Dictionary

An explanation of a topic under consideration by the Financial Accounting Standards Board.

I received a discussion memorandum from my boss outlining the key points we need to address at our upcoming meeting.

A check returned to the depositor unpaid because of insufficient funds in the drawer's account; also called an NSF check.

I received a notice from the bank that my account had been overdrawn due to a dishonored (NSF) check.

Amounts paid by employers to workers who have been separated from employment; also known as payments in lieu of notice, separation pay, or terminal leave pay.

My company offered dismissal payments to the employees who were being laid off in order to ease the transition out of their jobs.

The earnings remaining after withholding for federal and state income taxes, FICA taxes, state unemployment and disability taxes, and deductions required for state employees' retirement systems.

After deducting taxes and other required deductions, my disposable earnings for the week were only $200.

The legal term for termination of a partnership.

The dissolution of the marriage.

The dissolution of a corporation follows its liquidation. It is the technical termination of a corporation's existence by surrender or forfeiture of its charter. A corporation remains liable for the filing of income tax returns as long as it is in existence and until its dissolution, even though it is not doing business.

The dissolution of corporation was necessary due to the company's financial struggles and inability to pay its debts.

To the extent that an estate or trust has distributable net income, every distribution to a beneficiary except lump-sum payments of bequests, devises, or inheritances is taxable income. The distributable net income of an estate or trust is the same as its taxable income, with certain specified modifications.

After deducting all necessary expenses and taxes, our company's distributable net income for the year was $500,000, which will be distributed among our shareholders.

As used in the income tax law, the term distribution by corporation refers to any amounts paid by a corporation to its shareholders, or any property distributed to them, other than for value received in goods or services. It is a broader term than dividend, for a distribution may be a dividend and, therefore, taxable income, or it may be an offset against the stockholder's cost or other basis of the stock.

The distribution by corporation was based on the percentage of ownership each shareholder held in the company.

The amount of net income or net loss allocated to each partner.

The distributive share for each partner in the accounting firm was calculated based on their contribution to the business.

A corporation receives a 70 percent or 80 percent deduction--with limitations--for dividends it receives, unless it is an affiliated corporation which does not, or cannot, file a consolidated return. Such a corporation may elect a 100 percent dividends-received deduction.

The dividend-received deduction allows the company to claim a tax deduction on the dividends received from its investments in other corporations.

Distributions of the profits of a corporation to its shareholders.

The reward money was an unexpected dividend for our good deeds.

For tax purposes, a corporation created or organized in the United States or under the laws of the United States or any state.

The domestic corporation reported a net income of $1 million for the fiscal year ending December 31st.

Services of a household nature performed in or about a private home of the person who employs the domestic.

We have to allocate expenses for domestic service under the category of household expenses in our accounting records.

Capital resulting from the receipt of gifts by a corporation.

The company received a large donated capital injection from a wealthy philanthropist, which significantly increased their available funds for investments and expansion.

A method of depreciation that uses a rate equal to twice the straight-line rate and applies that rate to the book value of the asset at the beginning of the year.

The company decided to use the Double-Declining-Balance method to depreciate their new computer system over the next five years.

An accounting system that involves recording the effects of each transaction as debits and credits.

The company implemented a double-entry system in their accounting practices to ensure accuracy and prevent errors in their financial records.

A written order that requires one party (a person or business) to pay a stated sum of money to another party.

The company needs to complete the draft of the annual budget before presenting it to the board of directors for approval.

The bank on which a check is written.

A drawee is responsible for knowing his or her drawer's signature and cannot recoup from the person who presented the draft if it turns out that the drawer's signature was forged.

The person or firm issuing a check.

I went to the back to cash my check so my drawer could pay me.

A special type of owner's equity account set up to record the owner's withdrawal of cash from the business.

I need to transfer $500 from the company's checking account to the drawing account to cover personal expenses.

Earned income, which is usually defined with reference to the self-employment income rules, generally means wages, salaries, tips, professional fees, and other amounts received as compensation for personal services rendered. This term is often used to distinguish unearned income, which includes interest and dividends. The term is sometimes more specifically defined, e.g., for purposes of the foreign income exclusion and for determining self-employment income. In addition to foreign income and self-employment income, the term is relevant to determining income tax liability of minors, IRA contributions, and credits for low-income and elderly or permanently disabled taxpayers.

The earned income for the month was $10,000, which included revenue from consulting services and commissions earned from sales.

Accumulated earnings and profits, as well as earnings and profits of the current taxable year, measure the amount of a distribution by a corporation to its shareholders which represents a dividend. The earnings and profits of a distributing corporation are not the same as net income or taxable income. They include nontaxable as well as taxable income but do not include realized gains or losses which are not recognized for income tax purposes.

The company's earnings and profits for the quarter were higher than expected due to increased sales and decreased expenses.

A business or organization whose major purpose is to produce a profit for its owners.

The economic entity assumption states that the financial statements of a company should only include transactions and events that directly relate to the company, and not the personal financial transactions of its owners or shareholders.

The expenses that an employer pays for an employee's education, such as tuition, fees, and payments for books, supplies, and equipment.

We offer educational assistance to our employees in the form of tuition reimbursement for accounting courses to improve their skills and knowledge in the field.

See Blind and elderly deduction and Tax credit for the elderly.

Elderly taxpayers may be eligible for certain tax credits and deductions based on their age and income level.

An electronic transfer of money from one account to another.

We will be using Electronic Funds Transfer to pay our suppliers this month to streamline the accounting process and reduce the risk of lost or stolen checks.

Paystub information made available through a secured Web site, kiosk, or interactive voice response system.

We now offer electronic paystubs for our employees, which can be accessed through our online portal and eliminates the need for paper copies.

A person who is hired by and works under the control and direction of the employer.

The company has more than 2,000 employees worldwide.

An ESOP is a qualified stock bonus plan designed to invest primarily in qualifying employer securities.

My company offers an Employee Stock Ownership Plan as a way for employees to have a financial stake in the success of the company.

Continuous record of the relationship between the employer and the employee.

The employee history record shows that John has been with the company for five years and has received three promotions during that time.

An employee stock option is an option granted to an employee to purchase the employer's stock. Employee stock options to which special income tax treatment is accorded are known as statutory options that may still be created and exercised.

The company offered him an employee stock option plan as part of their benefits package, allowing him to purchase company shares at a discounted price.

A form used to claim exemption (withholding) allowances.

I need to fill out my Employee's Withholding Allowance Certificate, Form W-4, so that my employer can accurately calculate my payroll tax deductions.

Payroll record for each employee that is used to provide complete information about the accumulated earnings of each employee.

The employee's earnings record showed that they had consistently received raises and bonuses throughout their time at the company.

Any person or organization who employs one or more individuals for the performance of services, unless such services or employment are specifically excepted by law.

My new employer provides great benefits.

Preprinted government form used by the employer to report unemployment taxes for the calendar year.

I need to fill out the Employer's Annual Federal Unemployment Tax Return, Form 940, in order to report my company's unemployment tax liability for the year.

Preprinted government form used by the employer to report payroll tax information relating to social security, Medicare, and employee income tax withholding to the Internal Revenue Service.

I need to file the Employer's Quarterly Federal Tax Return, Form 941, by the end of the month.

Any service performed by employees for their employer, regardless of the citizenship or residence of either.

She hopes to find employment as a QuickBooks Advisor.

A written authorization that transfers ownership of a check.

Without official endorsement, the project cannot proceed.

Applied to determine if employees of an enterprise are covered under the provisions of the FLSA. The test criteria are at least two employees engaged in interstate commerce and an annual gross sales volume of at least $500,000.

We offer enterprise coverage to ensure that all employees have access to the necessary resources and support for their job duties.

Anything having its own separate identity, such as an individual, a town, a university, or a business.

One division of the company was broken off as a separate entity.

An owner's financial interest in a business.

We've been slowly paying off our mortgage and building up equity in our house.

The meaning of this word in the income tax law is much narrower than its general meaning, which, broadly speaking, is an interest in property. For federal tax purposes, it has two specific meanings. The gross estate of a decedent consists of assets, both probate and nonprobate, of the decedent for estate tax purposes. Taxable estate is the gross estate less deductions and exemptions. In its most widely used sense, for income tax purposes, an estate is a taxpayer. It is the executorship or administration of a decedent's estate, subject to a court having probate jurisdiction by a fiduciary, and is treated as a separate taxpayer. For income tax purposes, although clearly distinguishable, an estate is generally subject to the same Code provisions in determining taxable income as a trust. Each is allowed deductions for distributions to beneficiaries, such deductions representing gross income in the hands of the beneficiaries. Income accumulated that is neither distributed or distributable during the taxable year is taxable to the estate, after offsetting against it all allowable deductions.

Her estate is worth millions of dollars.

Individual taxpayers must pay estimated taxes on as many as four payment dates unless estimated tax is not expected to exceed $1,000. A corporation deposits its estimated tax in advance on as many as four payment dates (April 15, June 15, September 15, and December 15 for calendar-year corporations). Trusts and estates must make quarterly estimated tax payments in the same manner as individuals, except that an estate is exempt from making such payments during its first two taxable years.

I need to file my estimated tax payment for the third quarter by the deadline to avoid any penalties.

See Passive investment income.

The company's executive team issued an executive order requiring all departments to implement new accounting software by the end of the quarter.

Regulations issued by the federal government that ban, in employment on government contracts, discrimination based on race, color, religion, sex, or national origin.

The president issued an executive order banning all travel to and from certain countries due to national security concerns.

A person appointed via a will to carry out the testator's directions and to dispose of property according to a will. The executor manages an estate.

He named his daughter as his executor.

Salaried employees who hold supervisory or managerial positions who are not subject to the maximum hour and overtime pay provisions of the Wage and Hour Law.

The exempt employees at the company are not entitled to overtime pay because they are salaried, not hourly workers.

An exemption is a reduction in net income allowed on account of status or dependency. Thus in arriving at the tax base, or the figure at which the tax rates are applied, net income is reduced by the amount of personal and dependency exemptions. Individuals, estates and trusts are allowed exemptions. Every estate is allowed an exemption of $600. A trust is allowed an exemption of $100 or $300, depending on the type of trust. Except for dependents, every individual taxpayer is allowed at least one exemption of $4,050 in 2016 (adjusted for inflation). On a joint return, the two (or more) exemptions of both the husband and wife are allowed. One spouse is allowed the exemption (or exemptions) of the other on a separate return if the other has no gross income and is not the dependent of another person. Exemptions are also allowable for dependents of the taxpayer.

You can claim a tax exemption for each of your dependents.

An outflow of cash, use of other assets, or incurring of a liability.

The annual fee is simply an expense of doing business.

Method by which employer contribution payments may be adjusted because of a favorable employment record; also known as merit rating.

The company's experience rating for workers' compensation insurance was adjusted downward due to the high number of claims filed in the previous year.

A system that rewards an employer for maintaining steady employment conditions by reducing the firm's state unemployment tax rate.

Our company implemented an experience rating system in our accounting department to evaluate the efficiency and productivity of our employees based on their previous work experience.

A proposed solution to a problem being considered by the Financial Accounting Standards Board.

Samford's accounting firm is currently reviewing the exposure draft of the new accounting standards before they are finalized and released to the public.

Transactions that are highly unusual, clearly unrelated to routine operations, and that do not frequently occur.

The company's financial statement for the year showed an increase in net income due to the inclusion of extraordinary, nonrecurring items such as the sale of a subsidiary and a one-time gain from the settlement of a legal dispute.

The contractual interest specified on the bond.

The company has a face interest rate of 3% on their outstanding loan balance for the year.

Laws that deal with discrimination on the basis of age, race, color, religion, gender, or national origin as a condition of employment.

Here, adhere to fair employment practices by ensuring that all employees are paid equal wages for equal work, regardless of their gender, race, age, religion, and sexual orientation.

The current worth of an asset or the price the asset would bring if sold on the open market.

The fair market value of the company's inventory was determined to be $50,000 based on recent market trends and comparable sales data.

Taxes levied by the federal government against employers to benefit unemployed workers.

Our company is required to pay Federal Unemployment Taxes on a quarterly basis as part of our tax obligations to the government.

This term usually denotes the executor or administrator of the estate of a decedent or the trustee of a trust. Since an estate or trust is a taxpayer, the fiduciary is charged with the responsibility of filing a return for the estate or trust. The term also includes a guardian, conservator, or receiver.

Faculty and students have also sued the board for breaching its fiduciary duty.

Filing a return consists of filling it out and mailing or hand-delivering it, generally, to the appropriate IRS location. The time for filing an income tax return is specifically stated in the law, and penalties may be imposed for late filing.

The filing of return must be completed by April 15th to avoid any penalties or interest on unpaid taxes.

Periodic reports of a firm's financial position or operating results.

His financial statements showed a significant increase in profits for the year.

Transactions with those who provide cash to the business to carry on its activities.

During the year, our company engaged in several financing activities including issuing new bonds and taking out a loan to fund expansion projects.

A method of inventory costing that assumes the oldest merchandise is sold first.

The company implemented the First In, First Out method of inventory management to ensure that the oldest products are sold before the newer ones, in order to accurately reflect the cost of goods sold in their financial statements.

A fiscal year, for income tax purposes, is a period of 12 months, ending on the last day of a month other than December, or the special 52-53-week period. It is thus distinguished from a calendar year, which always ends on December 31. It is a recognized accounting period for income tax purposes.

The company's fiscal year runs from January 1st to December 31st.

A small pencil figure written at the base of an amount column showing the sum of the entries in the column.

The company's footing was unstable due to the large amount of debt on the balance sheet.

A foreign corporation is one which is not organized under the laws of one of the states or territories or of the United States. Taxation of a foreign corporation depends on whether or not its income is effectively connected with a U.S. trade or business. Special rules apply to United States shareholders of certain controlled foreign corporations.

The foreign corporation's financial statements were translated into English for the annual shareholder meeting.

If a United States citizen or resident or a domestic corporation incurs or pays income taxes to a foreign country, an election may be made to deduct such taxes in determining taxable income or to take them as a credit against United States tax. The election must be made as to all foreign taxes incurred or paid in the taxable year. Generally, the credit will be limited to the percentage of the total tax against which the credit is being taken that the taxable income from foreign countries is of the total taxable income. Special rules apply to a U.S. shareholder of a controlled foreign corporation or a shareholder in a foreign investment company.

The company's foreign tax credit or deduction helped to offset the high taxes paid on income earned overseas, resulting in a lower overall tax liability for the year.

Form that lists the documents an employee must furnish to the employer; they identify the employee and, if an alien, verify authorization to work in the United States.

We need to complete a Form I-9, Employment Eligibility Verification, for each new employee in order to ensure compliance with the IRS and accurately record their employment status in our accounting records.

Form used by the employer to report the amount of wages paid each worker in the course of the trade or business of the employer.

I need to file my taxes and need to find my Form W-2, Wage and Tax Statement for my employer to report my income and taxes withheld for the year.

An intangible asset; a right to exclusive dealership granted by a governmental unit or a business entity.

She was granted an exclusive franchise in the city's west end.

An account showing transportation charges for items purchased.

We recorded the freight costs for the shipment as freight in account in our financial statements.

All information that might affect the user's interpretation of the profitability and financial condition of a business should be disclosed.

In accordance with the full disclosure principle, we must include all relevant information in our financial statements so that our stakeholders can make informed decisions about our company's performance.

A signature transferring a check to a specific person, firm, or bank.

The full endorsement of the company's financial statements by the auditing firm provided assurance to investors that the numbers were accurate and reliable.

The relationship between assets and liabilities plus owner's equity.

The fundamental accounting equation states that assets equal liabilities plus equity.

The disposition of an asset for more than its book value.

The equity they gained from their property increased a lot last year.

Legal or equitable procedure by means of which a portion of the wages of any person must be withheld for payment of a debt.

The court ordered the creditor to garnish the debtor's wages in order to repay the outstanding debt.

The general business credit consists of the investment tax credit (the sum of the rehabilitation investment credit, the energy investment credit, and the reforestation investment credit), the work opportunity credit, the welfare-to-work credit, the alcohol fuels credit, the research credit, the low-income housing credit, the disabled access credit, the enhanced oil recovery credit, and five other credits.

The company's general business credit allowed them to make purchases on their account with vendors, rather than paying in cash or with a credit card.

A financial record for entering all types of business transactions; a record of original entry.

The general journal is where we record all of our financial transactions, including debits and credits for each account.

A permanent, classified record of all accounts used in a firm's operation; a record of final entry.

The company's general ledger showed a net profit of $50,000 for the quarter.

A member of a partnership who has unlimited liability.

As the general partner of our venture capital firm, John is responsible for overseeing all investments and making strategic decisions for the company.

Accounting standards developed and applied by professional accountants.

The company follows Generally Accepted Accounting Principles when preparing its financial statements to ensure accuracy and transparency.

A gift has been defined as a valid transfer of property from one to another without consideration or compensation. For income tax purposes, the words gift and contribution usually have separate meanings, the latter word being used in connection with the contributions to charitable, religious, etc. organizations, whereas the word gift refers to transfers of money or property to private individuals, needy persons, friends, relatives, etc. The recipient of a gift is not required to include it in gross income. The donor is not entitled to deduct it (except for a business gift to a customer of $25 or less per donee per year).

The money was a gift, not a loan.

The assumption that a business will continue to operate indefinitely.

The company's financial statements are prepared under the going concern assumption, which assumes that the company will continue to operate and generate future profits.

An intangible asset; the value of a business in excess of the net value of its identifiable assets.

They allowed him to keep the extra money as a gesture of goodwill.

Accounting work performed for a federal, state, or local governmental unit.

The governmental accounting department is responsible for accurately recording and reporting financial transactions for the city council.

A grantor trust is one in which the grantor retains control over the income or principal, or both, to such an extent that the grantor is regarded as being substantially the owner of the trust property and of the income. The grantor is taxable on this trust income. The law contains specific tests to find whether the grantor is the substantial owner of the trust property.

The grantor trust was created by John to protect his assets from potential creditors.

Total regular earnings and total overtime earnings, also known as gross pay.

After deducting taxes and other deductions, John's gross earnings for the month were $5,000.

Gross estate is an estate tax term. It means a decedent's entire property which is subject to the estate tax, that is, prior to any deductions.

The gross estate of the deceased was valued at over $10 million dollars, including real estate properties, stocks, and other investments.

Gross income, for income tax purposes, refers to all income which is taxable. The law enumerates specific items of income which are not to be included in gross income and, therefore, are nontaxable. With these exceptions, all income is includible in gross income.

My gross income this year was $50,000 before taxes and deductions.

The difference between net sales and the cost of goods sold (gross profit = net sales — cost of goods sold).

Our company's gross profit for the year was $500,000, which was a significant increase from the previous year.

A method of estimating inventory cost based on the assumption that the rate of gross profit on sales and the ratio of cost of goods sold to net sales are relatively constant from period to period.

The company used the gross profit method to estimate the inventory loss due to damage during the warehouse fire.

The amount of gross profit from each dollar of sales (gross profit percentage = gross profit ± net sales).

The company's gross profit percentage increased by 20% from the previous quarter due to increased sales and reduced production costs.

Gross-up amount of payment so that after the appropriate payroll taxes are withheld, the net amount left is equal to the original intended payment.

The company's payroll department will gross-up the employee's salary to include the additional taxes required for the bonus payment.

Life insurance program for employees at a low cost.

I just signed up for group insurance through my employer, which covers me and my family for medical, dental, and vision.

By means of a special tax rate table, a head of household receives a tax advantage over a single individual but less than that afforded a husband and wife who file a joint return. Generally, a head of a household is an unmarried individual who is not a surviving spouse and who maintains as a home a household which is the principal place of abode of at least one child or grandchild or any other relative (except a cousin).

As the new head of household you will be responsible for managing finances and paying the bills for your family.

Form that is sent to the Payroll Department so that new employees are properly added to the payroll.

The hiring notice for the new accountant position has been posted on our company's website. Applications are due by Friday at 5 pm.

The principle that requires assets and services to be recorded at their cost at the time they are acquired and that, generally, long-term assets remain at historical costs in the asset accounts.

The historical cost basis principle states that assets should be recorded and reported at their original acquisition cost, regardless of any fluctuations in market value.

The holding period of property is the length of time that property has been held by a taxpayer or the length of time the taxpayer is treated for income tax purposes as having held it. The term is most important for income tax purposes as it relates to capital gains transactions. Whether a capital gain or loss is long- or short-term depends on whether the asset sold or exchanged has been held by the taxpayer for more than 12 months.

The holding period for the company's investments in stock was one year, resulting in a long-term capital gain when they were sold.

Computing the percentage change for individual items in the financial statements from year to year.

The horizontal analysis of our financial statements showed that our revenue increased by 20% over the past year.

A method of paying employees according to a stated rate per hour.

On an hourly rate basis, I charge $50 for my consulting services.

Those procedures and methods related to recruiting, selecting, orienting, training, and terminating personnel.

The company implemented a new human resources system to streamline the hiring and employee management process.