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Bookkeeping Basis



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.


The process by which the value of intangible business assets is reduced and written off the books.


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.


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


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.


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.


An offset to a credit.

Debt Security

Document which is evidence of an obligation or liability.


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.


Expense allowance made for wear and tear on an Asset over its estimated useful life.


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.


Method of computing a deduction to account for a reduction in value of extractable natural resources.


Expense allowance made for wear and tear on an asset over its estimated useful life.


Payment by cash or check

Discounted Cash Flow

Present value of future cash estimated to be generated.


Termination of a Corporation.


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.


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.


Payment, either in cash, by assuming a Liability, or by surrendering Asset.


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.


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.


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.


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.


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.


Inflow of Revenue during a period of time.

Income Statement

Summary of the effect of Revenues and expenses over a period of time.


Payment for the use or forbearance of money.


Tangible property held for sale, or materials used in a production process to make a product.


Expenditure used to purchase goods or services that could produce a return to the investor.


Any book containing original entries of daily financial transactions.


Any book of accounts containing the summaries of debit and credit entries.


Debts or Expenses

Liquid Assets

Cash, cash equivalents, and marketable Securities.


Winding up an activity by distributing its Assets to the appropriate parties and settling its Debts.


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.


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.

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