Common Terms
Plain-language definitions of common accounting, bookkeeping, payroll, tax and business terms used across the Digit website
Tax & Reporting
The taxes, lodgements, and reporting obligations that Australian businesses deal with regularly - from BAS and GST through to capital gains and fringe benefits
- Australian Business Number (ABN)
- An 11-digit number that identifies a business to the government and community. Required for GST registration, invoicing, and dealing with other businesses and the ATO.
- Business Activity Statement (BAS)
- A form lodged with the ATO - usually quarterly - to report and pay GST, PAYG withholding, PAYG instalments, and other tax obligations. A registered BAS agent can prepare and lodge it on your behalf.
- Capital Gains Tax (CGT)
- Tax on the profit made from selling an asset - such as property, shares, or a business - for more than its cost base. CGT is not a separate tax; it forms part of your income tax assessment.
- End of Financial Year (EOFY)
- 30 June - the close of the Australian financial year. Triggers year-end processes including STP finalisation, payroll reconciliation, superannuation payment deadlines, and annual reporting obligations.
- Fringe Benefits Tax (FBT)
- A tax employers pay on non-cash benefits provided to employees - such as cars, car parking, entertainment, and expense payments. The FBT year runs from 1 April to 31 March.
- Goods and Services Tax (GST)
- A 10% broad-based tax on most goods, services and other items sold or consumed in Australia. Businesses with turnover above $75,000 must register for GST and report it on their BAS.
- Instalment Activity Statement (IAS)
- A form used to report PAYG withholding and PAYG instalments when GST is not required to be reported. Monthly PAYG withholding reporters who lodge GST quarterly use an IAS for the two non-BAS months.
- Pay As You Go Withholding (PAYG)
- The system where employers withhold income tax from employee wages each pay cycle and remit it to the ATO. The amount withheld depends on the employee's earnings and tax file number declaration. Reported on the BAS.
- PAYG Instalments
- Regular prepayments of income tax made by businesses and investors throughout the year, based on business or investment income. Reported on the BAS and credited against your annual tax return.
- Recipient Created Tax Invoice (RCTI)
- A tax invoice created by the buyer rather than the seller. Used in specific business arrangements - such as commissions - where the buyer is better positioned to calculate the amounts. Both parties must have a written RCTI agreement.
- Reportable Fringe Benefits Amount (RFBA)
- The grossed-up taxable value of fringe benefits an employee receives that exceeds $2,000 in an FBT year. Reported on the employee's income statement and used by Services Australia to assess eligibility for government benefits.
- Single Touch Payroll (STP)
- An ATO reporting system that sends payroll data - gross wages, PAYG withholding, superannuation, and allowances - to the ATO every time an employer runs a pay cycle. Xero lodges STP automatically when you process a pay run.
- STP Finalisation
- An annual declaration confirming all payroll data reported through STP for the financial year is complete and accurate. Due by 14 July each year. Once finalised, employees can access their income statement through myGov.
- STP Phase 2
- An expansion of STP reporting mandatory from 1 January 2022 (with Xero's ATO deferral running to early 2023). Adds disaggregated income types, country codes for Working Holiday Makers, and separated gross amounts to each STP lodgement.
- Stapled Super Fund
- A super fund linked to an individual employee by the ATO. When a new employee doesn't choose a fund, employers must request their stapled fund details from the ATO before using a default fund. Introduced in November 2021 to reduce duplicate accounts and lost super.
- Tax File Number (TFN)
- A unique number issued by the ATO to individuals and organisations to manage their tax affairs. Employees provide their TFN to their employer via a TFN declaration so the correct amount of tax is withheld.
- Taxable Payments Annual Report (TPAR)
- An annual report lodged with the ATO by businesses in certain industries - building and construction, cleaning, courier, road freight, IT, and security - that pay contractors for services. Due by 28 August each year.
Accounting & Bookkeeping
The day-to-day language of managing your books - how transactions are recorded, reports are structured, and financial performance is measured
- Accrual Accounting
- An accounting method that records income when earned and expenses when incurred, regardless of when cash changes hands. Required for businesses with turnover above $10 million and gives a more accurate picture of financial position.
- Accounts Payable
- Money your business owes to suppliers for goods or services received but not yet paid for. Appears as a current liability on the balance sheet.
- Accounts Receivable
- Money owed to your business by customers for goods or services delivered but not yet paid for. Appears as a current asset on the balance sheet.
- Aged Payables
- A report that groups outstanding supplier bills by how long they have been owing - typically current, 30, 60, and 90+ days. Helps manage payment timing and cashflow.
- Aged Receivables
- A report that groups outstanding customer invoices by how long they have been unpaid - typically current, 30, 60, and 90+ days. Highlights overdue payments and helps manage cash collection.
- Balance Sheet
- A financial report showing what a business owns (assets), what it owes (liabilities), and the owner's equity at a specific point in time. Assets must always equal liabilities plus equity.
- Bank Feed
- An automatic daily import of bank transactions into your accounting software. In Xero, bank feeds pull transactions from your bank and present them for coding and reconciliation.
- Bank Reconciliation
- The process of matching transactions in your accounting software against your bank statement to confirm all income and expenses are recorded accurately and nothing is missing.
- Break-Even Point
- The level of sales at which total revenue equals total costs - meaning the business is neither making a profit nor a loss. Useful for pricing decisions and financial planning.
- Cashflow
- The movement of money in and out of a business over a period. Positive cashflow means more money coming in than going out. Cashflow forecasting projects future inflows and outflows to avoid shortfalls.
- Chart of Accounts
- The structured list of all accounts in your accounting system - organised into assets, liabilities, equity, revenue, and expenses. It determines how transactions are categorised and how your financial reports are structured.
- Cost of Goods Sold (COGS)
- The direct costs of producing the goods or services a business sells - including materials, direct labour, and subcontractor costs. Deducted from revenue to calculate gross profit.
- Credit Note
- A document issued to reduce the amount a customer owes - for example, when goods are returned or an invoice was overstated. Applied against outstanding invoices or refunded.
- Depreciation
- The gradual reduction in value of a fixed asset over its useful life. Recorded as an expense in the profit and loss statement and reduces the asset's value on the balance sheet. The ATO sets depreciation rates for different asset types.
- Double-Entry Bookkeeping
- The accounting method where every transaction is recorded in two accounts - a debit and a credit - so that the accounting equation (assets = liabilities + equity) always balances.
- EBITDA
- Earnings Before Interest, Tax, Depreciation and Amortisation. A measure of operating profitability that strips out financing and accounting decisions, often used to compare business performance.
- Fixed Asset
- A long-term tangible asset used in the operation of a business - such as vehicles, equipment, furniture, or property. Not intended for resale and typically depreciated over its useful life.
- General Ledger
- The complete record of all financial transactions for a business, organised by account. Every transaction in your accounting software is recorded in the general ledger.
- Gross Profit
- Revenue minus the direct cost of goods sold (COGS). Shows how much profit a business makes on its products or services before overheads and operating expenses are deducted.
- Inventory
- Goods held by a business for sale or use in production. Tracked as a current asset on the balance sheet. Xero offers basic inventory tracking; businesses with complex stock management typically use a dedicated inventory app.
- Invoice
- A document sent to a customer requesting payment for goods or services supplied. A valid tax invoice must include your ABN, the date, a description of items, the amount, and the GST component.
- Journal Entry
- A manual accounting entry that records a transaction by debiting one account and crediting another. Used for adjustments, accruals, and corrections that don't flow through standard invoicing or bank reconciliation.
- Net Profit
- The amount remaining after all expenses - including operating costs, interest, and tax - are deducted from revenue. The bottom line of the profit and loss statement.
- Profit and Loss Statement (P&L)
- A financial report showing revenue, cost of goods sold, expenses, and net profit or loss over a period - usually monthly, quarterly, or annually. Also called an income statement.
- Trial Balance
- A report listing all general ledger account balances at a point in time. Total debits must equal total credits. Used to verify that the books are in balance before preparing financial statements.
Payroll & Employment
Everything related to paying people correctly - wages, leave, superannuation, awards, and the compliance obligations that come with being an employer in Australia
- Allowance
- An additional payment to an employee for specific work-related purposes - such as travel, tools, uniforms, or working in particular conditions. Set by the applicable award or agreement and subject to different tax and super treatment depending on the type.
- Annual Leave
- Paid time off that accrues for full-time and part-time employees at a rate of 4 weeks per year (or 5 weeks for shift workers under some awards). Accrues progressively and is paid out on termination.
- Closing Loopholes Legislation
- Amendments to the Fair Work Act passed in 2023-2024 that criminalised intentional wage theft from 1 January 2025, increased civil penalties for underpayment, and introduced new protections including the right to disconnect and casual employment reforms.
- Deduction
- An amount subtracted from an employee's gross pay - such as salary sacrifice, union fees, or child support. Some deductions are pre-tax (like salary sacrifice to super) and others are post-tax.
- Director Penalty Notice (DPN)
- A notice issued by the ATO that makes company directors personally liable for unpaid PAYG withholding, superannuation guarantee charge, or GST. Directors can become liable even if the company is insolvent.
- Enterprise Agreement
- A legally binding agreement between an employer and its employees that sets pay and conditions for a specific workplace. Must be approved by the Fair Work Commission and pass the Better Off Overall Test against the relevant modern award.
- Leave Accrual
- The progressive accumulation of leave entitlements - annual leave, personal leave, and long service leave - based on hours worked. Tracked in the payroll system and appears as a liability on the balance sheet.
- Long Service Leave
- Paid leave granted to employees after a long period of continuous service with one employer. Entitlements vary by state - in Western Australia, employees accrue 8.667 weeks after 10 years of continuous service.
- Maximum Contribution Base (MCB)
- A cap on the amount of an employee's earnings that an employer must pay Superannuation Guarantee on. Currently calculated quarterly, but under payday super (from 1 July 2026) it shifts to an annual cap. This means a large bonus or commission paid in a single period may attract more super than under the old quarterly reset.
- Modern Award
- A legal document maintained by the Fair Work Commission that sets minimum pay rates, overtime, penalty rates, allowances, and conditions for an industry or occupation. Australia has 155 modern awards. Most employees are covered by one.
- National Employment Standards (NES)
- The 11 minimum employment entitlements in the Fair Work Act that apply to all national system employees - including maximum weekly hours, leave entitlements, notice of termination, and redundancy pay.
- Ordinary Time Earnings (OTE)
- The earnings an employee receives for their ordinary hours of work - including regular wages, commissions, shift loadings, and some allowances. Excludes overtime payments. OTE is the base used to calculate the Superannuation Guarantee.
- Pay Run
- The process of calculating and paying employee wages for a pay period. Includes calculating gross pay, withholding PAYG tax, deducting any salary sacrifice or other deductions, and lodging STP data with the ATO.
- Pay Slip
- A record provided to an employee within one working day of being paid, showing gross pay, deductions, net pay, superannuation, and leave balances. Required under the Fair Work Act.
- Payroll Tax
- A state-based tax on wages paid by employers when total Australian taxable wages exceed the state threshold. In Western Australia, the threshold is $1 million in annual taxable wages at a rate of 5.5%.
- Penalty Rate
- A higher rate of pay for work performed outside normal hours - including weekends, public holidays, evenings, and early mornings. Set by the applicable modern award or enterprise agreement.
- Personal/Carer's Leave
- Paid leave for when an employee is unfit for work due to illness or injury, or needs to care for an immediate family member. Accrues at 10 days per year for full-time employees under the National Employment Standards.
- Qualifying Earnings (QE)
- The earnings base used to calculate Superannuation Guarantee under payday super (from 1 July 2026). QE replaces Ordinary Time Earnings (OTE) and is broader - it still includes regular wages, commissions, shift loadings, and certain allowances, but also captures salary sacrifice contributions and some overtime in specific circumstances.
- Redundancy
- When an employer no longer requires a role to be performed by anyone. Eligible employees receive redundancy pay based on length of service under the National Employment Standards. Small businesses (fewer than 15 employees) are generally exempt from paying redundancy.
- Superannuation Guarantee (SG)
- The minimum percentage of an employee's ordinary time earnings that an employer must pay into the employee's nominated super fund. Currently 12% from 1 July 2025. Paid quarterly by the 28th of the month following the end of each quarter.
- Superannuation Guarantee Charge (SGC)
- A penalty charged by the ATO when an employer fails to pay super on time or in full. Calculated on salary and wages (not OTE), plus 10% nominal interest per annum, plus a $20 administration fee per employee per quarter. The SGC is not tax-deductible.
- Termination
- The end of an employment relationship - whether by resignation, dismissal, or redundancy. Triggers final pay obligations including outstanding wages, accrued leave, notice period payments, and potentially redundancy pay.
- Timesheet
- A record of hours worked by an employee, used to calculate pay for hourly or award-based employees. Can be submitted manually or through time tracking apps like Deputy or Tanda that sync with Xero payroll.
- Working Holiday Maker (WHM)
- A foreign national in Australia on a Working Holiday visa (subclass 417 or 462). Subject to specific tax rates and must be reported separately under STP Phase 2 with the relevant country code.
- Workers' Compensation (WorkCover)
- Compulsory insurance that covers employees for work-related injury or illness. Administered by state and territory authorities. In Western Australia, employers must hold a workers' compensation policy with an approved insurer.
Business & Compliance
The regulatory bodies, registrations, and legal frameworks that govern how Australian businesses operate and meet their obligations
- Australian Securities and Investments Commission (ASIC)
- The government body that regulates companies, financial services, and markets. Maintains the companies register and enforces director obligations including financial reporting and solvency requirements.
- Australian Taxation Office (ATO)
- The Australian Government's principal revenue collection agency, responsible for administering tax, superannuation, and business registration systems including GST, PAYG, STP, and the ABN register.
- BAS Agent
- A professional registered with the Tax Practitioners Board to prepare and lodge BAS, IAS, and related documents on behalf of clients. Must hold professional indemnity insurance and meet continuing professional education requirements.
- e-Invoicing
- The direct exchange of invoices between suppliers' and buyers' accounting software through the secure Peppol network - without email, PDF, or manual data entry. Xero supports e-invoicing and it is mandatory for Australian Government agencies.
- Fair Work Commission (FWC)
- Australia's national workplace relations tribunal. Sets and varies modern awards, approves enterprise agreements, conducts annual wage reviews, and resolves workplace disputes including unfair dismissal claims.
- Fair Work Ombudsman (FWO)
- The Australian Government agency that promotes and monitors compliance with workplace laws, investigates underpayment complaints, and can take enforcement action including civil litigation and referring intentional wage theft for criminal prosecution.
- Peppol
- The international network used for e-invoicing in Australia. Connects accounting software systems so invoices are sent and received digitally, reducing processing time and errors. Xero is a certified Peppol Access Point.
- Personal Services Income (PSI)
- Income produced mainly from your personal skills or efforts as an individual - rather than from a business structure, assets, or employees. If income is classified as PSI, certain tax deductions are limited regardless of the business structure used.
- Tax Practitioners Board (TPB)
- The national body that registers and regulates tax agents, BAS agents, and tax (financial) advisers. Registered BAS agents - like Digit - must meet ongoing education, insurance, and compliance requirements to prepare and lodge BAS on behalf of clients.
Technology & Apps
The cloud tools, integrations, and security concepts that underpin modern bookkeeping and payroll systems
- Application Programming Interface (API)
- A connection that allows two software systems to communicate and share data. Xero's API is what lets apps like Dext, Deputy, and Float sync data directly with your Xero file without manual entry.
- Multi-Factor Authentication (MFA)
- A security method that requires two or more forms of verification - such as a password plus a code from an authenticator app - before granting access. Xero requires MFA for all users.
- Transport Layer Security (TLS)
- The encryption standard that protects data transmitted between your browser and a website or app. Ensures financial data sent to and from Xero, bank feeds, and the ATO is encrypted in transit.