The accounting glossary
77 concepts, 1522 relationships between them, and no dead ends — every term links to its neighbours and something links back. Each one is also available as JSON at /api/knowledge, because a definition is more useful when a machine can read it too.
Fundamentals (14)
Double-Entry BookkeepingDouble-entry bookkeeping is the discipline of recording every transaction as balanced debits and credits across two or more accounts, so money is always shown moving from somewhere to somewhere rather than simply appearing or vanishing.DebitA debit is the left side of a journal entry, and it increases asset and expense accounts while decreasing liability, equity, and income accounts.CreditA credit is the right side of a journal entry, and it increases liability, equity, and income accounts while decreasing asset and expense accounts.Journal EntryA journal entry is a dated record with a memo and two or more lines, each naming an account and an amount, where the amounts always net to exactly zero.General LedgerThe general ledger is the complete, chronological record of every posted journal entry across every account in a book, and pulling it for one account shows every posting to that account with a running balance.Chart of AccountsA chart of accounts is the complete list of asset, liability, equity, income, and expense buckets that every journal entry in a book posts into.AccountAn account is a single named bucket in a chart of accounts, belonging to exactly one of five types, that journal entries post debits and credits to.PostingPosting is the act of writing a balanced journal entry permanently into the ledger, after which the entry can never be edited or deleted, only reversed.Normal BalanceAn account's normal balance is the side, debit or credit, its balance is expected to sit on when the account is healthy — debit for assets and expenses, credit for liabilities, equity, and income.Accounting EquationThe accounting equation states that Assets equal Liabilities plus Equity, an identity that holds automatically in any correctly balanced double-entry ledger.Accrual BasisAccrual-basis bookkeeping records income when it's earned and expenses when they're incurred, regardless of when the actual cash payment happens.Cash BasisCash-basis bookkeeping records income and expenses only when money actually arrives in or leaves an account, rather than when it's earned or owed.Fiscal PeriodA fiscal period is the date range a book uses for reporting or closing purposes, such as a month, a quarter, or a year.Audit TrailAn audit trail is the permanent, traceable record connecting every posted number in a set of books back to when it was posted, who or what posted it, and why.
Transactions (14)
Interest expenseInterest expense is the cost of borrowing money, and it is only the portion of a loan payment that is not repaying the amount borrowed.TransactionA transaction is any real financial event — a payment, a deposit, a transfer between accounts — that eventually becomes a balanced journal entry once it's recorded.Bank TransactionA bank transaction is a single imported row from a bank or credit-card statement — a date, an amount, and a description — that sits unposted in the inbox until it's categorized.CategorizationCategorization is the decision of which account absorbed the other side of a bank transaction's money, turning a raw imported fact into a real, balanced journal entry.Split TransactionA split transaction is a single bank transaction categorized across two or more accounts at once, with the amounts required to sum exactly back to the original total.TransferA transfer moves money between two accounts owned by the same person or business, such as checking and savings, without creating any income or expense.RefundA refund is money returned for an earlier charge, and the cleaner bookkeeping move is usually to reduce the original expense account rather than record it as new income.Reversing EntryA reversing entry is a new journal entry that mirrors an original one with every line's amount flipped in sign, cancelling its effect while leaving both the mistake and the correction permanently visible.Adjusting EntryAn adjusting entry is a manual journal entry recording something with no bank transaction behind it, such as depreciation, an accrual, or an owner's contribution.Opening BalanceAn opening balance is the balance an account starts with the first time it's set up or a statement is imported, before any ongoing activity has occurred.Uncategorized TransactionAn uncategorized transaction is a bank row that has been imported but not yet assigned to an account, sitting unposted in the inbox with no accounting effect yet.Duplicate TransactionA duplicate transaction is an imported row that matches one already stored for the same bank account, date, amount, and description, and it is skipped rather than inserted a second time.VendorA vendor is who a transaction was paid to or received from, identified from the transaction's own description rather than tracked as a separate chart-of-accounts entry.MemoA memo is the short, human-readable description attached to a journal entry, explaining what actually happened beyond the date and the raw numbers.
Accounts (13)
AssetAn asset is anything a business or household owns that has value, such as cash, a bank balance, or equipment, and it carries a normal debit balance.LiabilityA liability is money owed to someone else, such as a credit card balance or a loan, and it carries a normal credit balance that reports display as a positive amount owed.EquityEquity is what's actually left for the owner once every liability is subtracted from every asset — the owner's real stake in a business or household, built from contributions, draws, and retained profit.Income AccountAn income account records money earned, such as sales, service revenue, or interest, and it carries a normal credit balance that grows as revenue comes in.Expense AccountAn expense account records money spent, such as rent, materials, or software, and it carries a normal debit balance that grows as costs are incurred.Contra AccountA contra account sits in one section of the balance sheet but carries the opposite normal balance of every other account there, reducing the balance of the account it's paired with.Accumulated DepreciationAccumulated Depreciation is a contra-asset account that reduces Equipment's original cost down to its current net book value as the equipment ages, without any cash actually moving.Accounts ReceivableAccounts Receivable is money customers owe for work already delivered and invoiced, real and yours, but not yet actually collected.Accounts PayableAccounts Payable is a liability tracking what a business owes vendors and suppliers for bills received but not yet paid.Owner's DrawOwner's Draw is a contra-equity account tracking money the owner takes out of the business, and it is not a business expense even though it can function like the owner's own paycheck.Owner's ContributionOwner's Contribution tracks money or value the owner personally puts into the business, increasing equity rather than being recorded as revenue.Bank AccountIn BalanceMCP, a bank account is both the real checking, savings, or credit card account connected to a book and the dedicated ledger account it's automatically allocated its own code under.Credit Card AccountA credit card account is a liability account whose balance is stored as a negative number in the ledger, because it represents money owed rather than money held.
Financial statements (10)
Balance SheetA balance sheet is a snapshot as of one specific date of what a business or household owns, owes, and has left over, always satisfying Assets equals Liabilities plus Equity.Profit and Loss StatementA profit and loss statement totals income and expenses over a date range and nets them into a single number, net income, showing whether income exceeded expenses over that stretch.Trial BalanceA trial balance lists every account with a nonzero balance across all five account types, split into debit and credit columns, and proves that total debits equal total credits.Cash FlowCash flow is the actual movement of money into and out of a business or household's bank accounts, a different question from profit that can move in the opposite direction in the same month.Retained EarningsRetained earnings is the cumulative all-time net income of a book — every dollar earned minus every dollar spent since it began — recalculated fresh every time a balance sheet runs.Net IncomeNet income is total income minus total expenses over a chosen date range, the single bottom-line figure a profit and loss statement produces.Gross MarginGross margin is revenue minus the direct cost of goods or services sold, before general operating expenses are subtracted, and it measures how much a sale earns before overhead.Operating ExpenseAn operating expense is ordinary spending required to run a business day to day — rent, software, insurance — reported on the P&L separately from the direct cost of goods sold.Cost of Goods SoldCost of Goods Sold is the direct cost — materials, subcontracted labor, inventory bought for resale — behind what a business actually sold, reported above general operating expenses on a P&L.Revenue RecognitionRevenue recognition is the accounting question of when a sale actually counts as income — the moment it's invoiced and earned, or only once the customer's cash is actually collected.
Banking and reconciliation (6)
Bank StatementA bank statement is the document a bank or card issuer provides listing a period's transactions along with its beginning and ending balance, used to verify a statement import.Bank FeedA bank feed is an automatic, ongoing connection that pulls new transactions from a bank as they happen, a feature BalanceMCP does not have today.Statement ImportA statement import is the act of bringing an entire bank or card statement's transactions into BalanceMCP in a single call, verified against the statement's own beginning and ending balance.ReconciliationReconciliation is the process of comparing what a ledger says a bank account holds to what the real bank or card statement says, as of the same date, to prove the books are accurate.Ending BalanceThe ending balance is the closing figure a bank or card statement reports for a period, entered into BalanceMCP in the ledger's own signed convention rather than however the statement prints it.Cleared Transaction"Cleared" is the general bookkeeping idea of a transaction confirmed as matching a bank or card statement, which BalanceMCP verifies at the whole-account level through reconciliation rather than flagging each transaction individually.
Closing the books (5)
Closing the BooksIn BalanceMCP, closing the books means locking a period through a chosen date so nothing can post on or before it, rather than performing ceremonial entries that zero out income and expense into equity.Period LockA period lock is a "locked through" date set on a book, enforced by the database, that refuses any posting on or before it and can only ever be moved forward, never backward.Month-End CloseMonth-end close is the routine of reconciling every bank account, categorizing everything still uncategorized, reviewing the profit and loss statement, and then locking the period through its last day.Year-End CloseYear-end close is the same period-locking discipline applied through the last day of the fiscal year, without the ceremonial entries some other accounting systems perform to zero out income and expense.Reconciliation DifferenceA reconciliation difference is the specific dollar gap between what a ledger says an account holds and what the actual bank statement says, computed as the statement balance minus the ledger balance.
Analysis (4)
Anomaly DetectionAnomaly detection scans transactions for three narrow patterns — likely duplicate charges, unusually large amounts, and price increases on recurring charges — and reports them as observations rather than conclusions.Spending SummaryA spending summary totals transactions over a period, grouped either by vendor or by ledger category, while explicitly reporting how much spending was left out because it hasn't been categorized yet.Price Increase DetectionPrice increase detection flags a recurring charge whose amount went up compared to its own history, but only when every earlier charge in that history matched exactly in both amount and description.Cash PositionCash position is the current balance of every bank account and credit card connected to a book, plus a single total, computed live right now rather than as of a chosen past date.
AI and MCP (11)
Model Context ProtocolModel Context Protocol, or MCP, is an open standard that lets an AI assistant connect to an application's real functionality through a defined set of named tools, instead of only being able to chat about the application.MCP ServerAn MCP server is the application side of Model Context Protocol, exposing a fixed set of named tools over an authenticated endpoint that a compatible AI assistant can call.MCP ClientAn MCP client is the AI assistant — any Model-Context-Protocol-compatible assistant — that calls an MCP server's tools on a user's behalf.MCP ToolAn MCP tool is a single named, narrowly scoped action — such as post_journal_entry or reconcile_account — that an MCP client can call and an MCP server executes.AI BookkeepingAI bookkeeping means an AI assistant calling BalanceMCP's tools to import, categorize, and report on real books, under the exact same database-enforced rules a human user is bound by.Dry RunA dry run is a preview of exactly what a tool would write to the ledger — which accounts, which amounts — before anything is actually posted.API KeyAn API key is the secret credential that ties every MCP tool call back to one specific user's own books, granting whatever that user's tools are able to do.Bearer TokenA bearer token is the mechanism by which an API key is actually presented on each request, typically in an Authorization header, proving the caller holds a valid credential without a separate login flow.Audit LogBalanceMCP's audit log is the journal itself — every posted entry permanently records who posted it, exactly when, and whether the source was a person, a bank import, or an AI assistant.Tenant IsolationTenant isolation is the guarantee that one user's books are never visible to another user, enforced at the database layer rather than relying on application code alone.Row-Level SecurityRow-level security is the specific Postgres mechanism — policies forced on every table, keyed to a session-level user identifier — that implements tenant isolation at the database layer.