TERM OF THE DAY · BOOKKEEPING

Double-entry bookkeeping

Double-entry bookkeeping is the practice of recording every transaction twice: once as the thing that changed, and once as the source of the change. Because the two entries are equal and opposite, the totals of a complete set of books must agree, and a disagreement is evidence that something has been missed or mistyped.

Read the full entry for double-entry bookkeeping

What taxes pay for

Why a state collects money at all, what the main kinds of tax are, and where collected money actually goes.

Progressive taxationA structure where the average rate rises as the amount taxed rises.PURPOSE
WithholdingTax taken out of a payment before the recipient ever sees it.PURPOSE
Direct taxA tax charged on the person or business that is meant to bear it.PURPOSE
Indirect taxA tax collected from one party but expected to be passed on to another.PURPOSE
HypothecationThe unusual practice of tying one tax to one named area of spending.PURPOSE

How taxes changed

The long movement from taxes on visible things to taxes on income and spending, and why each shift happened.

TitheAn early fixed share of produce, typically a tenth, paid to church or lord.HISTORY
ExciseA duty charged on goods made inside a country rather than imported.HISTORY
Income taxA charge on what a person or business earns in a period.HISTORY
Value-added taxA spending tax collected in fragments at each stage of production.HISTORY

Bookkeeping basics

How a small business keeps an ordered record of what it received, spent, owns and owes.

Double-entry bookkeepingRecording every transaction twice so the books check themselves.BOOKKEEPING
Accrual basisRecording income and cost when they arise, not when money moves.BOOKKEEPING
LedgerThe categorical record: transactions gathered under headings.BOOKKEEPING
JournalThe chronological record: transactions in the order they happened.BOOKKEEPING
Trial balanceA total of all debits against all credits, used to detect errors.BOOKKEEPING
ReconciliationComparing the internal record against an outside statement.BOOKKEEPING

Tax years and filing cycles

Why tax is measured in periods, why period start dates differ between places, and the general shape of a filing cycle.

Tax yearThe defined period against which a charge on income or profit is assessed.CYCLES
Basis periodThe stretch of trading whose result is assigned to a given tax year.CYCLES
ReturnThe formal declaration describing a calculated liability for a period.CYCLES
InstalmentA payment made during a period against a liability not yet finalised.CYCLES

Reading a set of accounts

The three statements, the question each one answers, and how to read them together rather than separately.

DepreciationSpreading the cost of a long-lived item across the years it is used.ACCOUNTS
Working capitalThe short-term money tied up in running the business day to day.ACCOUNTS
Balance sheetA statement of what is owned and owed at a single moment.ACCOUNTS
Profit and loss accountA statement of what was earned and spent across a period.ACCOUNTS
Cash flow statementA statement explaining how the bank balance moved and why.ACCOUNTS

Recently added terms

THE SIX TERM ENTRIES WRITTEN SO FAR, NEWEST FIRST
Term	Topic	Length
Double-entry bookkeeping	Bookkeeping basics	520 words
Accrual basis	Bookkeeping basics	480 words
Depreciation	Reading a set of accounts	540 words
Working capital	Reading a set of accounts	520 words
Withholding	What taxes pay for	500 words
Progressive taxation	What taxes pay for	560 words

How entries are written

Entries here explain ideas in plain words. Each one starts with a short definition, then a longer explanation of how the thing works and where it came from, and stops there.

The writing describes mechanisms and their history rather than the rules of any particular country or any particular year. No rate, threshold, deadline or filing requirement is quoted anywhere on the site, because those differ from place to place and change from year to year, and a figure written once and left standing is worse than no figure at all.

Nothing here is guidance for a particular person's affairs. Where numbers appear they are round illustrations chosen to make an arithmetic relationship visible, and they are labelled as such.