Glossary
Account
A ledger’s labeled record that tracks increases and decreases of an amount called balance.
Accounts Receivable
Total amount of money customers owe a company for goods or services already delivered but not yet paid for. It is usually an Asset.
See Accounts Payable
Accounts Payable
Total amount of money a company owes to suppliers for goods or services received but not yet paid for. It is usually a Liability.
See Accounts Receivable
Accrual Accounting
The principle by which the revenue and expenses are recognized when they’re incurred, rather than when the cash is actually received or paid.
Amortization
The process of spreading the cost of an intangible asset or loan over time by recording a portion of the expense in each period, rather than all at once.
See Depreciation (which is for physical assets)
Cardinality
Some accounts belong to many users, and record entries independently, but are conceptually identical. Those have high cardinality. Others, such as sweep accounts, belong to the company or to a bigger entity, and are conceptually separated. Those have low cardinality.
See Hot Accounts (which low cardinality accounts are prone to)
Cash Position
Total amount of cash a company currently has available, including bank balances and highly liquid funds, to pay expenses or invest. In practice, it’s the total balance of all asset accounts that can be liquidated in one day.
Chart of Accounts
An organized list of all a company’s accounts.
Continuous Accounting
The ability to spread accounting tasks throughout the reporting period so that financial data is updated in real-time, rather than monthly or quarterly.
Credit
One of the two possible Directions of an Entry (the other is Debit), that either increases a liability or equity account, or decreases an asset or expense account.
See Debit
Debit
One of the two possible Directions of an Entry (the other is Credit), that either decreases a liability or equity account, or increases an asset or expense account.
See Credit
Depreciation
The process of spreading the cost of a physical asset over its useful life by gradually recording its loss in value over time.
See Amortization (which is for intangible assets)
Double-Entry
The process of recording every financial transaction in at least two accounts, with debits equaling credits.
Entry (aka Journal Entry or Ledger Entry)
The recorded source or destination of a particular amount from/to a particular account. Entries are aggregated into Transactions to ensure that they’re balanced as a whole, and belong to Accounts that uses them to calculate its balance.
FBO (For Benefit Of) Account
A bank or brokerage account held in one party’s behalf, but designated for the benefit of another individual.
For example, your broker probably has a bank account that is their on paper. But they’re legally obligated to give you any net interests that the bank credits the account with.
Hot Accounts
Accounts that experience transactions or updates very frequently, and require the system to handle high read/write activity in order to prevent timeouts and aborted transactions.
See Cardinality
Idempotency (for ledgers)
The ability for a ledger to receive multiple operations in a short period of time that it recognizes as “the same”, and avoids making multiple changes as a result of receiving them.
Immutability (for ledgers)
The property of a ledger to never update or delete any entry that gets added into the history. Also known as append-only.
Integrity (for ledgers)
The ability for a ledger to reconstruct its history at any point in time.
Ledger
The complete record of all financial transactions for a company. The central reference for preparing financial statements.
Momentum Accounts
Accounts that show consistent activity over time. Often used to track revenue, expenses, or trading
See Wealth Accounts
Money Software
In The Payments Engineer Playbook, this term refers to software systems on which handling money is the core activity. Payment systems, ledgers and billing systems are examples of money software.
Normality (Debit/Credit Normality, or Debit/Credit Normal Balance)
The expectation that an account is going to be increased or decreased by debits/credits.
A credit normal balance account “normally” contains more credit entries, and a debit normal balance account “normally” contains more debit entries.
That said, your bank account (which the bank considers debit normal balance) may be overdraft, in which case the credit entries outweight the debit entries.
Normality doesn’t imply anything about the current balance of the account.
On-ramp/Off-ramp
Enter, or exit, a network. Often used in crypto to designate when a particular transaction gets exchanged from fiat to a cryptocurrency, or viceversa.
Penny Test
Some time ago, merchants verified the authentication of a payment with a very small, low-risk amount (like a cent or a penny) before engaging on the payment for the full amount.
Reconciliation
Verifying that the money leaving an account matches the amount spent and the ending balance.
Transaction
A collection of Entries that balance as a group. A ledger can only admit transactions atomically in order to maintain balance.
Transfer
The individual movement of money from one source account to one destination account
Virtual Account
Sub-account within a main bank-account that is used to track payments or balances separately without opening a new, physical account.
Wealth Accounts
Accounts that track an entity’s net worth, rather than money movements. Often used to track assets or liabilities.