This page describes the terms we use in the KDE Finance world. And in order to make this visual, here's a short section taken from the KMyMoney manual:
Imagine your money as balls, or beans, and to stop them rolling around you keep them in a box, or pot. Accounting, or Book Keeping, is the process of counting the beans in the pot, or several pots.
You have some money in the pot marked "Cash". You buy some goods, so you take some beans out of the cash pot and place them into another pot marked "Supplier". The supplier gives you some goods in exchange for the cash, so you take the beans out of the pot marked "Supplier" and put them in the pot marked "Goods".
The goods have a value (the price you paid) so you still have the same amount of beans, some representing cash and some representing goods. In this case you have two movements of beans, or transactions. Each transaction needs two entries, one to take beans out and one to put beans in. This is called "double entry book keeping" or "double entry accounting". The recording of the transactions is done in a "Ledger"; each pot is known as an "Account" or "Ledger code".
Now you take some goods and give them to a customer, who gives you some cash in exchange. The goods were worth some beans and, hopefully, the customer has given us more beans than that, so making a profit. To over simplify, the beans from the Goods pot come back as Cash, but we can split that as the "Cost of Goods sold" and "Profit". This transaction has three entries; one side of the "double entry" has been split.
- Account: The pot we keep the beans in. An account is denominated in a certain currency/security and has a balance.
- Balance: The number of beans in a pot at a given time.
- Currency: Denomination of an account. Actually treated as a special form of security.
- Base currency: The currency selected by the user as his default currency.
- Category: Synonym for income and expense accounts
- Closing balance: The balance of an account at the end of a book keeping period (e.g. end of a fiscal year).
- Ledger: The (visual) area where we record the transactions and splits
- Opening balance: The balance of an account at the beginning of a book keeping period (e.g. beginning of a fiscal year).
- Payee: The entity receiving or paying funds
- Price: The exchange rate between two securities/currencies at a given point in time. Used to transform the balance of an account kept in one currency/security into another currency. Assuming an account of shares traded in a foreign currency, one needs to apply two prices to gain the value of the account in base currency: first the price for the security (shares) in the foreign currency and then the price for the foreign currency in the base currency.
- Security: Denomination of an account. The real beans in the above example are a security as is a currency or some sort of shares.
- Split: The object used to record taking out or putting in beans of an account. To move some beans from one account into another, one needs two splits. A split has a reference to an account and an amount of beans moved in/out of this account and their value in the enclosing transaction's security. If the security of the account and the transaction are identical, the amount and value are identical. The ratio between amount and value is the price of this security for this transaction.
- Transaction: The container for splits. A transaction is denominated in a security.
- Regular transaction: A transaction containing two splits
- Split transaction: A transaction containing more than two splits.
- Balanced transaction: A transaction, where the sum of the values of all splits is zero. A balanced transaction that actually moves beans must have at least two splits (hence double entry accounting). In a balanced transaction with only a single split, the amount of that split must be zero.
- Unbalanced transaction: A transaction that violates the requirement that the sum of the values of all splits is zero. A single unbalanced transaction unbalances the whole book keeping.
This page was last edited on 18 July 2009, at 13:15. Content is available under Creative Commons License SA 4.0 unless otherwise noted.