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The "books", in regards to a business is simply a ledger of income and expenses.

Balancing the books simply means to add up all the income and expenses, and to ensure that the income meets or exceeds the expenses.

Balancing the books is a basic part of maintaining finances…for a business or personal. The “books” are where transactions are recorded. Balancing the books is comparing what you think your account balance is with what another resource (like a bank or even a vendor) says your balance is.

People used to always have a physical checkbook for paying bills. You’d keep track of your payments and deposits in the checkbook. Once a month, you’d get a statement from your bank. The statement would list all of the transactions the bank processed for a specific period of time. You’d mark the transactions as ‘cleared’ if the bank has the same information you have.

For example….check number 347 was written to CVS for $22.53 on March 1. When you get your statement, you see thst the bank has paid that check to CVS, it has cleared your account.

On March 27, you wrote a check to your niece for $75 for her bday. She hasn’t cashed the check yet. Therefore, the balance the bank is showing is $75 more than the balance you’re showing for the account.

Knowing which transactions are outstanding (the check to your niece) help you have a better understanding of your balance…and keeps you from becoming overdrawn.

Most all of this is done electronically these days.

This comes back to a system of accounting called "double entry bookkeeping". Basically, whenever you have a transaction, it should affect at least 2 separate accounts e.g. a loan gets you $10k in cash, but adds $10k to your liabilities (debt) so overall, the loan hasn't changed your financial position because you'll have to pay it back later. This allows for a cross check to make sure you haven't missed anything in your accounts.

If you do a job on account (get paid later) you get income so you add this to your "sales" account as a debit (increase in assets) but I also need to show where this money is going so I credit my wages and inventory accounts to show that I no-longer have the materials I used and I have to pay my people. I also need to credit my profit account for the left over money. Now my debit (the sales revenue) balances the credit (what happened to that money). The money owed to me counts for accounting purposes as an asset equivalent to having the cash though we also need to track cash since I can't transfer that debt to my suppliers to pay my bills

Later, I get paid for the job so now my "sales" account is credited (reduced) because I am no-longer owed money but my "cash" account is debited (increased) as I now have the money in my hand / bank account. Again, my books still balance - since this was just collecting money owed, my overall position hasn't changed.

Balancing the books means going over all of your accounts and confirming that they all agree with each other. (Also see debits and credits)

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Most of these comments are far from ELI5 answers.

At it’s heart this term just means keeping accurate and complete financial records. Typically this term would be used by a “bookkeeper”, or accountant, to describe the process of producing financial statements for a business at the end of any reporting period, e.g. a month or a year, and checking to ensure they’re correct.

In essence, they want to make sure all of the transactions for a period are recorded. When people used paper checks to make payments they would call this “balancing” a checkbook, making sure that a ledger, or list, of all the checks they’ve written corresponds to the balance in their account, or “book”.

The bank would not keep a detailed record of your transactions, e.g. who you’re paying with each check. A bank statement would only include a list of checks by check number, or numerical identifier. People would manually keep a record of all the checks they’ve written (who they paid and how much) and check it against their bank statement. That process, the verification, was referred to as “balancing”.

Accountants keep many lists, lists of sales made, lists of expenses, lists of payments made, lists of payments received, etc. They “balance” (verify) many “books” (accounts).

Not to be rude, but this is incorrect.

"Books" also include assets and liabilities, and assets an liabilities are neither income nor expenses. And balancing the books has nothing to do with ensuring income is equal to or exceeds expenses.

A simple way to look at it is what most people should be doing with their bank statements. So you would keep track of what you bought vs money coming into the account. Look at the beginning statement and how much money is in the account, add up all the money that came into the account for a certain period and then subtract money that went out for bills and such. You should have a number that matches the number at the beginning of the next statement. In business, this would have to do with the financials of a company except more involved. You should balance your books to make sure there wasn’t an error and companies balance their books for the same reasons but also to get a state of the business presently and for tax reasons.

Haha, damn. That’s what I was thinking at first and the Wikipedia page got me confused- maybe that wasn’t the best reference to give to OP…

What you’re describing is another sort of reconciliation/balancing.

Also, I’ll refer to these links in support of what I said above…..

Cambridge Dictionary

IFP

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This is one of those things where once you get it you are going to be like "oh duh...". Ok so lets say you own a business, you are going to have a lot of money coming in from providing services/goods (revenue) as well as money going out paying workers, operating costs, and raw materials (expenses). So when you look at the cash flow to the business you are going to have a bunch of money coming in and money going out, but what is important is to know how much money you actually have. So when you "balance the books" you take all of the money coming in, you add it to what you already had, and then you subtract how much you have paid out. This gives you how much money you currently have.