Glossary of Accounting & Tax Terms
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.
Accrual Basis - The method of keeping accounts which shows all expenses incurred and income earned for a given period of time, even though such expenses and income may not actually have been paid or received in cash during the same period of time.
Accrued Expense - An expense incurred, but not yet paid.
Accrued Revenue - Revenue earned, but not yet collected.
Accumulated Depreciation - An account to which estimated depreciation is added.
Adjustable Rate Mortgage or ARM. - A mortgage with an interest rate that may increase or decrease during the term of the loan, according to determined margins with limits on increases or decreases (called "caps").
Adjusted Entry - An entry made in the general journal at the end of an accounting period to bring certain accounts up to date.
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.
Annual Meeting of Shareholders - Nearly all states require a corporation to hold an annual meeting of shareholders at which time directors are elected and other corporate issues are voted on.
Annuity - a sequence of equal payments, usually made at regular intervals of time
Annuities: - A tax-deferred product that mixes features of an investment and an insurance policy. There are generally two types- fixed annuities (pay a fixed rate of interest) or variable (your return is not guaranteed but you have freedom to choose how your money is invested). Among the advantages: unlike a 401(k) or IRA, there’s no dollar limit on how much you can invest. Among the disadvantages: annuities typically carry relatively high fees and penalties.
Appreciation - Increase in value. Often used with reference to an asset, such as land, building, stocks or bonds.
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.
Assumed Name - A name under which a corporation conducts business that is not the legal name of the corporation as shown in its articles of incorporation. If a corporation does business under an assumed name, it may be required to file registration of the assumed name with the state. Also known as a Fictitious Business Name.
Authorized Shares or Stock - The total number of shares a corporation is authorized to sell. This number is specified in the articles of incorporation. All of the shares authorized need not be issued. - Bad Debts - Accounts receivable that are un-collectable Used in Accrual Method accounting.
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 Overdraft - Balance of a bank account when funds withdrawn exceed funds deposited.
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.
Bankruptcy - State of being bankrupt.
Bill of Lading - Written document issued by the carrier of goods. Also, a receipt for goods and a contract to deliver goods.
Book of Original Entry - A journal in which transactions are recorded for the first time before summarizing and/or posting to ledger accounts, for example, purchase journal, cash receipts journal, accounts payable journal, disbursements journal, general journal and payroll journal. See General Journal and Journal.
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.
Bylaws - Bylaws are the rules and regulations adopted by a corporation for its internal governance. It usually contains provisions relating to shareholders, directors, officers and general corporate business. At the corporation’s initial meeting the bylaws are adopted. Bylaws are a private document not filed with any state authority. Bylaws are more flexible than the articles of incorporation because they are easier to amend. - Canceled Check - A check that as cleared the bank and is returned to the depositor with his monthly statement.
CAPS - A limit on how much the interest rate can change either at each adjustment or during the life of the mortgage, e.g., "2/6" equates to 2% per year and 6% over life of loan.
Capital (or Equity) - Interest of the owner in the business that is the difference between Assets & Liabilities. Also called Equity or Networth. In a corporation, capital represents the stockholders’ equity.
Capital Asset - Assets, of either a tangible or intangible nature, owned or held by a business which are expected to be used or held over several fiscal periods.
Capital Gain / Loss - Profit or gain realized from the sale or exchange of a capital asset. The amount is determined by calculating the difference between an asset’s purchase and sale price.
Capital Stock - See Stock and Authorized stock.
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.
Certificate of Authority - A document issued by the proper state authority to a foreign corporation granting the corporation the right to do business in that state.
Certificate of Deposit (CD) - Evidence that the holder has deposited at a financial institution a certain amount of money for a certain period of time. By issuing a CD, a financial institution pledges to redeem the certificate at maturity and pay a certain rate of interest for use of the deposited funds.
Certified Public Accountant - A professional accountant who is a member of the American Institute of Certified Public Accountants. Designation CPA.
Check Register - A form of cash payments journal which is used to record deposits and expenditures in and out of a bank account.
Close Corporation or Closely Held Corporation - A close corporation is a corporation that possesses the following traits: a small number of shareholders; no ready market for the corporation’s stock; and substantial participation by the majority shareholders in the management of the corporation. Some states have close corporation statutes.
Common Stock - The primary stock of a corporation. This stock gives shareholders the right to participate in management of the corporation and give the shareholder a proportionate share of the dividends.
Compound Interest - Interest calculated on both the principal amount invested and the previously accumulated unpaid interest.
Consignee - A person who receives goods that belong to someone else for future sale or other purpose. Although consignees are not the owners of the goods, they are accountable for them.
Consignment - Goods that are in the hands of someone other than the owner for future sale or other purpose.
Consignor - The owner of goods that are in someone else’s hands for future sale or other purpose.
Consolidated Financial Statements - Financial statements that show the results of all operations under the parent company’s control, including those of any subsidiaries.
Controlling Interest - Direct or indirect ownership of voting shares sufficient to elect the majority of the board of directors of a corporation.
Corporate Record Book - Maintaining the proper records is very important to assure limited liability to corporate shareholders. The corporation should have a record book that contains a copy of the articles of incorporation, bylaws, initial and subsequent minutes of directors and shareholders meetings and a stock register.
Corporation - Legal entity formed under the authority of either provincial or federal statues usually formed to make a profit. Liabilities of shareholders (owners) are generally limited to the amount of their investment. The name of a corporation ends with Limited, Ltd., incorporated, Inc., Corporation or Corp.
Credit (1) - Legal obligation to make repayment at a later date for goods, services or money obtained through the extension of credit i.e., a promise to pay in the future. The cost of credit is usually referred to as a finance charge, interest or time-price differential.
Credit (2) - Entry recording an increase to a liability or owner’s equity or revenue, or a reduction to an asset or expense. Credits are recorded in the right hand column of an account or a two-column book. Opposite of debit.
Credit Bureau - Clearinghouse of consumer credit information used by businesses to determine the creditworthiness of borrowers.
Credit Note - Issued by a seller to a purchaser to record the reduction of a bill because of an allowance, return or cancellation. Opposite of an invoice.
Cumulative Voting - This method of voting is intended to create adequate representation of minority shareholders. Cumulative voting allows shareholders to aggregate their votes in favor of fewer candidates than there are slots available.
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. - Debit - Entry recording an increase to an asset or expense or a reduction to a liability, revenue or owner’s equity. Debits are recorded in the left-hand column of an account or a two-column book. Opposite of credit.
Deficit - A negative amount (debit balance) of retained earnings caused by cumulative losses and dividend distributions exceeding cumulative net income.
Demand Loan - Loan repayable upon demand of creditor.
Depletion - Gradual using up or consumption of a natural resource.
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.
Directors - Directors are elected by the shareholders. They manage or direct the affairs of the corporation. Typically, the directors make only major business decisions and monitor the activities of the officers.
Direct Cost - Costs identified with a specific unit of product (for example, clay in the production of flowerpots or tubing in the production of bicycles).
Disposable Income - An individual’s income after taxes.
Dissolution - The termination of a corporation’s legal existence. Dissolution may be caused many ways including: failure to file annual reports, failure to pay certain taxes, bankruptcy, or voluntary dissolution of the corporation by the shareholders and directors.
Dividend - A distribution of money or property paid by the corporation to a shareholder. These distributions are subject to a double tax; both the corporation and the dividend recipient must pay federal taxes on these earnings.
Domestic Corporation - A Corporation is a domestic corporation in the state where it has incorporated.
Double Taxation - Corporations are treated as a separate legal taxable entity for income tax purposes. Therefore, corporations pay tax on their earnings. If corporate earnings are distributed to shareholders in the form of dividends, the corporation does not receive the reasonable business expense deduction, and dividend income is taxed as regular income to the shareholders. Thus, to the extent that earnings are distributed to shareholders as dividends, there is a double tax on earnings at the corporate and shareholder level. S corporations and LLCs are pass-through entities that are not subject to the double tax. - 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).
Expenditure - Consumption of an asset or payment for an expense. Incurrence of a liability.
External Auditor - An independent accountant engaged to determine if the financial statements of an entity represent the economic events that occurred during the period audited. The external audit is for the shareholders/owners (rather than for management).
Fair Market Value - The highest price available in an open and unrestricted market between informed, prudent parties, acting at arm’s length and under no compulsion to transact expressed in terms of money or money’s worth.
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.
Fiduciary - A person who holds something in trust for another (often used to describe executors and administrators of estates and trusts).
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.
Fixed Rate - A mortgage with an interest rate which does not increase or decrease during the term of the loan.
Fixed Assets - See Capital Assets
F.O.B. - Shipping term meaning "free on board" to inform the purchasers of the location at which they become responsible for the shipping charges (for example, F.O.B. Toronto means the vendor pays the charges to Toronto’s freight yard and the purchaser is responsible from there).
Foreign Corporation - A Corporation is referred to as a foreign corporation in all states except for the state where it is incorporated. If a corporation conducts business in a state other than where it was incorporated, it must register for a certificate of authority to transact business in the other state or possibly lose access to that state’s courts and face fines.
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. - GAAP - Abbreviation for generally accepted accounting principles. Accounting principles that have been given formal recognition or authoritative support.
GAAS - Abbreviation for generally accepted auditing standards. Auditing standards that have been given formal recognition or authoritative support.
General Journal - Journal in which transactions are recorded for which specific journals are not provided (for example, adjustments and corrections). In a small operation the general journal may be the only book of original entry.
General Ledger - Ledger in which all the assets, liabilities, equity, revenue and expenses are posted and from which financial statements are prepared.
Goodwill - The difference between going-concern value and tangible asset value (tangible assets include identifiable intangible assets having values that can be separately determined).
Holding Company - A corporation that has no other function except owning other corporations.
Home Equity Loan - Loan in which the lender allows the borrower to use the equity in his or her home as collateral for a line of credit or revolving credit. The borrower may then obtain cash advances by using a credit card or checks up to some predetermined limit. - 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 - Tax levied on the income of a person or a business.
Incorporator - The person or entity that prepares and files the articles of incorporation. Total Tax Solutions acts as an Incorporator for many new companies.
Incorporated (Inc.) - See Corporation.
Individual Retirement Accounts (IRAs): - A tax-deferred product offered by banks, mutual funds and other companies. Under current law, a married couple can put $4,000 ($2,000 each) into their own IRA each year in a wide range of savings accounts and investments. Earnings are tax-deferred until you begin withdrawing the money (which you can start doing without penalty after age 59 ?). Under current tax law, some people (depending on their income, marital status or other factors) can deduct all or part of their IRA contributions, which reduces their taxes.
Indemnify - To reimburse or compensate. Directors and officers of corporations are often reimbursed or indemnified for all the expenses they may have incurred during the incorporation process.
Interest (1) - "Interests" represent a member’s ownership of an LLC just as a partner has an interest in a partnership and shareholders own stock in a corporation.
Interest (2) - The cost of using money over time usually expressed as an annual percentage.
Insolvency - When liabilities exceed assets. Also, the inability to pay debts when due. See Bankruptcy.
Installment - A part of a sum of money or a debt to be paid at regular intervals, usually made up of principal and interest combined.
Intangible Asset - An asset without physical substance that has value due to rights resulting from its ownership and possession (for example, goodwill, patents, trademarks).
Internal Auditor - An employee of an entity (for example, a corporation) who audits for management, providing valuable information for decision-making concerning the effective operation of its business.
Internal Control - A coordinated system of procedures and techniques designed to safeguard a company’s assets, to ensure the accuracy of its accounting records, and to promote efficiency and adherence to prescribed policies.
Inventory - Items of tangible property held for sale. An Inventory is a detailed list of items and their values owned at a specific point in time. Stock inventory would include raw materials for manufacture, materials partly processed and finished products including items in transit for which title is held, but would not include items physically held for which title belongs to others. Inventories may also be made of fixed assets, stationery and supplies, etc.
Investment - Funds committed to acquire something tangible or intangible in order to receive a return, either in revenue or use.
Invoice - Document for goods purchased or services rendered showing details such as quantities, prices, dates, shipping details, order numbers, terms of sale, etc. - Joint Products - Two or more goods having approximately the same economic value that are manufactured simultaneously from the same raw material.
Journal - A book of original entry in which financial transactions are recorded (for example, a purchase journal is a record of purchase transactions).
Journal Entry - An entry in any journal.
Keogh Accounts: - Similar to a 401(k), but for the self-employed.
Lease - A legal contract conveying the use of property from the owner (lessor) to another (lessee) at a fixed rate, for a stated length of time.
Leasehold Improvements - Additions, improvements or alterations made to leased property by the lessee.
Ledger - A book of final entry containing all the accounts of a business or all the accounts of a particular type (for example, general ledger, accounts receivable ledger).
Liability - The Liabilities of a business are the debts of a business. For example, if money is borrowed from a bank, there is a liability to repay the loan. In this case, the borrower would be known as the debtor and the bank to which the debt is owed would be called the creditor.
Limited (Ltd.) - See Corporation.
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.
Liquid Asset - An asset, such as cash, that can be readily converted into other types of assets or used to buy goods and services or satisfy obligations.
Liquidation - The winding-up of an organization by settling with debtors, creditors and shareholders. Usually done by selling or otherwise disposing of assets to pay off liabilities.
Liquidation Value - The net amount realized on assets in the event of a liquidation.
Loss - The excess of expenditures over revenues. Opposite of income/profit. - Management Accounting - Accounting concerned with providing information to managers; that is, to those who are inside an organization and who direct and control operations. Management Accounting includes cost accumulation for product costing, budgeting and financial statement analysis.
Manager - An LLC may be operated by a group of managers who act much like a board of directors. If an LLC is to be controlled by mangers this fact must be stated in the articles of organization.
Market Value - The highest price that an owner could realize in an open market transaction. See Fair Market Value.
Materiality - A term used to describe the significance of financial statement information to decision makers. An item of information is material if it is probable that its omission or misstatement would influence or change a decision.
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.
Merger - Merger occurs when one corporation is taken over by another.
Minutes - A written record which details the events of the corporation. These records should be kept in the corporation’s record book.
Minority Interest - The equity of all shareholders who do not hold a controlling interest in a company.
Money Market - Financial markets in which short-term debt instruments such as Treasury bills, commercial paper and CD’s are traded.
Name Reservation - The name of a corporation or LLC must be distinguishable on the records of the state government. If the name is not unique, the state will reject the articles of incorporation or articles of organization (for LLCs). A name can be reserved, usually for 120 days, by applying with the proper state authorities and paying a fee.
Net Income - Profit 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)
No-Par-Value Stock - Stock with no minimum value. Most states allow no-par stock. If the stock is no-par stock then the amount of stated capital is an arbitrary amount assigned by the board of directors. Further, the value of capital for franchise tax purposes is determined by the state and this may result in higher franchise taxes in comparison with low par-value stock.
Note Payable (Promissory Note) - Written promise made by one individual to another to pay a specific amount on demand or by a definite date.
Note Receivable - Written promise by another party to make payment to you at a specified date.
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. - Officers - Officers are people who are appointed by the directors. They manage the daily affairs of the corporation. A Corporation’s officers usually consist of a president, vice-president, treasurer, and secretary. In most states, one person can hold all of these positions.
Operating Agreement - An agreement among the LLC members which govern the LLC operations and the rights of its members. It is analogous to corporate bylaws.
Options - Marketable securities that provide for future exchange of cash and common shares contingent upon the option owner’s choice.
Organizational Meeting - The initial meeting where the formation of the corporation is completed. At the organizational meeting a number of initial tasks are completed such as: the articles of incorporation are ratified, the initial shares are issued, officers are elected, bylaws approved, and a resolution authorizing the opening of bank accounts is passed. If the initial directors are named in the articles of incorporation, they can hold the organizational meeting. If they are not named, then the Incorporator holds the organizational meeting.
Owner’s Equity - What the business is worth to the owner. See Capital and Equity.
Overhead - Fixed costs not directly applicable to the production of a -product (for example, costs of lighting and heating a factory).
Paid in Capital Requirements - A few states require corporations to have a specified amount of paid in capital prior to starting business. These states include CT, DC, SD, and TX and require that the company have $1,000 in paid in capital before starting business.
Par-Value - The stated minimum value of a share stock. Stock must be sold for at least this value or the owner of the stock can face liability. With low par value stock or no par value stock this liability is minimized.
Parent Company - A corporation that directly or indirectly owns a controlling interest in another corporation. See Subsidiary.
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.
Pass-Through Taxation - Income to the entity is not taxed. Instead the income is "passed through" to the individual shareholders or interest holders. S corporations, Partnerships and LLCs are pass-through taxation entities.
Payable - An obligation to pay a sum at a future date.
Payroll - A record of wages or salaries paid or payable. The actual wages and salaries paid during a given period.
Pension - Arrangement whereby an employer agrees to provide benefits to retired employees. - A pension is paid out in a series of regular payments or a lump sum of money to retired employees or their beneficiaries.
Piercing the Corporate Veil - If corporate formalities are not followed, it is possible that the corporate entity will not protect shareholders from corporate debt. Keeping proper records and holding regular meetings help solve this possible problem.
Posting - Process whereby transactions are transferred from a journal to a general ledger or subsidiary ledger.
Preemptive Rights - Rights delineated in the articles of incorporation granting shareholders the first opportunity to buy a new issue of stock in proportion to their current equity. The shareholder has the right to buy the new issue of stock, but is not required to make the purchase. If the shareholder elects not to exercise this right, the shares can be sold on the open market.
Preferred Stock - Stock that generally provides the shareholder with preferential payment of dividends but does not carry voting rights.
Premium - An amount paid for insurance.
Prepaid - Asset created by payment for economic benefits that do not expire until a later time; as the benefit expires the asset becomes an expense (for example, prepaid rent, prepaid insurance).
Principal - The capital portion of a loan as opposed to interest.
Professional Corporation - A Corporation that is organized for the purpose of engaging in a learned profession such as law, medicine or architecture. Professional Corporations must file articles of incorporation with the state which meet the state’s requirements for professional corporations.
Profit - The excess of total revenue over total expenses for a period of time.
Proxy - If a shareholder can not attend a meeting, the shareholder is allowed to vote by proxy. A proxy grants another individual the power to vote on their behalf. - Quorum - The minimum attendance required to conduct business at a meeting. Usually, a quorum is achieved if a majority of directors are present (for directors meetings) or outstanding shares are represented (for shareholder meetings). The percentage needed for a quorum may be modified in the bylaws.
QuickBooks - QuickBooks is the most commonly used small-business accounting and management software software in the U.S.. Intuit makes some of the popular personal finance programs, including: Quicken, TurboTax, and the popular small business accounting program QuickBooks.
Ratio - Relative size, expressed as the number of times one quantity is contained in another (for example, the ratio of assets to liabilities of a company having total assets of $200,000 and liabilities of $150,000 would be $200,000 / $150,000 = 1.33)
Receivable - An amount to be received at a future date.
Refinancing - Rescheduling of payments due, usually resulting in smaller payments over a longer period of time.
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.
Registered Office - The office named in the articles of incorporation. The registered office must be where the registered agent is located, and need not be the principal office or place of business of the corporation.
Resolution - A resolution is a formal decision of the corporation that has been adopted by either the shareholders or the board of directors.
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.
Review Engagement - The un-audited review of financial statements of a business or organization by an independent accountant for the purpose of determining the plausibility of the information reported on. A review includes making inquiries concerning financial, operating and contractual information, applying analytical procedures and having discussions with appropriate officials of the enterprise.
Review Engagement Report - The accountant’s report that prefaces un-audited financial statements and provides negative assurance that the financial information conforms to generally accepted accounting principles.
Risk - Possibility that the actual return on an investment will be less than its expected return. - 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.
Security - Collateral for a debt (for example, accounts receivable may be pledged as security for a loan). Security is a generic term used to refer to a bond, share certificate or other medium or long-term investment evidencing debt or ownership.
Share - An interest in a corporation. The total ownership of a corporation is divided into shares of stock. See Stock
Shareholder - Any holder of one or more shares in a corporation. A shareholder usually has evidence that they are a shareholder. This evidence is represented by a stock certificate.
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.
Stated Capital - The par value of shares multiplied by the number of shares outstanding. The amount of stated capital may effect the ability to pay dividends.
Statement - Summary of an account for a period of time (usually one month) showing invoices, credits and balance due. A statement is provided to a customer by a supplier.
Statement of Changes in Financial Position - A financial statement showing the effect of operating, financing and investing activities effecting the cash position of the company. Also known as Cash Flow Statement, Statement of Cash Flow, Statement of Operating, Financing and Investing Activities, or Statement of Changes in Cash Resources.
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.
Stock - Capital of a corporation that is divided into portions or shares. Stock refers to an equity or ownership interest in a corporation. There may be several classes of stock in a corporation, each class divided into equal portions or shares. Ownership of shares is demonstrated by stock certificates. See Share.
Stock Certificate - A written instrument that shows ownership of shares in a corporation.
Stock Dividend - A dividend paid by the issuance of shares of capital stock.
Stockholder - See shareholder.
Stock Option - The right to buy shares of capital stock at a stated price on or by a given date. A privilege often extended to executives or employees of a company.
Stock Transfer Book - A record book which lists the owners of shares of stock in a corporation.
Subsidiary - A corporation controlled by another corporation that owns directly or indirectly an interest sufficient to elect a majority of the board of directors. See Parent Company.
Tax Avoidance - Legal minimization of the impact of taxation.
Tax Evasion - Illegal attempt to escape the impact of taxes.
Tax Shelter - Investment to acquire something of value with the expectation it will produce income and reduce or defer taxes.
Title - Legal right to ownership of property.
Treasury Bills - Debt obligations of the U.S. Government that mature in one year or less.
Treasury Shares - Shares of stock that were issued and later acquired by the corporation.
Trial Balance - Listing and totaling all balances in a ledger to verify that total debits equal total credits.
Trust - Fiduciary relationship under which property is held by one person (a trustee) for the benefit of another (the beneficiary).
Trust Fund - Money, property or valuables legally held by a person or company for the benefit of another.
Trustee - A person or company legally responsible for the property of another. - Ultra Vires - Traditionally, the purpose of a corporation was closely spelled out in its articles of incorporation. If the corporation acted beyond its described purposes these actions were unenforceable against the corporation or by the corporation. However, most modern statutes allow corporate purposes to be any lawful activity. Therefore, the importance of this doctrine has greatly diminished.
Unanimous Written Consent - Nearly all states allow directors to act without a meeting if they each give their consent
Valuation Day - Date established by law as the basis of one method of valuation for the calculation of capital gains or losses for income tax purposes.
Variance - Difference between standard cost and actual cost. Also, the difference between an actual revenue or expense item and the budget for that item (budget variance).
Write-off - To transfer an item that was an asset to an expense account (for example, to transfer an uncollectable account receivable to bad debts expense)
401(k) - A type of retirement program sponsored by employers for their workers. Contributions deducted directly from your paycheck make it easy to save and can reduce your taxable income for that year. Earnings grow quickly because they’re tax-deferred. Many employers also match the employee’s own contributions up to a set limit.
