GnuCash stores information at the highest level in files. A file can be stored on your computer either as a single XML file (in all versions of GnuCash), or in a SQL database (in GnuCash version 2.4 and higher).

	Note
	SQL is pronounced “sequel”, so in spoken and written language we would say “a SQL database”.

With the XML file format, GnuCash stores your data in an XML data file, usually in compressed format (although this can be changed in the General tab of the GnuCash Preferences).

With SQL storage, GnuCash stores your data in a SQL database under the database application you select (SQLite3, MySQL or PostgreSQL).

You will need one main file or database for each set of accounts you are maintaining. To learn how to create and manage GnuCash files, see Section 2.5, “Storing your financial data”.

	Note
	If you think you might need more than one set of accounts, you might want to consult a professional accountant or bookkeeper before proceeding. Most users will probably have only one data file.

Backup files and log files are automatically generated by GnuCash when appropriate. Backup and log files are described in Section 2.6, “Backing Up and Recovering Data”.

An account keeps track of what you own, owe, spend or receive. Each GnuCash file can contain any number of accounts, and each account can contain many sub-accounts up to an arbitrary number of levels. This simple feature gives GnuCash much of its power in managing your finances, as you will see in later chapters.

Examples of accounts include: checking accounts, savings accounts, credit card accounts, mortgages, and loans. Each GnuCash account tracks the activity for that “real” account, and can inform you of its status.

In addition, accounts are also used to categorize the money you receive or spend. For example, you can create expense accounts to track the money you pay on utilities or groceries. Even though these are not accounts that receive statements, they allow you to determine how much money is being spent in each of these areas.

Accounts will be covered in more detail in Chapter 3, Accounts.

A transaction represents the movement of money among accounts. Whenever you spend or receive money, or transfer money between accounts, that is a transaction.

Examples of transactions are: paying a phone bill, transferring money from savings to checking, buying a pizza, withdrawing money, and depositing a paycheck. Chapter 4, Transactions goes more in depth on how to enter transactions.

In double entry accounting, transactions always involve at least two accounts–a source account and a destination account. GnuCash manages this by inserting a line into the transaction for every account that is affected, and recording the amounts involved in each line. A line within a transaction that records the account and amount of money involved is called a split. A transaction can contain an arbitrary number of splits.

	Note
	Splits in transactions will be covered in Section 4.2.2, “Split Transaction”