash in. It's a metric, not a GAAP figure.
- RunwayMetricHow many months your cash lasts at the current net burn: cash divided by monthly net burn. It's a metric, not a GAAP figure.
- ARR and MRRMetricMonthly recurring revenue is the subscription revenue you'd collect in a month from current customers. Annual recurring revenue is that rate times twelve. Neither is GAAP revenue.
- Gross marginMetricRevenue less cost of revenue, as a percentage of revenue. It's what's left from each dollar of sales to pay for everything else. As a ratio, it's a metric rather than a GAAP line.
- Net revenue retentionMetricRecurring revenue from a group of customers today, as a percentage of what the same customers paid a year ago, after expansion, downgrades and churn. New customers are left out. It's a metric, not a GAAP figure.
- CAC paybackMetricHow many months of gross profit from a new customer it takes to earn back what you spent to win them. It's a metric with no single standard formula.
- Burn multipleMetricNet burn divided by net new ARR over the same period. It says how many dollars you burned to add a dollar of recurring revenue. Lower is better. It's a metric, not a GAAP figure.
- 13-week cash flow forecastConventionA week-by-week forecast of cash in and cash out for the next quarter, built from actual bills, payroll dates and expected customer payments.
- Gross revenue retentionMetricRecurring revenue kept from a group of customers a year later, after downgrades and cancellations but ignoring upgrades, as a percentage of what they paid then. It can't exceed 100%. It's a metric, not a GAAP figure.
Equity & fundraising
Raising money and granting equity, and what each one does to your books.
- SAFEY CombinatorA simple agreement for future equity. An investor pays now, and the SAFE converts into shares at your next priced round, usually at a valuation cap, a discount, or both. It carries no interest and no maturity date.
- Convertible noteASC 470A loan from an investor that converts into shares at your next priced round, usually with a valuation cap or a discount. Unlike a SAFE it's debt: it accrues interest and has a maturity date.
- Cap tableConventionThe record of who owns what in the company: common and preferred shares, options, warrants, SAFEs and notes, and the fully diluted total.
- 409A valuationIRC § 409AAn appraisal of your common stock's fair market value, used to set the exercise price of stock options so they aren't taxed as deferred compensation.
- 83(b) electionIRC § 83(b)A filing that tells the IRS to tax restricted stock when you receive it, not as it vests. It has to be filed within 30 days of the transfer, and there's no extension.
- Qualified small business stockIRC § 1202Stock in a US C corporation, issued directly by the company while its gross assets were under a limit, can let holders exclude some or all of the gain on sale from federal income tax.
- Option poolConventionShares the board sets aside under an equity incentive plan to grant to employees, advisors and contractors as options or restricted stock.
- Priced roundASC 505A financing where investors buy shares, usually preferred stock, at a set price per share. Preferred carries rights common doesn't, most often a liquidation preference.
- Liquidation preferenceNVCA model charterThe right of preferred stockholders to be paid back before common stockholders when the company is sold or wound up, most often one times what they invested. Non-participating preferred takes that amount or converts to common, whichever pays more.
Your tools
The tools around your books, and how each one shows up in QuickBooks Online or Xero.
- QuickBooksLopifiIntuit's cloud accounting system, and the general ledger most US startups use.
- XeroLopifiA cloud accounting system that plenty of startups and their accountants prefer.
- StripePaymentsCard payments and subscription billing for most software startups.
- GustoPayrollPayroll, benefits and contractor payments for US companies.
- BrexCorporate cardCorporate cards and spend management for startups. The company owes the balance, not the founder.
- ChaseBankThe operating bank account most of your cash moves through.
- Bank of AmericaBankA business bank account, and the cash balance every other number depends on.
- ShopifyCommerceOnline stores, plus the orders, payouts and inventory behind them.
- SquarePaymentsPoint-of-sale hardware and card payments for in-person businesses.
- PayPalPaymentsA payments account whose balance works like a bank account.
- WiseMulti-currencyBalances in several currencies, mostly used to pay people and vendors abroad.
- GmailInboxWhere receipts, vendor bills and contracts usually arrive.
- Google DriveDocumentsContracts, leases and statements on file.
- HubSpotCRMWhere deals, customers and contract terms are tracked.
- NotionDocsWhere a lot of teams write things down.
- Google SheetsSpreadsheetWhere most startup books begin.
- AirtableDatabaseA flexible database many teams use to track vendors, spend and approvals.
- CursorVibe-coded financeAn AI code editor, and how a lot of founder finance scripts get written.
- ClaudeAI assistantAn AI assistant founders use to draft, analyze and write code.
- GitHubCodeWhere code lives, including the finance scripts only one engineer can read.
- VisaCard networkThe network behind most business cards. Your bank issues the card, and the charges arrive through its feed.
- MasterCardCard networkA card network your bank or card provider issues cards on. Charges arrive through the issuer's feed.
- DiscoverCard networkA card network and issuer. Charges, refunds and cash back all arrive in the same feed.
- American ExpressCharge and credit cardsAmex issues both charge cards, paid in full each month, and credit cards. Either way, the balance is a liability until it's paid.
- UberSpendRides to meetings, airports and client sites, often the most frequent small charges on a company card.
- DoorDashSpendFood delivery for team lunches, late nights and client meetings.
Diagrams are illustrations, not real figures. General information for US companies, not tax, legal or accounting advice.