Core Concepts

A glossary of accounting terms and Open Ledger specific definitions.

Company

An entity in Open Ledger with a chart of accounts, financial records, and reporting structure.

Chart of Accounts

A chart of accounts is the complete organizational structure of all ledger accounts within a company. While there’s no universal standard, Open Ledger provides industry-specific templates that align with IRS requirements. The chart of accounts reflects:

  • Account hierarchies
  • Account relationships
  • Classification systems
  • Reporting structures

Ledger

Ledgers are the fundamental building blocks of the accounting system, categorized into five types: assets, liabilities, equity, revenue, and expenses.

Company-owned resources with future economic value, tangible or intangible.

Current assets

Cash and cash equivalents, accounts receivable, inventory, and prepaid expenses.


Non-current assets

Long-term assets like property, plant, and equipment.


Intangible assets

Non-physical assets with economic value, including patents and goodwill.

Financial obligations or debts of the company.

Current liabilities

Debts due within one year, including accounts payable and accrued expenses.


Non-current liabilities

Obligations due beyond one year, including long-term loans and lease obligations.


Contingent liabilities

Possible future obligations that depend on uncertain events.

Owner’s stake in the company after subtracting liabilities from assets.

Common Stock

Shares representing ownership in the company held by investors.


Retained Earnings

Accumulated profits that have been reinvested in the business not distributed.


Additional Paid-in Capital

Money received from investors above the stock’s par value when shares are issued.

Money earned from the company’s operating activities.

Sales Revenue

Income earned from selling products to customers.


Service Revenue

Income earned from providing services to customers.


Interest Income

Money earned from investments and lending activities.


Other Income

Revenue from non-core business activities and one-time events.

Costs incurred to generate revenue and run the business.

Cost of Goods Sold

Direct costs of producing goods or services sold to customers.


Operating Expenses

Day-to-day costs of running the business, including rent and utilities.


Payroll Expenses

Employee-related costs including salaries, wages, and benefits.


Marketing Expenses

Costs associated with promoting and selling products or services.

Double-Entry Accounting System

Open Ledger implements a robust double-entry accounting system where every transaction affects at least two accounts:

  • Debit: Increases assets and expenses, decreases liabilities and equity
  • Credit: Increases liabilities and equity, decreases assets and expenses

Each transaction maintains the accounting equation: Assets = Liabilities + Equity

General Ledger

The general ledger is the master record of all financial transactions in the accounting system. It automatically records and organizes every transaction to enable real-time financial tracking, audit trails, and automated statement generation.

Every transaction includes:

  • Date and time of the event
  • Detailed description
  • Debit and credit accounts
  • Transaction amount
  • Running balance