Core concepts
A glossary of accounting terms and Teal specific definitions
Platform
A Platform is Teal’s representation of our Customers: the Neobank or Vertical SaaS that provides accounting features to their SMB customers (Instances).
Instance
An Instance represents a single business (SMB) in Teal. It is a representation of your customer’s SMB accounting data. They have a chart of accounts, a subscription tier, and a start date.
Chart of accounts
A chart of accounts is the complete set of ledgers that belong to a business. A company’s chart of accounts typically reflects the unique structure of the business, and so there is no single standard. However, there are certain protocols that companies are expected to follow when filing their taxes with the IRS (or relevant body).
Ledger
Ledgers describe the purpose and location of funds and value. Ledgers can be one of five ledger types: revenues, expenses, assets, liabilities, or equity.
- Revenues: Money earned from the company’s operating activities.
- Expenses: Costs incurred to generate revenues.
- Assets: Company-owned resources with future economic value, tangible or intangible.
- Liabilities: Financial obligations or debts of the company.
- Equity: The ownership interest in the company after deducting liabilities from assets.
Revenues and expenses relate to the company’s performance over a period, while assets, liabilities, and equity reflect the financial position at a given point. The type of the ledger is used to determine which financial statements the ledger appears on. For example, revenues and expenses appear on the income statement, while assets, liabilities, and equity appear on the balance sheet.
Ledgers are also commonly grouped into subtypes that have similar characteristics and accounting treatment. For example, asset ledgers are commonly grouped into current assets and non-current asset subtypes. There isn’t a single “correct” set of ledger subtypes, and subtypes can vary based on accounting convention and preferences. Teal uses a commonly accepted convention for our defaults, but you have the ability to modify these based on your preferences.
Journal entry
Journal entries are groups of two or more line entries that show the flow of value between an origin ledger and a destination ledger. The debit and credit line entries within a journal entry must equal each other.
When money changes hands, a journal entry is the record of a movement of money; spending money on office supplies, or receiving a payment from a customer for Instance. A journal entry that records a flow of funds is often called a cash entry, regardless of whether the transaction was made electronically or with physical cash.
However, keep in mind that it is possible for a flow of value to occur without any money changing hands. For example, if a company makes a sale but the customer has not yet paid, the value of the transaction will generally be recorded on the date the invoice was issued, even though no payment has yet been made.
Another example is depreciation: over time, equipment breaks down and becomes less valuable. The business will generally create a journal entry to record this loss of value, even though no money has changed hands.
A journal entry that records a flow of value with no transfer of funds is called an accrual entry.
Teal supports accounting for both cash and accrual entries.
Line entry
Line entries are the most basic atomic unit of accounting. Two or more line entries make up a Journal Entry
Each line entry has an amount, a direction, and a ledger. The amount is the amount of value that is flowing into or out of a ledger. The direction can be either debit or credit.
Debits and credits are tricky, even for accounting experts, but you can generally think of them this way:
- Debit: A debit is a flow of value into a ledger.
- Credit: A credit is a flow of value out of a ledger.
A business cannot create or destroy money, only transfer it from one place to another. Therefore, the sum of credits in any set of line entries must equal the sum of debits. Debits = credits is one of the most foundational rules of accounting. PlatformGL has multiple safeguards to ensure this is true, so you don’t need to worry about violating this rule when using PlatformGL.
Line entries cannot be created directly, instead, they are created only as part of a journal entry. This is one of the built-in safeguards.
Reports
Ledger statement
A ledger statement displays all of the line entries that have been recorded to a single ledger for a given time period. It is typically viewed when a user wants to understand the contents of a particular ledger better.
While the cash flow report, income statement, and balance sheet give the overview of the entire business, the ledger statement gives the next level of detail into a single ledger.
Cash flow report
A cash flow report shows how cash has flowed in and out of the business over a period of time.
This differs from the income statement, as the cash flow report shows many inflows and outflows of cash that are not revenues or expenses, for example loan payments, investments, and dividends.
For example, the timing of when a revenue or expense is recognized can differ significantly from the time an invoice is paid: it’s common for a company to record revenue when an invoice is sent, even though payment has not been received. This is done by debiting the Accounts Receivable ledger and crediting Revenue ledger. When the customer pays the invoice, a separate journal entry is created to credit the Accounts Receivable ledger, and debit the Cash ledger.
The first journal entry will show only on the income statement, and the second journal entry will show only on the cash flow report.
Income statement
An income statement, also known as a profit & loss (P&L) statement, shows a company’s revenues, expenses, and profits over a given period of time.
This differs from the cash flow report, as the income statement does not show many of the business’ cash inflows and outflows such as loan payments, investments, and dividends.
For example, the timing of when a revenue or expense is recognized can differ significantly from the time an invoice is paid: it’s common for a company to record revenue when an invoice is sent, even though payment has not been received. This is done by debiting the Accounts Receivable ledger and crediting Revenue ledger. When the customer pays the invoice, a separate journal entry is created to credit the Accounts Receivable ledger, and debit the Cash ledger.
The first journal entry will show only on the income statement, and the second journal entry will show only on the cash flow report.
Balance sheet
A balance sheet a business’ assets, liabilities, and equity at a given point in time.
This differs from many of the other financial statements such as the income statement, which reports on transactions over a period of time, instead of just balances at a point in time.
The balances in a balance sheet are generated from the all transactions that have occurred in the business since the start of the business. This makes it more difficult to get right, as more data is required than just transactions for the period of time in question.
Transactions
Transactions represent real-world transactions, like those found in bank accounts and credit cards. They have a date, amount, and description, and often include additional useful metadata that comes from banking and BaaS systems, such as merchant details. Transactions are imported into either via Teal API or through one of our native data integrations such as Plaid.