Dictionary

The result of an excess of expenses over revenue.

The company experienced a net loss of $500,000 this quarter due to unexpected expenses and lower sales.

See Passive investment income.

I was able to retire early thanks to my net passive income from my investments in real estate.

The difference between the balance in the Sales account and the balance in the Sales Returns and Allowances account and the Sales Discount account.

Net sales for the quarter were $500,000, up 20% from the previous year's earnings.

The salvage value of an asset less any costs to remove or sell the asset.

The net salvage value of the old factory was estimated to be $50,000, which was a significant portion of the overall value of the property.

Neutrality is the concept that information in financial statements cannot be selected or presented in a way to favor one set of interested parties over another.

The neutrality concept dictates that all parties involved in a conflict should be treated equally and with impartiality.

Stock that is not assigned a par value in the corporate charter.

The company decided to issue no-par-value stock in order to raise additional capital without having to assign a specific value to each share.

A nonresident alien, for income tax purposes, is an individual who is not a citizen or resident of the United States. Taxation depends on whether U.S. source income is effectively connected with the conduct of a U.S. trade or business.

J professors and researchers, are considered non-resident aliens during their first two calendar years in the U.S.

Stock that conveys to its owners the stated preference dividend for the current year but no rights to dividends for years in which none were declared.

The company issued noncumulative preferred stock to its investors as a way to raise additional capital for expansion.

A bonus normally based on hours worked, units produced, production efficiency, or work quality.

I received a nondiscretionary bonus for my work last week.

Stock that conveys to its owners the right to only the preference dividend amount specified on the stock certificate.

The company issued nonparticipating preferred stock to its investors, which meant that they did not have the right to vote on company decisions or receive dividends beyond a fixed rate.

Nonrefundable credits are allowed as an offset against tax liability. Since no payment has been made to the government, the taxpayer cannot receive a refund if the credit exceeds the tax liability.

I'm sorry, but we cannot issue a refund for your tickets because they were purchased with nonrefundable credits.

The increase side of an account.

The normal balance for a liability account is a credit balance.

A liability representing a written promise by the maker of the note (the debtor) to pay another party (the creditor) a specified amount at a specified future date.

The company has a note payable to its supplier for the purchase of raw materials.

An asset representing a written promise by another party (the debtor) to pay the note holder (the creditor) a specified amount at a specified future date.

I received a note receivable from my business partner, promising to pay me back the $500 I lent him by the end of the month.

See Depreciation.

The accounting department is concerned about the obsolescence of the company's computer system, as it is starting to become unreliable and may need to be replaced in the near future.

An arrangement to allow payment at a later date; also called a charge account or open-account credit.

I am unable to pay my balance in full today, so I am requesting to put the remaining amount on account for next month's payment.

A system that allows the sale of services or goods with the understanding that payment will be made at a later date.

I applied for an open-account credit card with a high limit and 0% interest for the first year.

Routing business transactions—selling goods or services and incurring expenses.

The company reported a net loss of $200,000 in their operating activities for the fiscal year.

Current assets and current liabilities.

The company's operating assets, such as its factories and equipment, exceeded its operating liabilities, including short-term debt and accounts payable, by $50 million.

The costs associated with establishing a corporation.

The organization costs for the company's annual conference were higher than expected due to the need for additional staff to handle registration and logistics.

Organizational expenses are the costs of organizaing a corporation before it begins active business. The Code permits amortization of these expenses over a period to be chosen by the taxpayer, but not less than 60 months. Such charging off is elective with the taxpayer. Organizational expenses for this purpose do not include expenses of issuing or selling stock or reorganization unless they are incident to creation of a new corporation.

The company incurred significant organizational expenses in order to streamline their operations and improve efficiency.

Checks that have been recorded in the general journal but have not yet been paid by the bank.

I need to reconcile my bank account, so I will need a list of all outstanding checks.

An overpayment of tax is a payment or a total of payments in excess of the amount determined to be the correct amount of tax for the taxable year. The Code provides that the term includes that part of the amount of the payment of any internal revenue tax which is assessed or collected after the expiration of the limitation period properly applicable to such assessment or collection.

The accountant noticed that there had been an overpayment of tax on the company's quarterly returns, which resulted in a refund from the government.

Method of calculating overtime pay by multiplying the total hours worked (including overtime hours) by the regular rate of pay and then multiplying the overtime hours by one-half the regular hourly rate.

We will be paying an overtime premium for any hours worked over 40 in a week.

The financial interest of the owner of a business; also called proprietorship or net worth.

The owner's equity in the company increased by $50,000 this quarter due to successful sales and management of expenses.

Capital acquired from capital stock transactions (also known as contributed capital).

HIs company's paid-in capital increased by $100,000 this quarter due to a new round of funding.

Paid-in surplus represents amounts paid in to a corporation by its shareholders, not in payment for their stock, but, after their stock has been fully paid for, as an additioanl working capital for the corporation. Such paid-in surplus is not taxable income to the corporation. Nor is it deductible by the shareholder. It becomes an additional cost of the shareholder's stock. If the paid-in surplus consists of property other than money, its basis in the hands of the corporation is the same as it was in the hands of the shareholder.

Her company's paid-in surplus increased significantly this quarter due to the successful launch of a new product line.

An amount assigned by the corporate charter to each share of stock for accounting purposes.

The par value of the bond is $100, meaning it can be redeemed for that amount at maturity.

A corporation which owns a required percentage of another corporation (subsidiary). Every group of affiliated corporations which files a consolidated return must have a common parent corporation.

The parent corporation of our company is based in New York City.

Another method of calculating the withholding of federal income tax from an employee's pay.

I am currently working part-year employment as a seasonal employee at the local theme park during the summer months.

Employment by the individual's regular employer on a reduced scale because of lack of work.

After the company implemented a temporary reduction in hours, John was forced to file for partial unemployment to make up for the lost wages.

Forms completed by the employer and given to partially unemployed workers so that supplemental unemployment benefits may be obtained.

I received a partial unemployment notice from my employer stating that my hours would be reduced for the next few weeks due to the economic downturn.

Stock that conveys the right not only to the preference dividend amount but also to a share of other dividends paid.

The company issued participating preferred stock to its investors, which allowed them to receive a higher dividend and participate in the company's profits.

A business entity owned by two or more people who are legally responsible for the debts and taxes of the business. A partnership does not pay taxes. It is a conduit for nontaxable income, dividend income, partially taxable interest, ordinary income, and the capital gains and losses shares to be taken into the income of the individual partners. For income tax purposes, the term partnership is more comprehensive than when taken in its ordinary meaning. It includes a syndicate, group, pool and joint venture, as well as an ordinary partnership, in which two or more persons join their money and/or their skills in carrying on as co-owners a business for profit. If the organization of a limited partnership is more in the nature of an association than a partnership, it is deemed to be an association taxable as a corporation.

The company is developing a new car in_ partnership_ with leading auto manufacturers in Japan.

A legal contract forming a partnership and specifying certain details of operation.

My company signed a partnership agreement with a local charity to donate a portion of our profits to their cause.

Losses arising from a passive activity are not deductible, except against income from a passive activity. The unused portion of the loss, however, is not lost but is suspended (i.e., carried over) until offset by passive income in a future tax year or until the entire activity is disposed of in a fully taxable transaction.

The passive activity losses on our rental property were not deductible on the tax return due to our high income.

Gross receipts derived from royalties, rents, dividends, interest, annuities, and sales or exchanges of stock or securities of an S corporation.

She received passive investment income from her rental properties, allowing her to retire early and live off the passive income.

An intangible asset; an exclusive right given by the U.S. Patent Office to manufacture and sell an invention for a period of 17 years from the date the patent is granted.

They were sued for patent infringement.

The U.S. tax system is often referred to as a pay-as-you-go tax system. Much of the federal government's tax collections come from withholdings and estimated taxes. The various types of taxpayers pay tax throughout the year, not just at year-end. The United States has been on a pay-as-you-go system since 1943.

The pay-as-you-go tax system means that workers pay taxes on their income as they earn it, rather than all at once at the end of the year.

The person or firm to whom a check is payable.

The payee must endorse, or sign, the back of the check.

The date that dividends are paid.

The payment date for the invoice is due on the 15th of the month.

Those procedures and methods related to the disbursement of pay to employees.

Our company recently implemented a new payroll accounting system to better manage employee salary and benefit payments.

Multicolumn form used to assemble and summarize the data needed at the end of each payroll period. It lists all employees who earned remuneration, the amount of remuneration, the deductions, and the net amount paid.

I need to update the payroll register with the new employee's information before processing their first paycheck.

The Code contains two types of additions to the tax--interest and penalties. Interest paid may be deductible; a penalty is not. A penalty usually is distinguishable from interest in that it is imposed at a flat rate without regard to lapse of time.

The company was given a severe penalty for the violation.

A pension, if received from a former employer for past services, is taxable; if it is received under Social Security laws, it may be partially taxable. It is exempt to a limited extent when received for injuries or sickness. If it is in the nature of an annuity, it is subject to the rules for annuities.

Her pension arrives in the mail every month.

Pension plan is both a generic term applied to various types of plans designed to provide retirement income and a specific term used to distinguish a particular type of qualified plan from a stock bonus or profit-sharing plan. Qualified plans are accorded a wide range of special tax treatment.

My company offers a generous pension plan for its employees, allowing them to retire comfortably after years of hard work.

See Depletion.

The company reported a decrease in profits due to the high percentage depletion of their oil reserves.

Method of determining amount of income taxes to be withheld using Table of Allowance Values and Percentage Method Withholding Table.

The percentage method was used to calculate the employee's salary increase based on their performance evaluation score.

Inventory based on a periodic count of goods on hand.

The store manager conducted a periodic inventory to determine which items needed to be restocked and which were overstocked.

An inventory system in which the merchandise inventory balance is only updated when a physical inventory is taken.

The store implemented a periodic inventory system to count and track their inventory every month.

Periodicity is the idea that economic activities of an entity can be divided logically and identified with specific time periods, such as the year or quarter.

The periodicity of income assumption states that an individual's income is received at regular intervals, such as weekly, biweekly, or monthly.

An account that is kept open from one accounting period to the next.

I have set up a permanent account with my bank so that I don't have to worry about remembering to renew my account every year.

Inventory based on a running total of number of units.

The company implemented a perpetual inventory system to more accurately track their stock levels and reduce the risk of overstocking or running out of products.

An inventory system in which merchandise inventory is updated for each purchase, sale, and return.

The company implemented a perpetual inventory system to more accurately track their stock levels and reduce the risk of overstocking or running out of products.

An entity defined by law as an individual, a trust or estate, a partnership, or a corporation.

Person A is responsible for reconciling the bank statements, while Person B is in charge of processing payroll.

A deduction allowed in computing taxable income; also known as a personal exemption.

The personal allowance for this tax year is $12,000, which means you can earn up to that amount without paying any taxes.

See Exemption.

As a self-employed individual, I claimed a personal exemption of $4,050 on my tax return to reduce my taxable income.

A personal holding company is a close corporation organized to hold corporate stocks and bonds and the investment assets, including personal service contracts, and employed to retain the income for distribution at such time as is most advantageous to the individual stockholder from a tax viewpoint. The Code prescribes percentages of certain types of gross income and of stock ownership by five or fewer individuals that will turn an ordinary corporation into a personal holding company. If it falls within this classification, a corporation must pay, in addition to the regular income tax on a corporation, a tax at the rate of 15 percent on its undistributed personal holding company income.

The personal holding company is responsible for managing the investment portfolio and financial assets of the individual owner.

A form used to record transactions involving petty cash.

The accountant used the _petty cash analysis sheet _to track and analyze the company's small, daily expenses.

A form used to record the payments made from a petty cash fund.

I need to fill out a petty cash voucher for the office supplies I purchased.

An actual count of the number of units of each type of good on hand.

We need to conduct a physical inventory of our warehouse to ensure that all of our products are accounted for and properly stored.

A method of paying employees according to the number of units produced.

I am paid on a piece-rate basis, meaning that I earn a certain amount for each item I complete.

Compensation plan under which workers are paid according to their output (units or pieces produced).

Under the piece-rate system, workers are paid based on the number of units they produce rather than the amount of time they work.

Property that will be used in the business for longer than one year.

Their company's plant and equipment expenses for the year totaled $100,000.

Unemployment insurance system wherein the cost of unemployment benefits is spread among all employers in a particular state.

The new pooled-fund laws allow multiple investors to contribute their money into a single fund, which is managed by a professional investment firm.

Those who have built up a balance in their reserve accounts (contributions paid in less benefits charged).

The company's positive-balance employers have helped to create a thriving work environment where employees feel valued and supported.

A statement that is prepared to prove the equality of total debits and credits after the closing process is completed.

The postclosing trial balance showed that the company's net income for the year was $50,000.

A check dated some time in the future.

I need to write a postdated check to my landlord for next month's rent.

Transferring data from a journal to a ledger.

Have you added the posting to ledger?

Questions asked in the employment interview and on application forms, resumes of experience or education required of an applicant, and any kind of written testing.

The HR department sent out a list of pre-hire inquiries to the candidates being considered for the open position.

A shareholder's right to purchase a proportionate amount of any new stock issued at a later date.

The company exercised its preemptive right to purchase additional shares in the company before anyone else had the opportunity.

A basic or stated dividend rate for preferred stock that must be paid before dividends can be paid on common stock.

The company announced that they will be paying a preference dividend to their preferred shareholders before distributing any profits to common shareholders.

A class of stock that has special claims on the corporate profits or, in case of liquidation, on corporate assets.

My preferred stock in the company has earned me a steady stream of dividends over the past year.

The excess of the price paid over the face value of a bond.

The company had to pay a premium on bonds payable in order to secure funding for their expansion project.

Expense items acquired, recorded, and paid for in advance of their use.

The company had prepaid expenses for the upcoming conference, including the cost of the venue and catering.

The ratio of the current market value of common stock to earnings per share of that stock.

Their company's stock price has a high price-earnings ratio, because investors are confident in future earnings potential.

The amount shown on the face of a note.

The principal balance on the company's loan was $100,000.

Those tasks employees must perform for the employer.

One of the principal activities of the accounting department is to prepare financial statements for the company.

This is the non-governmental sector of society; in an accounting context, it is the business sector, represented in the accounting rule-making process by the Financial Accounting Standards Board.

The private sector has a significant role in accounting as many businesses are owned and operated by private individuals or companies.

Compensation plans in which employer shares with employees a portion of the profits of the business.

The company implemented a profit-sharing plan for its employees, which allows them to receive a percentage of the company's profits each quarter based on their contribution to the company's success.

A written promise to pay a certain amount of money at a specific future time.

You will need to sign a promissory note in order to borrow money from the bank.

Long-term assets that are used in the operation of a business and that are subject to depreciation (except for land, which is not depreciated).

The company's financial statement showed a significant increase in its property, plant, and equipment assets over the past year due to several major investments in new machinery and facilities.

Members of firms that perform accounting services for other companies.

Public accountants are responsible for maintaining accurate financial records for businesses and organizations.

This is the governmental sector, represented in the accounting rule-making process by the Securities and Exchange Commission.

The public sector of the government is responsible for the accounting and financial management of all publicly funded programs and services.

An account used to record cost of goods bought for resale during a period.

The purchase account shows all of the company's expenses related to purchasing goods or services.

A price reduction from the amount originally billed.

We've given our company a purchase allowance of $500 per month for office supplies.

A cash discount offered to the customer for payment within a specified period.

The company received a purchase discount of 10% on its order of office supplies from the supplier due to its volume of business.

A bill received for goods purchased.

The purchase invoice for the new office furniture was mailed to the supplier for payment.

An order to the supplier of goods specifying items needed, quantity, price, and credit terms.

The purchase order for office supplies was approved and the vendor will be notified to proceed with the delivery.

A list sent to the purchasing department showing the items to be ordered.

We to submit a purchase requisition to the accounting department in order to request approval for the purchase of new office furniture.

Return of unsatisfactory goods.

We need to process the purchase return for the faulty product that was returned to our company by the customer.

A contra expense account where purchases returns and purchases allowances are recorded; see definitions of purchase allowance and purchase return.

The company recorded a purchase return and allowance of $500 for the defective merchandise received from the supplier.

A trust with a single income beneficiary eligible to be an S corporation shareholder.

The Qualified Subchapter S Trust was able to claim a tax deduction for the charitable donations it made during the fiscal year.

These are necessary characteristics that must be present in financial statements if they are to be credible.

One of the qualitative characteristics of financial statements is comparability, which allows for the analysis of financial information over a period of time.

Method of determining the amount of income taxes to be withheld by estimating the employee's average wages for the calendar quarter, computing an average payment, and withholding an amount based on the average payment.

For our quarterly averaging calculation, we took the total revenue for the year and divided it by four to find the average revenue for each quarter.

Cash, receivables, and marketable securities.

The company's quick assets, including cash and marketable securities, totaled $500,000 at the end of the fiscal year.

Computing the relationship between various items in the financial statements.

The CEO presented the financial team with a detailed ratio analysis of the company's performance over the past quarter.

A qualifying real estate investment trust is one which has at least 100 beneficial owners and which distributes at least 95 percent of its income. The income from the distribution is taxed only once, and only to the beneficiaries. The trust may not be a personal holding company; it must elect to be treated as a real estate investment trust; and it may not hold property primarily for sale to customers.

I recently invested in a real estate investment trust that owns several commercial properties in the downtown area.

Assets such as land, land improvements, buildings, and other structures attached to the land.

The company's real property portfolio includes office buildings, warehouses, and retail centers located in various cities across the country.

Realization of revenue takes place only when cash, a financial claim, or other consideration is received for the sale of goods or services.

The realization of the company's assets occurred when they were sold and the profits were recorded in the accounting records.