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Accounting
The process of gathering and preparing of financial information about a business or other organization in a form that provides accurate and useful records and enables decisions to be made.
Accounting Cycle
The total set of accounting procedures that must be carried out during each fiscal period
Accounts Payable
The money that a business owes to its trade creditors. This money is a liability of the business.
Accounts Receivable
The money that is owed to a business by its customers. This money is considered an asset of the business.
Accrual Method of Accounting
One of the two most common methods of accounting, the other being the cash method. Under the accrual method of accounting, income is reported in the tax year earned, whether or not received, and deductions are claimed in the tax year incurred, whether or not paid
Accrued Expense
An expense incurred during an accounting period for which payment is not due until a later accounting period. This results from the purchase of services which at the time of accounting have only been partly performed, and are not yet billable, and have not been paid for.
Accrued Interest
Interest that has been earned but not yet paid or credited; for example, interest earned on a bond since the last interest payment was made.
Adjusting entry
An entry made before finalizing the books for the period to apportion amounts of revenue or expense to the proper accounting periods or operating divisions
Balance Sheet
A statement showing the financial position (the assets, liabilities, and capital) of an individual, company, or other organization on a certain date.
Bookkeeper
A professional who ensures that transactions are properly recorded and that supporting documents are present and correct. Carries out routine calculations, reconciliation's and bank transactions. Records daily business transactions in the accounting cycle
Bookkeeper, Full Charge
A full charge bookkeeper is a professional bookkeeper that is able to handle all business transactions through financial statement. A full charge bookkeeper has additional training in tracking fixed assets, figuring depreciation, making adjustment to the General Journal, and handling all month end/year end closing duties.
Chart of accounts
A list of the accounts of a business and their numbers, arranged according to their order in the ledger.
Depreciation
The deduction of a reasonable allowance for the wear and tear of assets (excluding inventory) used in a trade or business or held for the production of income. In a more narrow sense, the term depreciation refers to the method used to write off the cost or other basis of assets placed in service before 1981 over their estimated useful lives
First In, First Out (FIFO)
An accounting method for determining the cost of inventories. Under this method, the first items purchased are treated as being the first items sold. Ending inventory is valued using the cost of later purchases, or the lower of cost or market.
Fiscal Year
An accounting year ending on the last day of any month except December
GAAP
Generally accepted accounting principles.
General ledger
A book or file containing all the accounts of the business other than those in the subsidiary ledgers. The general ledger accounts represent the complete financial position of the company
Income Statement
An income statement can be as informal, or formal as required, and is created by listing the total incomes and total expenses incurred during a specific time period, or "fiscal period".
Independent Contractor
A taxpayer who contracts to do work according to his own methods and who is not subject to control except as to the results of such work. An employee, by contrast, is subject to the control of the employer as to the methods to be used to obtain the desired results
Inventory
A list of articles of property. For income tax purposes, inventory refers only to a list of articles comprising stock in trade--articles held for sale to customers in the regular course of a trade or business. The cost of goods sold during the year is determined by adding to the inventory at the beginning of the year the purchases during the year, and subtracting from this sum the inventory at the close of the year.
Journal
A book of original entry in which all financial transactions are initially recorded. All journal entries are subsequently posted to individual accounts in the ledger
Journal Entry
An item in or prepared for a book of original entry, interpreting a business transaction in bookkeeping terms and showing the accounts to be debited and credited, together with an explanatory description of the transaction.
Last In, First Out (LIFO)
An accounting method for valuing inventories for tax purposes. Under this method, the last items purchased are treated as being the first items sold. Ending inventory is valued using the cost of the items with the earlier purchase dates.
Ledger
A group or file of accounts that can be stored as pages in a book, as cards in a tray, as tape on a reel, or magnetically on disk.
Liability
A debt of an individual, business, or other organization
Owner's equity
The difference between the total assets and total liabilities of a business
Prepaid Expenses
Cash-basis as well as accrual-basis taxpayers usually are required to capitalize prepayments for rent, insurance, etc. that cover more than one year. Deductions are taken for the period during which the benefits are received.
Prepaid Interest
Interest paid in advance is deductible as an interest expense only as it accrues. The one exception to this rule involves the interest element when a cash-basis taxpayer pays points to obtain financing for the purchase or improvement of a principal residence if the payment of points is an established business practice in the area in which the indebtedness is incurred and the amount involved is not excessive. Points paid to refinance a principal residence, however, must be deducted over the life of the loan
Retained Earnings
The capital that comes from company profits which has not yet been paid out to shareholders
Revenue
An increase in equity resulting from the proceeds of the sale of goods and services
Self-Employment Tax
For 1999, self-employed persons are subject to social security tax of 12.4 percent on net earnings of up to $72,600 and Medicare tax of 2.9 percent on all net earnings. If a self-employed individual receives wages from an employer that are subject to social security tax, the amount of self-employment income subject to social security tax may be reduced. Self-employment tax is computed on Schedule SE
Source document
A business paper, such as an invoice, that is the original record of a transaction and that provides the information needed when accounting for the transaction.
Statutory Employee
A worker who is treated as an employee for social security and Medicare tax purposes and as self-employed for income tax purposes. The "Statutory employee" box on such a worker's Form W-2 should be marked.
Straight-Line Depreciation Method
The most commonly used method of depreciation prior to 1981. Basis less salvage value or land value divided by useful life equals depreciation deduction
Trade or Business Expenses
Deductions from gross income that are attributable to a taxpayer's business or profession
Trial balance
A special listing of all the account balances in a ledger, the purpose of which is to see if the dollar value of the accounts with debit balances is equal to the dollar value of the accounts with credit balances
Working capital
The difference between the current assets and the current liabilities of a business
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