Glossary of Bookkeeping Terms

Here are some common bookkeeping terms and terms used in The BasicBooks General Ledger along with a brief explanation of each.

• Account Type - The BasicBooks General Ledger requires you to declare each general ledger account to be one of several types. These types determine how amounts entered into the account are treated (added to the balance or subtracted from the balance). The Account Type also determines whether the account will appear on the Balance Sheet or the Income Statement.
• Accounting Year - This is the year the business uses to keep its books. This can be either a Calendar Year of a Fiscal Year.
• Adjusting Entry - A journal entry used to change or correct a previous journal entry.
• ASSET - Items which you own and use in the business.
• Balance Sheet - This is the financial report that lists all Assets, Liabilities, Capital, and Profit and Loss accounts.
• Calendar Year - The 12 month period from January through December, as shown on a calendar.
• Chart of Accounts - The complete list of all the general ledger accounts. A Chart of Accounts can be a listing of only the name, or name and number, of each account or it can also include complete details of each account.
• Closing Balance - The amount stored in a general ledger account at the end of the last day of the accounting year.
• Credit - A credit entry is always a negative amount. To credit an account means to enter a negative amount into that account. If the account is an Asset or Expense account a credit will decrease the balance of that account. If the account is a Liability, Capital, Profit and Loss, or Income account a credit will increase the balance of the account.
• Database - This is a special type of computer file storage and retrieval software system that allows large amounts of data to be stored and retrieved on a random basis. In The BasicBooks General Ledger all the journals and the general ledger are kept in a database.
• Debit - A debit entry is always a positive amount. To debit an account means to enter a positive amount into that account. If the account is an Asset or Expense account a debit will increase the balance of that account. If the account is a Liability, Capital, Profit and Loss, or Income account a debit will decrease the balance of the account.
• Directory - Think of a directory on your computer disk as a file folder. In each directory you may place files or create other directories (referred to as sub-directories). Files contain data. Directories contain files.
• Disk File - A file on your computer's hard disk.
• EQUITY - This is the net value of the business. It is calculated by subtracting liabilities from assets. Equity accounts are usually called such names as, Capital, Owner Equity, Common Stock or Capital Paid In (in the case of corporations), and the Profit and Loss accounts (Retained Earnings in the case of corporations).
• EXPENSE - Accounts used to record all types of expenses of the business. This is money paid out for items consumed during the current accounting year.
• Fiscal Year - A 12 month period which starts on the first day of a month other than January. Many companies keep their books on fiscal year basis rather than a calendar year.
• General Ledger - (Also abbreviated as GL) This is the record of each account you use to keep books in your business. Examples of general ledger accounts are, ``Cash in Bank'', ``Accounts Receivable'', ``Taxes Payable'', ``Capital Paid In'', ``Sales'', ``Travel Expense'', etc. General ledger accounts can have any name that is representative of the purpose for the account. i.e., the name should represent what type of financial data is kept in the account. Amounts entered in the Journals are summarized (totaled) for each month and then the net total is recorded in the general ledger for that month.
• INCOME - These accounts are used to record various types of income the business might receive (Sales, Rent, Royalties, Interest, etc.).
• Income Statement - This is the report that summarizes all the Income and Expense accounts and is used to calculate the net income/loss which is reported on the balance sheet.
• Journal - A journal is the ``book'' in which each financial transaction is recorded. It is the ``book of original entry''. Each line in the journal represents a financial transaction. In the BasicBooks General Ledger there are three journals; the Check Journal, Deposit Journal, and General Journal. The Check Journal is used to record checks you have written. The Deposit Journal is used to record bank deposits you have made. The General Journal is used to record any transaction which can not be recorded in the other two journals.
• Journal Entry - the amount and details of a transaction entered in a Journal.
• LIABILITY - Amounts which you own to others outside the business.
• Net Transaction - This is the amount of transactions recorded in a general ledger account during any month. It is the net result of subtracting negative amounts from positive amounts.
• Opening Balance - The amount stored in a general ledger account at the beginning of the first day of the accounting year.
• Posting - The process of transferring the net transactions from the journal to a general ledger account.