1099-DIV

A statement of dividends paid, sent to IRS and taxpayer.

1099-INT

A statement of interest paid, sent to IRS and taxpayer.

Accountant

An individual trained and knowledgeable in the profession of accountancy.

Accounting (Accountancy)

The function of compiling and providing financial information primarily by reports referred to as financial statements. Accounting includes bookkeeping, systems design, analysis and interpretation of accounting information.

Accounts Payable

Obligations to pay for goods or services that have been acquired on open accounts from suppliers. Accounts Payable is a current liability in the Balance Sheet.

Accounts Receivable

Amounts due the company on account from customers who have bought merchandise or received services. Accounts Receivable is a current asset in the Balance Sheet.

Accumulated Depreciation

An account to which estimated depreciation is added.

Agent

A person authorized by another to act on their behalf. Thus, an agent can enter into contacts and other such legal binding functions on behalf of another. Usually, the corporation’s officers act as corporate agents.

Amortization

Accounting or financial process of reducing an amount by periodic payments or write-downs. Refers to liquidation, writing off or extinguishing of a debt over a period of time.

Articles of Incorporation (Certificate of Incorporation or Charter)

The articles are the primary legal document of a corporation; they serve as a corporation’s Constitution. The articles are filed with the state government to begin corporate existence. The articles contain basic information on the Corporation as required by state law.

Articles of Organization

LLCs must file the articles with the proper state authorities to begin existence. The articles of organization are very similar to a corporation’s articles of incorporation.

Asset

Anything of value owned or controlled by a corporation or individual. An asset may be tangible or intangible.

Balance

Amount arrived at by adding all debits and subtracting all credits. To ensure total debits equal the total credits.

Balance Sheet

Statement, at a particular point In time, of the financial position of a business or organization-divided into three parts: assets, liabilities and ownership (equity). Also known as Statement of Financial Position.

Bank Reconciliation

Analysis that accounts for the difference between the balance shown on the bank statement and the balance shown in the accounting records on a given date.

Bankrupt

Legal status of a person/corporation who/which is unable to pay its debts as they become due and who/which has made a transfer of property or of a right or interest in property to a trustee for the benefit of creditors.

Book Value

(1) The current value of a fixed asset as shown by the records; the difference between the original cost of the asset and the accumulated depreciation. (2) The difference between the accounts receivable and the allowance for bad debts. (3) The value of a share of stock as shown by the corporate books.

Bookkeeping

The recording of financial transactions electronically or manually. The record-keeping part of the accounting process.

Budget

An estimate of future income and expenditures.

Business Taxes

Businesses pay taxes to federal, state and local governments. Businesses pay taxes on their profits. Businesses also pay unemployment insurance, worker's compensation, social security and Medicare insurance.

Capital (or Equity)

Interest of the owner in the business that is the difference between Assets & Liabilities. Also called Equity or Net worth. In a corporation, capital represents the stockholders’ equity.

Capital Gain

Difference between an asset's purchase price and its selling price, when the selling price is greater.

Capital Loss

Difference between an asset's purchase price and its selling price, when the purchase price is greater.

Cash Basis

A method of accounting in which no transactions are entered for income until cash is actually received, and no entries are made for expenses until cash is actually paid.

Current Asset

Unrestricted cash or other asset that is expected to be converted into cash or consumed in the production of income within a year.

Current Liability

Liability expected to be liquidated in a year.

Dependents

A person who relies on someone else for financial support.

Depreciation

Accounting process of allocating in a systematic manner the cost or other basic value of a tangible, long-lived asset or group of assets over the useful life of the asset. See Amortization.

Engagement Letter

Written communication between an accountant and a client with respect to a professional engagement, outlining the scope of the accountant’s responsibilities and arrangements agreed upon.

Equity

The ownership of a shareholder in a corporation. See Capital.

Estate

Real and personal property owned by a person at the time of death (real property is land and anything permanently attached to it).

Excise Tax

Excise taxes are taxes on the sale or use of certain products or transactions. So every time you make a telephone call, buy a plane ticket, or ride in a car (to name but a few) you'll be paying excise taxes.

Federal Tax Identification Number

A number given to a corporation or other business entity by the federal government for tax purposes. Banks generally require a tax identification number to open bank accounts.

FICA (Federal Insurance Contributions Act)

The Federal Insurance Contributions Act (FICA) consists of both a Social Security (retirement) payroll tax and a Medicare (hospital insurance) tax. The tax is levied on employers, employees, and certain self-employed individuals.

Fiduciary

A person who holds something in trust for another (often used to describe executors and administrators of estates and trusts).

File A Return

To file a return is to send in your completed tax forms, or return ("return" is the official term-use it, you'll sound smarter). All your tax information appears on the return, including income and tax liability.

Filing Status

Your filing status determines your tax bracket and amount of taxes you must pay. Factors such as marital status affect your filing status.

Financial Statements

Formal financial reports prepared from accounting records (for example, Profit & Loss Statement, Balance Sheet, Statement of Retained Earnings).

Fiscal Year

A period of one year for which financial statements are prepared that may or may not coincide with the calendar year. Any twelve-month period used by a business as its accounting period.

Form W-2

By January 31 of each year --- your employer (even if you don't work there anymore) will provide you with a statement of how much you earned in wages, tips and other compensation from the previous year. This form will reflect state and federal taxes, social security, Medicare wages, and tips withheld. It also includes a lot of other really important information you will need to file your return.

Form W-4 (Employee's Withholding Allowance Certificate)

If you have or had a part-time or summer job, you probably completed this form on your first day of work. This form determines how much of your paycheck is withheld for federal income taxes.

Franchise Tax

A tax imposed by the State for the privilege of carrying on business as a corporation or LLC. The value of the franchise tax may be measured by amount of earnings, total value of capital or stock, or by amount of business done.

Gross Income

This deals with all the money, goods and property you receive that must be included as taxable income. Fact: people who use the barter system (exchanging non-monetary goods/services as payment) have to include whatever they've bartered for as part of their gross income.

Income

Money or its equivalent, earned periodically by an individual, a corporation, etc., in return for goods or services provided. Opposite of loss.

Income Statement

A financial statement summarizing revenues, expenses, gains and losses for a stated period of time. The Income Statement is also known as Profit & Loss Statement, Statement of Earnings, Statement of Income or Statement of Operations.

Income Tax

These are taxes on income, both earned income (salaries, wages, tips, commissions) and unearned income (interest from savings accounts, dividends if you hold stock). Individuals and businesses are subject to income taxes.

Intangible Asset

An asset without physical substance that has value due to rights resulting from its ownership and possession (for example, goodwill, patents, trademarks).

Interest Income

You deposit your money into a savings account for a reason, right? So you can earn interest on your money. People also earn interest from lending money to people. We're not talking about you lending your buddy Dave a couple bucks to buy lunch; we're talking about lending lots of money so the interest really accumulates on the loan. Well, add up all that interest you accumulate and there's your interest income. Not to burst your bubble, but that interest income is all fully taxable.

Invoice

Document for goods purchased or services rendered showing details such as quantities, prices, dates, shipping details, order numbers, terms of sale, etc.

Liability

The Liabilities of a business are the debts of a business.

Limited Liability Company

A business entity formed upon filing articles of organization with the proper state authorities and paying all fees. LLCs are a new entity in the United States, although the concept has long been used internationally. LLCs provide limited liability to their members, and are taxed like a partnership, preventing double taxation. LLCs can be formed in every state.

Limited Partnership

A partnership with two classes of partners: Limited partners and one or more General partner. Limited partners have no personal liability for debts of the limited partnership beyond the amounts invested.

Local Tax

In addition to federal and state taxes, your local town or city may also need tax money to operate services such as garbage pick-up, water treatment, and street-cleaning.

Loss

The excess of expenditures over revenues. Opposite of income/profit.

Member

A member is a person who is an owner of a Limited Liability Company. The members make the business decisions of an LLC unless the articles of organization provide that the LLC will controlled by a manager or managers.

Net Income

Profits after all expenditures have been deducted from the revenue. See Profit.

Net Worth

Excess of total assets over total liabilities as reported in a company’s balance sheet. See Capital (or Equity)

Not-For-Profit Corporation

A Corporation organized for some charitable, civil or other social purpose that does not entail the generation of profits for shareholders. These corporations receive special tax treatment. Not-for-profit corporations must file not-for-profit articles of incorporation with the state.

Owner’s Equity

What the business is worth to the owner. See Capital and Equity.

Partnership

Two or more persons carrying on a business for profit, each partner having unlimited liability for the debts of the partnership, except in a limited partnership in which some of the partners may have limited liability.

Payroll

A record of wages or salaries paid or payable. The actual wages and salaries paid during a given period.

Payroll Taxes

Your employer deducts a certain amount from your paycheck to pay for taxes. This tax money funds many finance specific programs, including social security, health care and worker's disability. These programs might not mean a whole lot to you now, but you may likely benefit from them when you're older. Check out

Profit

The excess of total revenue over total expenses for a period of time.

Receivable

An amount to be received at a future date.

Registered Agent

The agent named in the articles of incorporation. The agent will receive service of process on the corporation and other important documents. The agent must be named in the articles of incorporation.

Retained Earnings

Cumulative net incomes of a corporation less losses and dividend distributions to shareholders (profits not distributed).

Revenue

Gross proceeds from sale of goods or services. Also, interest and dividends earned on investments. Revenue is a source of income.

S Corporation

A small corporation which elects subchapter S tax treatment. This tax treatment allows the corporation to avoid federal level taxation. Corporate Profits and Losses are passed through to the shareholders.

Sales Taxes

A tax on receipts from sales, usually added to the selling price by the seller.

Sole Proprietorship

A business carried on by the owner as an individual. The owner of a sole proprietorship is personally liable for all business debts; thus, personal property could be taken to pay business debts. A Sole Proprietorship is an unincorporated business wholly owned by one individual.

Statement of Earnings

See Income Statement

Statement of Financial Position

See Balance Sheet.

Statement of Retained Earnings

A financial statement summarizing the changes in retained earnings for a stated period. Also known as Statement of Changes in Capital Accounts or Statement of Changes in Retained Earnings and Reserves.

Tax Basis

The basis used for calculating capital gains or losses, it is the original cost paid for an investment, plus expense, which must be reported to the IRS when the investment is sold.

Tax Credits

The amount of money that tax payers can deduct directly from their taxes.

Tax Deductions

The amount that a person or business can subtract from their taxable income. The more you can deduct, the less you pay.

Tax Deferment

Certain contributions and investment with earnings which are taxed at a later date.

Tax Evasion

Illegal attempt to escape the impact of taxes.

Tax Exempt

Pretty excited when you're exempt from gym class? Taxpayers are pretty happy when they see there's a part of their total income on which no tax is imposed. That's a tax exemption.

Tax Free

Investments, such as municipal bonds, whose earnings are never taxed, but whose capital gains may be taxed if investment is sold at a profit.

Tax Liability

There's no getting out of it- tax liability is the total amount of tax that a person must pay. Taxpayers pay this through withholdings, estimated tax payments, and payments attached to their yearly tax forms.

Taxable Income

Everything you earn that can be taxed.

Taxes

Taxes are required payments of money to the government. This money is used to make your life better. You might not even realize it, but tax money provides public goods and services for the community as a whole (think roads, schools, law enforcement, public libraries, etc.). Show a little gratitude, pay your fair share.

Trial Balance

Listing and totaling all balances in a ledger to verify that total debits equal total credits.

Withholding Allowance

An allowance an individual claims on a W-4 Form. It is mainly used to assist an employer in calculating the amount of income tax to withhold from an employee's paycheck. The more allowances you wish to claim, the less income tax will be withheld from your paycheck. You can claim one allowance for yourself, one for your spouse, and one for each of your dependents.