Abstract

This resource describes the core semantics of double-entry bookkeeping.

1. Introduction

The objective of this resource is to provide a precise, comprehensive, yet succinct narrative which explains the double-entry bookkeeping model. It is sometimes the case that different terms are used in different ways which can be confusing to novices and experts alike. There is no specific magic in selecting one term over another and arguing about which term is the best misses to primary point. The point here is to provide one terms, define that term clearly, and use the terms consistently.

NOTE: This resources is a work in progress.

1.1 Journal

Journal
A journal is the original list of transactions in a bookkeeping system. A journal has entries.

1.2 Ledger

Ledger
A ledger is a place where the information from journal entries is recorded. Once information is entered or “posted” to a ledger, that information can never be removed. If an error exists within a journal entry, to correct that error another journal entry is created and posted to the ledger to make the necessary adjustment to the ledger to correct for the mistake and to leave a trail of information. There are a number of different types of ledgers that accountants use. General ledgers, special ledgers, subsidiary ledgers, and other such names are used to refer to these ledgers. For example, a sales ledger is used to record sales transactions of an economic entity and a purchases ledger is used to record purchases of an economic entity. Fundamentally, all the different types of ledgers provide all of the same core journal entry information.

1.3 Trial Balance

Trial Balance
A ledger trial balance is effectively a summary (report) of transactions within a double-entry bookkeeping system. The trial balance can be the details of each transaction or a summary of transactions. Transactions could be filtered based on the fields available.

1.4 Business Event

Business Event
Bookkeeping fundamentally captures information about the business events of an economic entity. Business event information is captured in the form of transactions that are entered into a double-entry bookkeeping system.

1.5 Account Types

Account Types
Every account has a type. Account types are used by accounting systems to process transactions and turn those transactions into a report.

1.6 Chart of Accounts

Chart of Accounts
A chart of accounts is simply a listing of the account names that an economic entity uses to record transactions in its journals and ledgers. An economic entity tailors its chart of accounts to meet the specific unique needs of the economic entity.

1.7 Stocks and Flows

Stocks and Flows
Ledgers contain the journal entry information which explains the flows which go through an account within the ledger and summarizes the stock which is a summary of the information about all the flows that have ever gone through an account. Other terms used for the relationship shown above are “roll forward” or “movements”. All three of these terms basically explain the following equation: “Beginning balance + Additions - Subtractions = Ending balance”

1.8 Transactions

Transactions
Information from a journal entry, generally two or more journal entries, forms a transaction. A transaction is a set of journal entries related to a business event which is then posted into a ledger.

1.9 Report

Report
A report is considered, in this case, all information that can be effectively generated from the information contained within the general ledger trial balance using the report writer.

1.9 Analysis

Analysis
Ultimately, the objective of generating a report is to analyze the information contained within the report. There tends to be three typical scenarios when analyzing a report: (1) Analyze information within one specific report, (2) Period analysis where information for one economic entity is analyzed across many reporting periods, (3) Entity analysis where information for multiple economic entities, perhaps peers, is analyzed and compared as of one reporting period