Bookkeeping Basis
Terms
Accounting
Recording and reporting of financial transactions, including the origination of the transaction, its recognition, processing, and summarization in the Financial Statements.
Accounts Payable
The account set up to record expenses that are owed not yet paid.
Accounts Receivable
The Account set up to record income on sales or services that will be collected at a later date.
Accrual Basis
Recognizing income on sales or services that has not yet been collected and recognizing expenses that have not yet been paid out. This method puts Accounts Payable and Accounts Receivable into use.
Accrued Expenses
A liability incurred during the accounting period for which payment has not been made.
Accrued Income
Income earned during an accounting period but not received or recorded by the end of the period.
Accumulated Depreciation
Total Depreciation pertaining to an Asset or group of assets from the time the assets were placed in services until the date of the Financial Statement or tax return.
Adjusted Basis
After a taxpayer’s basis in property is determined, it must be adjusted upward to include any additions of capital to the property and reduced by any returns of capital to the taxpayer. Additions might include improvements to the property and subtractions may include depreciation or depletion. A taxpayer’s adjusted basis in property is deducted from the amount realized to find the gain or loss on sale or disposition.
Adjusted Gross Income
Gross income reduced by business and other specified expenses of individual taxpayers. The amount of adjusted gross income affects the extent to which medical expenses, non business casualty and theft losses and charitable contributions may be deductible. It is also an important figure in the basis of many other individual planning issues as well as a key line item on the IRS form 1040 and required state forms.
Amortization
The process by which the value of intangible business assets is reduced and written off the books.
Asset
Something of value that is owned by a business or individual.
Alternative Minimum Tax (AMT)
Tax imposed to back up the regular income tax imposed on Corporation and individuals to assure that taxpayers with economically measured income exceeding certain thresholds pay at least some income tax.
Backup Withholding
Payors of interest, dividends and other reportable payments must withhold income tax equal at a rate equal to the fourth lowest rate applicable to single filers if they fail to supply a federal id # or if they fail to certify that they are not subject to it.
Balance Sheet
The financial report that presents the year-to-date value of Assets, Liabilities, and Equity. It is also known as a Statement of Financial Condition.
Bad Debt
All or portion of an Account, loan, or note receivable considered to be noncollectable.
Bankruptcy
Legal process, governed by federal statute, whereby the debts of an insolvent person are liquidated after being satisfied to the greatest extent possible by the debtor’s assets. during bankruptcy, the debtor’s assets are held and managed by a court appointed trustee.
Board of Directors
Individuals responsible for overseeing the affairs of an entity, including the election of its officers. The board of a CORPORATION that issues stock is elected by stockholders
Book Value
An amount an asset or liability shows on the balance sheet of a company; also known as carrying value.
Bottom Line
The Net Profit or Loss
Capital
Cash or something of value that is invested in a business enterprises.
Capitalized Cost
Expenditure identified with goods or services acquired and measured by the amount of cash paid or the market value of other property, Capital Stock, or services surrendered. Expenditures that are written off during two or more accounting periods.
Capitalized Interest
Interest cost incurred during the time necessary to bring an asset to the condition and location for its intended use and included as part of the historical cost of acquiring the asset.
Cash Basis
Method of bookkeeping by which Revenues and Expenditures are recorded when they are received and paid.
Cash Disbursements
Payments issued for purchases and other expenses
Cash Flows
Net of cash receipts and cash disbursements relating to a particular activity during a specified accounting period.
Cash Receipts
Revenue or income received.
Chart of Accounts
A listing of accounts established to record financial data.
Common Stock
Capital Stock having no preferences generally in terms of dividends, voting rights or distributions.
Cost Accounting
Procedures used for rationally classifying, recording, and allocating current or predicted costs that relate to a certain product or production process.
Cost Recovery Method
Method of Revenue recognition which recognizes profits after costs are completely recovered. Generally used only when the total amount of collections is highly uncertain. In tax, the Accounting Method used to depreciate Assets.
Credit
An offset to a debt
Current Asset
ASSET that one can reasonably expect to convert into cash, sell, or consume in operations within a single operating cycle, or within a year if more than one cycle is completed each year.
Current Liability
Obligation whose liquidation is expected to require the use of existing resources classified as Current Assets, or the creation of other current liabilities.
Death Benefit
Amounts received under a life insurance contract and paid by reason of the death of the insured.
Debit
An offset to a credit.
Debt Security
Document which is evidence of an obligation or liability.
Debtor
Party owing money or other assets to a creditor.
Deferred Income
Income received but not earned until all events have occurred. Deferred income is reflected as a liability.
Depreciation
Expense allowance made for wear and tear on an Asset over its estimated useful life.
Deficit
Financial shortage that occurs when liabilities exceed assets.
Dependent Care Expenses
Qualified child care expenses will allow a taxpayer this computed credit against tax. The amounts can be found on the individual forms as the limitations and computation may change each tax year.
Depletion
Method of computing a deduction to account for a reduction in value of extractable natural resources.
Depreciation
Expense allowance made for wear and tear on an asset over its estimated useful life.
Disbursement
Payment by cash or check
Discounted Cash Flow
Present value of future cash estimated to be generated.
Dissolution
Termination of a Corporation.
Dividends
Distribution of earnings to owners of a Corporation in cash, other Assets of the corporation, or the Corporation’s Capital Stock.
Earned Income
Wages, salaries, professional fees, and other amounts received as compensation for services rendered.
Earned Income Credit
A refundable tax credit for eligible low income workers, subject to computations based on qualifying children and phase in and phase out income levels.
Earnings Per Share (EPS)
Measure of performance calculated by dividing the net earnings of a company by the average number of shares outstanding during a period.
Equity
Residual interest in the Assets of an entity that remains after deducting its liabilities. Also, the amount of a business’ total assets less total liabilities. Also, the third section of a Balance Sheet, the other two being assets and liabilities.
Expenditure
Payment, either in cash, by assuming a Liability, or by surrendering Asset.
Expenses
The daily costs incurred in running a business.
Fair Market Value
Price at which property would change hands between a buyer and a seller without any compulsion to buy or sell, and both having reasonable knowledge of the relevant facts.
Foreclosure
Seizure of Collateral by a Creditor when default under a loan agreement occurs.
Form 10-K
SEC filing which is the Annual Report due 90 days after the registrant’s Balance Sheet date.
Form 10-Q
SEC filing which is the quarterly report due 45 days after each of the first three quarter.ends of each fiscal year.
Financial Statements
Reports that present the financial condition of a business.
General Journal Entry
An adjustment made to accounts in General Ledger.
General Ledger
The place in a bookkeeping system that holds all the accounts and the entries that have been posted to them.
Gift
A valid transfer of property from one taxpayer to another without consideration or compensation. A gift may be subject to the unified estate and gift transfer tax.
Goodwill
Premium paid in the acquisition of an entity over the fair value of its identifiable tangible and intangible Assets less Liabilities assumed.
Gross Income
The beginning point for the determination of income, including income from whatever sources derived.
Gross Profit
The amount of income remaining after direct costs have been deducted from the revenue generated by sales or service.
Guaranty
Legal arrangement involving a promise by one person to perform the obligations of a second person to a third person, in the event the second person fails to perform.
Income
Inflow of Revenue during a period of time.
Income Statement
Summary of the effect of Revenues and expenses over a period of time.
Interest
Payment for the use or forbearance of money.
Inventory
Tangible property held for sale, or materials used in a production process to make a product.
Investment
Expenditure used to purchase goods or services that could produce a return to the investor.
Journal
Any book containing original entries of daily financial transactions.
Ledger
Any book of accounts containing the summaries of debit and credit entries.
Liabilities
Debts or Expenses
Liquid Assets
Cash, cash equivalents, and marketable Securities.
Liquidation
Winding up an activity by distributing its Assets to the appropriate parties and settling its Debts.
Mortgage
Legal instrument evidencing a security interest in Assets, usually real estate.Mortgages serve as Collateral for Promissory Notes.
Mutual Funds
Investment opportunities where groups of people pool their money and allow the fund administrator to buy and sell stocks and bonds on their behalf. The profits or losses on these instruments are shared by the members of the Mutual Fund group based on the amount of money they have contributed to it.
Net Assets
Excess of the value of Securities owned, cash, receivables, and other Assets over the Liabilities of the company.
Net Income
Excess or Deficit of total revenues and gains compared with total expenses and losses for an Accounting period.
Net Loss
The amount that exceeds the income from sales or services after costs and expenses have been deducted.
Net Profit
The amount of income remaining after direct costs and expenses have been deducted from the revenue generated by sales or service.
Net Sales
Sales at gross invoice amounts less any adjustments for returns, allowances, or discounts taken.
Net Worth
Similar to Equity, the excess of Assets over Liabilities.
Ordinary Income
One of two classes of income (the other being Capital Gains) taxed under the IRC. Historically, ordinary income is taxed at a higher rate than capital gains. Usually wages are considered ordinary income.
Paid in Capital
Portion of the stockholders’ Equity which was paid in by the stockholders, as opposed to Capital arising from profitable operations.
Passive Activity Loss
Loss generated from activities involved in the conduct of a trade or business in which the taxpayer does not materially participate.
Passive Income
Includes income derived from such sources as dividends, interest, royalties, rents, amounts received from personal service contracts, and income received as a beneficiary of an estate or trust.
Prepaid Expense
Cost incurred to acquire economically useful goods or services that are expected to be consumed in the revenue-earning process within the operating cycle.
Profit & Loss Statement
The report that presents the Income, Costs, and Expenses of a Business.
Retained Earnings
Accumulated undistributed earnings of a company retained for future needs or for future distribution to its owners. The amount of profit or loss that is carried over from month to month and year to year on the Balance Sheet of a business.
Revenues
Sales of products, merchandise, and services; and earnings from Interest, Dividends, rents.
Security Interest
Legal interest of one person in the property of another to assure performance of a second person under a contract.
Tax Lien
Encumbrance placed on property as security for unpaid taxes.
Tax Shelter
Arrangement in which allowable tax deductions or exclusions result in the deferral of tax on income that would otherwise be payable currently.
Tax Year
The period used to compute a taxpayer’s taxable income is tax year. It is an annual period that is either a calendar year, fiscal year or fractional part of a year for which the return is made.
Taxable Income
Taxable income is generally equal to a taxpayer’s Adjusted Gross Income during the tax year less any allowable exemptions and deductions.
Trial Balance
A report that lists all the accounts in the General Ledger with their year-to-date balances.
Working Capital
Excess of current Assets over current Liabilities.
