# Accounting Glossary

> Accounting terminology used throughout the DayZero API and what each term means.

- **Category:** Guides
- HTML version: https://www.ondayzero.com/docs/guides/accounting-glossary
- All guides: https://www.ondayzero.com/docs/guides/index.md
- Endpoint catalog: https://www.ondayzero.com/docs/reference/index.md

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# Accounting Glossary

A reference for the accounting terms used in DayZero's API and UI.

## Chart of Accounts (COA)

The complete list of **accounts** (called "ledgers" in the API) that a business uses to classify financial activity. Think of it as the filing system for money — every dollar that moves gets filed into one of these accounts.

## Account Types

Every account belongs to one of five fundamental types. These come from double-entry bookkeeping:

| Type | What it represents | Examples |
|------|---------------------|----------|
| **Asset** | What the business **owns** | Cash, bank accounts, accounts receivable, inventory, equipment |
| **Liability** | What the business **owes** | Credit cards, loans, accounts payable, unearned revenue |
| **Equity** | The owner's stake (Assets minus Liabilities) | Owner's equity, retained earnings, owner's draw |
| **Revenue** | Income **earned** | Sales revenue, service income, interest income |
| **Expense** | Costs **incurred** | Rent, payroll, office supplies, advertising |

**The accounting equation:** Assets = Liabilities + Equity + (Revenue − Expenses)

## Financial Accounts vs Category Accounts

DayZero distinguishes between two kinds of accounts:

- **Financial accounts** — represent real bank accounts, credit cards, or other financial instruments. These are where transactions live. In the API, they have a `financial_account_type` (e.g. `bank_account`, `credit_card`).
- **Category accounts** — standard COA entries used for classifying transactions (e.g. "Office Supplies", "Advertising Expense"). They do not have a `financial_account_type`.

When you **upload transactions**, you choose a financial account as the destination. When you **categorize** a transaction, you assign it to a category account.

## Debit & Credit

These are not "good" and "bad." They simply indicate which **side** of an account is affected:

| Account type | Increased by | Decreased by |
|-------------|-------------|-------------|
| Assets | Debit | Credit |
| Expenses | Debit | Credit |
| Liabilities | Credit | Debit |
| Equity | Credit | Debit |
| Revenue | Credit | Debit |

Every financial event records **equal debits and credits** — this is the core of double-entry bookkeeping.

**Normal balance**: the side that increases the account. Asset and expense accounts are "debit-normal"; liability, equity, and revenue accounts are "credit-normal."

## Journal Entry

A record of a single financial event. Contains two or more **line entries** that must balance — total debits must equal total credits. Journal entries are created from many sources: manual entry, invoice finalization, bill receipt, credit memos, transaction categorization, Stripe webhooks, or Shopify, Square and Ramp syncs. Each entry records its `source` — see [Journal Entries](/docs/guides/journal-entries).

## Line Entry

A single line within a journal entry. Each line targets one account (ledger) and records either a debit or credit for a specific amount (in cents).

## Transaction

A bank or card transaction — usually synced automatically from Plaid or uploaded via CSV. Each transaction belongs to a **financial account** (the source). When categorized, the transaction gets an **opposing line entry** pointing to a category account.

- **Source account**: the bank or card the money moved through
- **Category**: the account the transaction is filed under (expense, revenue, etc.)
- **Uncategorized**: no category assigned yet

## Categorization

The act of assigning a transaction to an account in the chart of accounts. This creates the journal entry that records the transaction in the books. DayZero supports several methods:

| Method | Description |
|--------|-------------|
| Manual | User picks the account |
| AI | AI suggests a category based on the transaction description |
| Bank rules | User-defined rules that auto-categorize based on patterns |
| Similarity | Matches against previously categorized similar transactions |
| Historical | Reuses the category from the same counterparty's earlier transactions |
| Global pattern | Applies categorizations learned across many businesses for well-known merchants |
| Transfer detection | Automatically identifies transfers between the business's own accounts |

In the API these appear as `categorization_method`: `user`, `ai`, `rules`, `similarity`, `historical`, `global_pattern`, `transfer_between_accounts`, or `uncategorized`.

## Reconciliation

The process of matching your book records against bank statement data to make sure they agree. You can reconcile by uploading a bank statement PDF or using Plaid data. Reconciliation catches missed transactions, duplicates, and errors.

## Accounts Receivable (AR)

Money owed **to** the business by customers. Tracked through **invoices**. When an invoice is finalized, the system debits Accounts Receivable and credits Revenue. When the customer pays, Cash is debited and AR is credited.

## Accounts Payable (AP)

Money the business owes **to** vendors. Tracked through **bills**. When a bill is received, the system debits an expense account and credits Accounts Payable. When the bill is paid, AP is debited and Cash is credited.

## Accounting Period

A defined date range (typically a calendar month) that can be **open**, **closed**, or **locked**. Closing a period prevents new journal entries from being created within that date range, protecting historical books from accidental changes.

## Fixed Assets & Depreciation

Long-lived assets like equipment, vehicles, or buildings that lose value over time. DayZero tracks these and automatically generates **depreciation entries** — journal entries that reduce the asset's book value by debiting Depreciation Expense and crediting Accumulated Depreciation.

Supported depreciation methods: straight-line, declining balance, double-declining balance, and units of production.

## Credit Memo

A document that reduces the amount a customer owes. Typically issued for returns, damaged goods, or billing errors. Can be applied against outstanding invoices.

## Revenue Recognition

The rules for when revenue is recorded in the books (per ASC 606). Revenue can be recognized at a single point in time (e.g. product delivered) or over time (e.g. a 12-month subscription recognized monthly).

## Budget

Planned spending amounts per account per period. Used for variance analysis — comparing what you planned to spend vs what actually happened. Budgets can be monthly, quarterly, or annual.

## Bank Feed

An automatic connection to a bank or card account (via Plaid) that syncs transactions into DayZero. The financial account in DayZero is linked to the external bank account through a **source account** connection.

## Source Account

The Plaid connection that links an external bank account to a financial account in DayZero. When a financial account has a source account, transactions are synced automatically. You can also manually upload transactions to accounts with or without a bank feed.