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Accountant job description

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Accountant jobs description with the Base Salary

Accountant job is most important in any businesses and individual accountant skills are needed for public accountants too.

 Financial information & financial transactions are related with the accountant  job.

Accountant Job is to make financial reports with accounting skills and As per Legal or personal requirements.

The Companies Looking to Hire Accountants for accountant jobs in New York, USA Normally pay Base Salary  $6000 to 15000 per Month - Education Requirement: Bachelor’s Degree in Accounting.

 

Accountant Job description Legal Samples

Qualified person who is trained in bookkeeping and in preparation, auditing and analysis of accounts. Accountants prepare annual reports and financial statements for planning and decision making, and advise on tax laws and investment opportunities.

Base Salary

6000 USD per Month

 

Education Requirements

Bachelor’s Degree in Accounting

 

Employment Type              (e.g. full-time, part-time, contract, temporary, seasonal, internship).

Full Time

Accountant jobs description ,Base Salary
Accountant jobs description - Base Salary

Estimated Salary

72000 USD  per year

 

Experience Requirements

Proven working experience as a accountant of One Year or more

 

Hiring Organization

Global Finance Company

 

Incentive Compensation

2000 USD per Month

Industry

Finance

Job Benefits

    • Very competitive compensation package inclusive of a generous benefits package
    • 100% of healthcare premium costs covered by employer, dependents added at 50% of cost
    • life insurance
    • 401(k) plan with up to 6% match
    • Voluntary Benefits (Supplemental Life, Accident, Short Term Disability, etc.)
    • Generous time off program includes 22 holidays, sick leave and vacation
    • Other great benefits (Flexible spending account, EAP, tuition reimbursement, etc.)

Job Location

New York, USA

Occupational Category

Financial auditors and accountants

 

Qualifications

Bachelor’s Degree in Accounting

Most employers require a minimum of a bachelor’s degree in accounting to work in an accountant or auditor position. While a bachelor’s degree is the minimum requirement, some companies prefer accountants with a graduate degree education. State requirements for a Certified Public Accountant license or certification include a minimum of a bachelor’s degree.

  • Proven working experience as  accountant or in a relevant field
  • Thorough knowledge of accounting and corporate finance principles and procedures
  • Excellent accounting software user
  • Strong attention to detail and confidentiality
  • Advanced degree in Accounting
  • CPA or CMA preferred

 

 

Relevant Occupation

  • accountant
  • accountant-controller
  • accountants supervisor
  • accounting controller
  • analyst-accountant
  • assistant controller
  • auditor-CA (chartered accountant)
  • auditor-chartered accountant (CA)
  • auditor - finance
  • auditors supervisor
  • audit unit head - taxation
  • bank branch accountant
  • bank reserves auditor
  • bankruptcy trustee
  • branch accountant, bank
  • budget accountant
  • CA (chartered accountant)
  • CA (chartered accountant) student
  • certified general accountant (CGA)
  • certified management accountant (CMA)
  • CGA (certified general accountant)
  • chartered accountant (CA)
  • chartered accountant (CA) student
  • chief accountant
  • claims accountant
  • CMA (certified management accountant)
  • computer audit specialist
  • cost accountant
  • cost accounting supervisor
  • departmental accountant
  • division controller - accounting
  • field auditor - finances
  • financial accountant
  • financial auditor
  • financial control officer
  • general accountant
  • income tax adjuster
  • income tax adviser
  • income tax consultant
  • income tax expert
  • income tax investigator
  • income tax specialist
  • industrial accountant
  • industrial auditor
  • intermediate accountant
  • internal auditor
  • internal auditor - finances
  • internal auditors supervisor - finances
  • internal audit project manager
  • internal audit supervisor - finances
  • machine processing accountant
  • management accountant
  • management accounting chief
  • manufacturing accountant
  • officer, financial control
  • plant accountant
  • plant controller
  • production accountant
  • project accountant
  • property accountant
  • public accountant
  • public accountants chief
  • public accountants supervisor
  • reinsurance analyst
  • rulings officer, taxation
  • sales auditor - finances
  • senior accounting analyst
  • senior cost accountant
  • senior intern auditor
  • supervisor, accountants
  • supervisor, auditors
  • supervisor, cost accounting
  • supervisor, internal audit - finances
  • supervisor, internal auditors - finances
  • supervisor, public accountants
  • tax accountant
  • tax adviser
  • tax analyst
  • taxation rulings officer
  • tax auditor
  • tax consultant
  • tax evaluator
  • tax examiner
  • tax expert
  • tax specialist

 

Responsibilities

Provides financial information to management by researching and analyzing accounting data; preparing reports. Prepares asset, liability, and capital account entries by compiling and analyzing account information.

Job Responsibilities / Duties include but not limited to:

  • Prepares asset, liability, and capital account entries by compiling and analyzing account information.
  • Documents financial transactions by entering account information.
  • Recommends financial actions by analyzing accounting options.
  • Summarizes current financial status by collecting information; preparing balance sheet, profit and loss statement, and other reports.
  • Substantiates financial transactions by auditing documents.
  • Maintains accounting controls by preparing and recommending policies and procedures.
  • Guides accounting clerical staff by coordinating activities and answering questions.
  • Reconciles financial discrepancies by collecting and analyzing account information.
  • Secures financial information by completing data base backups.
  • Maintains financial security by following internal controls.
  • Prepares payments by verifying documentation, and requesting disbursements.
  • Answers accounting procedure questions by researching and interpreting accounting policy and regulations.
  • Complies with federal, state, and local financial legal requirements by studying existing and new legislation, enforcing adherence to requirements, and advising management on needed actions.
  • Prepares special financial reports by collecting, analyzing, and summarizing account information and trends.
  • Maintains customer confidence and protects operations by keeping financial information confidential.
  • Maintains professional and technical knowledge by attending educational workshops; reviewing professional publications; establishing personal networks; participating in professional societies.
  • Accomplishes the result by performing the duty.
  • Contributes to team effort by accomplishing related results as needed.

 

Salary Currency

USD

Skills

Accounting, Corporate Finance, Reporting Skills, Attention to Detail, Deadline-Oriented, Reporting Research Results, SFAS Rules, Confidentiality, Time Management, Data Entry Management, General Math Skills.

 

 

Special Commitments

  • The Accountant must be able to perform the duties of the job.
  • One to two years of experience in accounting and/or real estate accounting.
  • Basic analytical skills.
  • Basic knowledge of tax basis financial reporting.
  • Ability to operate computer system and effectively input and download pertinent information.
  • Ability to use and gain sufficient knowledge of computer software currently utilized by the Company.
  • Must have good Excel skills.
  • Ability to effectively listen to co-workers and respond to their requests.
  • Ability to understand and communicate in English, both verbally and written.

 

 

Work Hours     (e.g. 1st shift, night shift, 9am-5pm).

9 am –  5pm

 

Main Entity of Page

Accountant jobs description and Base Salary 6000 USD per Month

Job description

Global Finance Company Looking to Hire 37 Accountants for accountant jobs in New York, USA.

Base Salary 6000 USD per Month - Education Requirement: Bachelor’s Degree in Accounting.

Qualified person who is trained in bookkeeping and in preparation, auditing and analysis of accounts. Accountants prepare annual reports and financial statements for planning and decision making, and advise on tax laws and investment opportunities.

An accountant is a practitioner of accounting or accountancy, which is the measurement, disclosure or provision of assurance about financial information that helps managers, investors, tax authorities and others make decisions about allocating resource(s).

In many jurisdictions, professional accounting bodies maintain standards of practice and evaluations for professionals. Accountants who have demonstrated competency through their professional associations' certification exams are certified to use titles such as Chartered Accountant, Chartered Certified Accountant or Certified Public Accountant. Such professionals are granted certain responsibilities by statute, such as the ability to certify an organization's financial statements, and may be held liable for professional misconduct. Non-qualified accountants may be employed by a qualified accountant, or may work independently without statutory privileges and obligations.

Cahan & Sun used archival study to find out that accountants’ personal characteristics may exert a very significant impact during the audit process and further influence audit fees and audit quality.

The Big Four auditors are the largest employers of accountants worldwide. However, most accountants are employed in commerce, industry and the public sector.

 

Education requirements for accountants

Accountants audit, prepare and analyze financial records of businesses and individuals. They can work in accounting or business firms, in an accounting department or as a certified public accountant, who requires a license in all 50 states. According to the Bureau of Labor Statistics, accountants must be Certified Public Accountants to file a report with the Securities and Exchange Commission. Successful accountants have met the education requirements that include at least a bachelor's degree.

 

Bachelor of Accounting
Most employers require a minimum of a bachelor's degree in accounting to work in an accountant or auditor position. While a bachelor's degree is the minimum requirement, some companies prefer accountants with a postgraduate education. State requirements for a Certified Public Accountant license or certification include a minimum of a bachelor's degree.

Minimum undergraduate credits
Certified public accountants must meet the state education requirements to qualify for the uniform CPA exam. While the requirements include a bachelor's degree education, most states include a minimum of 150 semester hours in college courses to qualify for a license. Some students may complete additional courses beyond the bachelor's degree to meet state requirements, and colleges may offer combined bachelor's and master's degree programs to satisfy the state licensing board.

Accounting course requirements
State requirements for certified public accountants may include an educational program that includes specific courses. For example, the state of New Hampshire requires applicants for a license to complete at least 12 semester hours in accounting courses. The state of California requires applicants to complete a minimum of 24 semester hours in accounting in courses such as financial reports, audits, taxes, financial statements and external reports. New York requires at least 33 semester hours in accounting courses that must include a minimum of one course each in tax, accounting and financial reporting, management accounting and auditing.

Business course requirements
In addition to accounting courses, states may require applicants for a license to complete business courses. New Hampshire requires at least 12 hours in non-business commercial courses. California requires a minimum of 24 semester units in business courses in subjects such as economics, finance, marketing, business administration, commercial law, statistics, and business administration. The state of New York requires at least 36 hours in general business courses to qualify for a certified public accountant's license.

Work experience
Work experience can provide additional training and education for accountants. State accounting boards may require candidates for a license to complete a number of years under the supervision and direction of a certified and authorized public accountant. Some states require a combination of education and work experience to obtain a license. For example, in New Hampshire, candidates with a bachelor's degree must complete two years of full-time experience to meet state requirements, but those with a master's degree can qualify with one year of work experience. New York requires one year of experience for applicants. Work experience must be in the practice of accounting services.

Continuing education
Accountants who complete the requirements to obtain an initial license as a certified public accountant must complete continuing education to maintain it. For example, Florida requires certified public accountants to complete a minimum of 48 hours in two years of continuing education in accounting and auditing to maintain the license. Florida requires at least 5 percent of the hours of continuing education to be in ethics for accounting.

Benefits of Becoming an Accountant

Hand checking receipt with calculator next to it Pursuing a career as an accountant might be one of the best ways of investing in your education. All too often, graduates have celebrated their milestone of completing their associates, bachelors, masters, and even Ph.Ds. without knowing whether or not the degree that they’ve worked so hard for will render a return on their investment.

 

The reality with pursing a post-secondary degree is that there are no guarantees that anyone will land a dream job that offers financial security. However, it has been proven time and time again that these chances can be increased with a college degree. What better way to do that than with an Accounting Degree from Florida National University (FNU)?

 

Obtaining a degree in accounting has its advantages. Here are few of them:

    Accountants Have a Better Understanding of Finances

After years of studying the art of money, accountants have gained the type of knowledge most people would pay for. Earning an accounting degree at FNU offers students a wide array of knowledge within its field. In addition to accounting, the FNU curriculum also provides information in areas like micro and macroeconomics, business and tax law, corporate finance, spreadsheet analysis, banking and finance, entrepreneurial, management, and supervisory skills. All of these skills are applicable to any job profession. Any employer would greatly benefit from an employee who possesses any of these skill sets. Having these talents can also be applied toward life skills in general.

 

    The Demand for Accountants

 

As aforementioned, there are no guarantees that anyone will land a job once they have earned their degree, but it is worth noting that the demand for accountants ranks high. Accounting is all about managing money! It is the driving force of our economy. Every business needs an accountant to handle its finances. So it is safe to assume that there ought to be a significant demand for accountants.

 

“Everyone needs accounting,” stated Chris Frey, United Data Technology’s Director of Finance. “The demand is always constant, spanning across all industries and sectors creating job security along with career longevity.”

 

However, it is up to the graduate to find these job opportunities.

 

    Opportunity for Advancement

 

With the right kind of networking connections, an entry-level accountant can increase his/her salary within a year’s time. The field of accounting is wide, but precise. With a baseline of accounting skills and continued education, one has the option of obtaining a job as a Budget Analyst, Auditor, Controller, Tax Accountant, Payroll Clerk, CPA, and even a CFO. Additionally, coupling accounting skills with any other type of skill set will create an attractive resume.

 

Having general knowledge of accounting principles provides a good foundation toward advancing into higher positions. For positions like Cost Accounting and Financial Planning & Analysis, it is important to know how the numbers in the report got created. Because, these days, it is no longer acceptable to just present a pretty PowerPoint presentation with colorful number and charts.

 

“The finance sector is under pressure to become more strategic.” Frey said. “Companies expect their accounting and finance department to analyze, explain, and take action.”

 

To know the actions that can be taken upon the results delivered, develop a plan to implement those actions, and change the future outcome, requires the skill set of an accountant.

 

    The Pay Range for Accountants is Often Generous

 

Because of the nature of the profession, accountants typically begin their careers at a generous salary. The Bureau of Labor Statistics reported that the median salary for accountants in 2014 was $65,940 or $31.70 an hour. The lowest was $40,850 while the highest was allotted at approximately $115,950. These numbers vary depending on one’s regional location, whether the company is privately owned, public, or operated by the government. It is also likely that the higher paid salaries are offered in bigger metropolitan areas.

 

    The Ability to Start Your Own Business

 

It is not uncommon for some professionals to become entrepreneurs. This is sometimes done after years of on-the-job experience when an accountant has developed a sufficient amount of contacts. One may feel more comfortable after years of networking to use the contacts that they’ve developed to start their own business. Whether it’s consulting or specializing in taxes, the options are endless when it comes to financial affairs.

 

Forbes announced an accountant as one of the best jobs in 2013. This is most likely because it’s the type of profession that can stand on its own. Even as a self-employed accountant, one has the potential to earn a great deal of income just because of the demand of money management.

 

    Have a Better Understanding of Tax Laws

 

A good education that is worth its salt will see to it that their accounting program will include a course on tax law. Because of the personal, legal, and business repercussions of breaking or neglecting any tax law, a professional who calls themselves an accountant must acquire some type of knowledge when it comes to taxes. Paying taxes are a requirement enforced by law for citizens to follow. Not knowing them does not relinquish a person from these responsibilities either.  So getting an education that teaches these laws is most beneficial.

The Rise of the Accountant Salary and 10 Top Accounting Jobs

 

Are you a manager looking to attract the best people in the accounting and finance field? Are you a candidate searching for top accounting jobs that are both in demand and lucrative? Not only can you establish a starting accountant salary, based on experience, skills and job complexity, but you can find salary ranges for nearly 200 positions.

 

The Salary Guide has all that information, as well as advice on the key factors driving job searches — compensation, corporate culture, career path, cost of living and commute. If you want a breakdown of local markets for an accountant salary, that's in the guide, too.

Take a look at 10 of the top accounting jobs and finance positions — in no particular order — and their projected starting salaries, as well as a description of their typical duties. Salaries at the midpoint levels are those for candidates with average experience and skills to meet job requirements, and for roles that are considered to be of average complexity or in industries where competition for talent is moderate.

 

Keep in mind that bonuses, incentives and benefits are not included in the salaries and that they represent national averages that can be adjusted for your city or region.

 

1. General accountant

 

Organizations are bolstering their ability to realize company-wide goals by adding analytics-savvy staff accountants to finance departments. Staff accountants with a bachelor's degree and one to three years of experience are expected to see starting midpoint salaries of $60,000, both in financial services and corporate accounting.

 

Typical duties: Reviewing general ledger accounts and preparing and adjusting journal entries; performing account analysis and reconciliation, including bank statements and intercompany general ledger accounts; maintaining general ledger chart of accounts; assisting with initial internal control evaluations; posting monthly, quarterly and yearly accruals.

 

2. Financial analyst

 

Financial analyst hiring is on the upswing as firms look for guidance on how to increase efficiencies, keep costs in check and maximize the benefits of new and existing information systems. The salary midpoint for financial analysts with one to three years of experience is $65,000, and for senior financial analysts, $80,000.

 

Typical duties: Analyzing new and existing product lines, promotion spending and service segment costs of the organization; preparing profit and loss models, balance sheets and other management reports to forecast financial outcomes; maintaining confidential financial information; performing budgeting variance and forecasting analysis for various levels of management.

 

3. Senior compliance analyst

 

With ever-changing compliance mandates and heightened enforcement, compliance professionals are highly sought professionals. Starting compensation for senior compliance analysts is forecast to be $85,000 at the 50th percentile, or midpoint, of starting salaries. The salary midpoint for chief compliance officers is $165,000.

 

Typical duties: Assisting the compliance officer in regulatory examinations and internal audits across the organization; conducting periodic compliance reviews of departments; preparing documentation of internal procedures; maintaining the company website as an information source for compliance; preparing compliance manuals and programs; assisting with developing compliance training modules and training of compliance team members; performing due diligence visits and risk assessments.

 

4. Internal auditor (manager)

 

Given the changing regulatory environment and the interconnectivity of business today, organizations find that strong internal audit leaders rank among their top accounting jobs. They help identify and weigh emerging risks and opportunities. The starting salary midpoint for an internal auditor manager is projected to be $110,000.

 

Typical duties: Managing complex audits and preparing audit reports; performing critical project management duties in the planning, scheduling, coordinating, reviewing and reporting of the work of audit teams; developing procedures, schedules, priorities and programs for achieving audit objectives and goals; undertaking comprehensive planning and risk assessments to identify potential business risks; planning, assigning and supervising the daily activities and work of the audit team; identifying and communicating to audit staff changes in professional standards, pronouncements, laws, guidelines and audit requirements; developing and maintaining productive client and staff relationships; hiring, training and supervising internal audit staff.

 

5. Controller

 

The heightened regulatory involvement is also fueling demand for controllers skilled in technology, analysis and management. In-depth knowledge of Sarbanes-Oxley provisions, SEC guidelines and all aspects of generally accepted accounting principles (GAAP) are critical. In 2018, controllers are expected to bring in a starting salary of $115,000 at the midpoint.

 

Typical duties: Planning, directing and coordinating accounting operational functions; managing the accumulation and consolidation of all financial data necessary for an accurate accounting of consolidated business results; coordinating and preparing internal and external financial statements; coordinating activities of external auditors; managing the budget process; assessing accounting operations, offering recommendations for improvement and implementing new processes; evaluating accounting and internal control systems; evaluating the effectiveness of accounting software and supporting database; developing and monitoring business performance metrics; overseeing regulatory reporting; hiring, training and retaining accounting staff.

 

6. AR/AP clerk

 

Companies can’t achieve success without accounts receivable and accounts payable jobs. The professionals with these operational support jobs make sure accurate and timely payments are made and received. They also oversee reconciliation and resolution of customer and vendor issues. The salary midpoint for AR/AP clerks is $34,250.

 

Typical duties: Matching, batching, coding and entering invoices; entering, posting and reconciling batches; researching and resolving accounts payable or accounts receivable issues with customers or vendors; updating and reconciling sub-ledger to the general ledger; maintaining cash applications, account reconciliations and chargebacks.

 

7. Senior accountant

 

Companies are seeking well-rounded senior-level accountants who can prepare financial statements and budgets, assess internal controls, and conduct risk assessments. In 2018, senior accountants in corporate accounting can expect to command a median accountant salary of $75,000.

 

Typical duties: Reconciling sub-ledger to general ledger account balances; preparing financial statements; assessing internal controls, including risk assessments and reviews of risk areas; assisting with budget preparation and preparing the monthly budget variance analyses; maintaining and reconciling fixed assets schedules; assisting with initial internal control evaluations; supervising accounting staff.

 

8. Payroll manager/supervisor

 

Whether it’s compliance, government reporting or policy implementation, payroll professionals have irons in many complex fires. Payroll managers/supervisors can expect to see their median salaries start at $71,000, according to the Salary Guide.

 

Typical duties: Ensuring compliance with current government regulations; establishing and implementing policies on such matters as garnishments and payroll advancements to employees; preparing government reporting; preparing accruals and reconciling sub-ledger to the general ledger; hiring, training, developing and supervising payroll staff.

 

9. Senior cost accountant

 

Analyzing inventory value, operational expenses and depreciation schedules are crucial to organizational success. The salary midpoint for jobs with the title of senior cost accountant is $77,000.

 

Typical duties: Analyzing manufacturing operations; analyzing manufacturing equipment availability and utilization; performing month-end cost accounting close; maintaining cost accounting system and cost ledger; performing life cycle cost-benefit analysis; analyzing inventory valuations.

 

10. Senior business analyst

 

Big data is a big deal. As finance departments move from a reporting-focused function to a more analytics-centric one, firms need experienced business analysts to make sense of data and offer sound strategic recommendations. The salary midpoint for senior business analysts is anticipated to be $86,000.

 

Typical duties: Assisting with implementation and support of business information systems across multiple departments; conducting market analysis and analyzing both product lines and the overall profitability of the business; developing and sharing reports that enable advertising, customer service, finance, sales and marketing managers to make better business decisions by understanding geography, supply chain and price; ensuring business data and reporting needs are met; developing and monitoring data quality metrics.

 

Whatever your accountant salary question, we have the answers for the year ahead.

 

Find top accounting jobs

 

Finance and accounting professionals are in demand in cities across the United States. See what employers are looking for in these hot cities:

 

Business analyst jobs in Houston

Cost accountant jobs in Honolulu.

Controller jobs in Los Angeles

Accounting jobs in Little Rock, Ark.

Payroll manager jobs in Dayton, Ohio

 

 

How Much do Accountants Make in Your City?

See current salary offers for jobs in your field.

 

What is the Accountant Salary by Place of Employment?

In addition to region and education, factors such as specialty, industry and employer have an effect on an accountant’s salary. The top-paying places of employment with the highest average annual salaries for this career include securities and commodity contracts intermediation and brokerage ($95,540), the federal executive branch ($94,520), securities and commodity exchanges ($93,050), software publishers ($92,190) and organizations that manufacture and reproduce magnetic and optical media ($90,520). Many accountants work full-time. Accountants’ schedules are typically busier during tax season and at the end of each budget year.

 

Frequently Asked Questions

Q: What is the salary range for accountants?

A: In 2015, the lowest-paid accountants earned an average annual salary of $41,400, while the highest-paid made $118,930.

 

Q: What is the salary for an accountant in California?

A: Accountants employed in California earned an average salary of $80,860 in 2015.

 

Average Accountant Pay vs. Other Best Jobs

Accountants earned an average salary of $75,280 in 2015, which is significantly higher than the average salary of bookkeeping, accounting and audit clerks ($38,990). Other professions in the finance and marketing fields yield higher compensation, including financial analyst ($95,320), financial advisor ($118,050), financial manager ($134,330) and marketing manager ($140,660).

 

Jobs Related to Accountant

Bookkeeping, Accounting and Audit Clerk - Average Salary $38,990

A bookkeeping, accounting and audit clerk’s duty within an organization is to produce final records and check those records for accuracy. These financial professionals also keep records of financial transactions and keep statements up to date.

 

Financial Analyst - Average Salary $95,320

A financial analyst helps businesses and private citizens make investment decisions. A financial analyst keeps a close eye on stocks, mutual funds, bonds and other relevant investments to help clients make the most informed decisions possible.

 

Financial Advisor - Average Salary $118,050

A financial advisor advises clients on all things financial, including investments, insurance, mortgages, higher education savings, estate planning, taxes and retirement. Financial advisors help clients plan for life events that will affect their finances and monitor their accounts in order to meet their financial goals.

 

Financial Manager - Average Salary $134,330

A financial manager’s duties go beyond simply monitoring an organization’s finances. These financial professionals create financial reports, are in charge of investment activities and strategize long-term financial plans for their organization. Specific financial manager jobs include chief financial officer, controller, treasurer, finance officer, credit manager, cash manager, risk manager and insurance manager.

 

 

Browse Average Salary Ranges for Accounting Jobs

(Accounting Pay Scales)

What are the average salary ranges for jobs in the Accounting category? Well there are a wide range of jobs in the Accounting category and their pay varies greatly. If you know the pay grade of the job you are searching for you can narrow down this list to only view Accounting jobs that pay less than $30K, $30K-$50K, $50K-$80K, $80K-$100K, or more than $100K. If you are unsure how much your Accounting job pays you can choose to either browse all Accounting salaries below or you can search all Accounting salaries.

 

Other related categories you may wish to browse are Banking jobs and Insurance jobs.

 

Accountant I

Alter Job Title: Entry Level Accountant Accountant II

Alter Job Title: Intermediate Level Accountant Accountant III

Alter Job Title: Senior Accountant Accountant IV

Alter Job Title: Lead Accountant Accounting Clerk I

Alter Job Title: Entry Level Accounting Clerk Accounting Clerk II

Alter Job Title: Intermediate Level Accounting Clerk Accounting Clerk III

Alter Job Title: Senior Accounting Clerk Accounting Director

Alter Job Title: Director of Accounting Accounting Manager

Alter Job Title: General Accounting Manager Accounting Supervisor

Alter Job Title: Supervisor Accounting Accounts Payable Clerk

Alter Job Title: Billing Clerk , AP Clerk Accounts Payable Manager

Alter Job Title: AP Manager Accounts Payable Supervisor

Alter Job Title: Accounts Payable Supervisor II , AP Supervisor II Accounts Payable/Receivable Analyst

Alter Job Title: AP/AR Analyst , Accounts Receivable/Payable Analyst , AR/AP Analyst Accounts Payable/Receivable Clerk

Alter Job Title: AR/AP Clerk , AP/AR Clerk , Accounts Receivable/Payable Clerk Accounts Payable/Receivable Manager

Alter Job Title: AP/AR Manager , Accounts Receivable/Payable Manager , AR/AP Manager Accounts Payable/Receivable Supervisor Accounts Receivable Clerk

Alter Job Title: Credit and Collections Clerk , Credit & Collections Clerk , AR Clerk Accounts Receivable Manager

Alter Job Title: AR Manager Accounts Receivable Supervisor

Alter Job Title: Accounts Receivable Supervisor II , AR Supervisor II

 

Accountant Salary

The average salary for an Accountant is $49,545 per year. For the first five to ten years in this position, pay increases somewhat, but any additional experience does not have a big effect on pay.

 

Salary    $37,346 - $70,496

Bonus   $100.82 - $6,995

Profit Sharing     $0.00 - $7,795

Commission       $0.00 - $8,500

Total Pay (?)       $34,151 - $70,897

 

 

Job Description for Accountant

Accountants perform financial calculations for companies in a wide variety of fields. Some common duties include creating sales and cash flow reports, administering payroll, keeping balance sheets, carrying out billing activities, managing budgets and keeping inventory. The accountant may also be responsible for filing taxes for the company, as well as reviewing past reports to generate income forecasts.

 

Occasionally, internal audits must be carried out to make sure that the various areas of the company are performing as expected; the accountant must also make sure that staff members are adhering to company policies and relevant laws. The accountant should be able to create accurate, detailed reports to illustrate data; sometimes, these reports have to be presented to management. The accountant may oversee the financial transactions of one department or multiple departments within their organization.

 

A bachelor's degree in accounting is required for this position, as is status as a certified public accountant (CPA). Previous accounting experience is generally required or preferred as well. Knowledge of accounting software such as Quickbooks and Microsoft Excel is needed. Additionally, many of the accountant's tasks are performed independently so it is essential to be self-motivated; however, collaboration is necessary, and the accountant must be able to work as part of a team.

 

Accountant Tasks

 

Analyze financial data in order to prepare financial reports.

Generate and interpret financial records and statements for management.

Maintain records of assets, liabilities, profit and loss, tax liability, or other financial activities within an organization.

Maintain general ledger as needed.

 

Common Career Paths for Accountant

Accountant

Senior Accountant

Accounting Manager

Financial Controller

Certified Public Accountant (CPA)

Senior Financial Analyst

Assistant Controller

Corporate Controller

Finance Manager

Chief Financial Officer (CFO)

Finance Director

Accounting Manager

Accounting Director

Financial Controller

Certified Public Accountant (CPA)

Financial Analyst

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Accounting Terminology Guide - Over 1,000 Accounting and Finance Terms

A | B | C | D | E | F | G | H | I | J | K | L | M | N | O | P | Q | R | S | T | U | V | W | X | Y | Z
0 | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9

Click one of the letters above to advance the page to terms beginning with that letter.

 

 

4

401(k) Plan

Employee benefit plan authorized by Internal Revenue Code section 401(k), whereby an employer establishes an account for each participating employee and each participant elects to deposit a portion of his or her salary into the account. The amount deposited is not subject to income tax. This is the most common type of salary reduction plans.

 

 

A

A Misstatement is Inconsequential

If a reasonable person would conclude after considering the possibility of further undetected misstatements that the misstatement either individually or when aggregated with other misstatements would clearly be immaterial to the FINANCIAL STATEMENTS. If a reasonable person could not reach such a conclusion regarding a particular misstatement, that misstatement is more than inconsequential.

Abatement

Complete removal of an amount due, (usually referring to a tax ABATEMENT a penalty abatement or an INTEREST abatement within a governing agency).

Absorption Costing

An approach to product costing that assigns a representative portion of all types of manufacturing costs--direct materials, direct labor, variable factory overhead, and fixed factory overhead--to individual products.

Accelerated Depreciation

Method that records greater DEPRECIATION than STRAIGHT-LINE DEPRECIATION in the early years and less depreciation than straight-line in the later years of an ASSET'S HOLDING PERIOD.

Account

Formal record that represents, in words, money or other unit of measurement, certain resources, claims to such resources, transactions or other events that result in changes to those resources and claims.

Account Payable

Amount owed to a CREDITOR for delivered goods or completed services.

Account Receivable

Claim against a DEBTOR for an uncollected amount, generally from a completed transaction of sales or services rendered.

Accountable Plan

Any reimbursement or other expense allowance arrangement of an employer that meets all of the following requirements (therefore excluding it from gross w-2 EARNED INCOME and tax): (1) it provides reimbursements advances or allowances including per diem and meals, to employees for any job related deductible business expense; (2) employees must be able to substantiate expenses covered in the plan; (3) employee must return any excess advances or payments.

Accountant

Person skilled in the recording and reporting of financial transactions.

Accountants' Report

Formal document that communicates an independent accountant's: (1) expression of limited assurance on FINANCIAL STATEMENTS as a result of performing inquiry and analytic procedures (REVIEW REPORT); (2) results of procedures performed (AGREED-UPON PROCEDURES REPORT); (3) non-expression of opinion or any form of assurance on a presentation in the form of financial statements information that is the representation of management (COMPILATION REPORT); or (4) an opinion on an assertion made by management in accordance with the Statements on Standards for Attestation Engagements (ATTESTATION REPORT). An accountants' report does not result from the performance of an AUDIT.

Accounting

Recording and reporting of financial transactions, including the origination of the transaction, its recognition, processing, and summarization in the FINANCIAL STATEMENTS.

Accounting Change

Change in (1) an accounting principle; (2) an accounting estimate; or (3) the reporting entity that necessitates DISCLOSURE and explanation in published financial reports.

Accounting Cycle

The sequence of steps followed in the accounting process to measure business transactions and transform the measurements into FINANCIAL STATEMENTS for a specific period.

Accounting Principles Board (APB)

Senior technical committee of the AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS (AICPA) which issued pronouncements on accounting principles from 1959-1973. The APB was replaced by the FINANCIAL ACCOUNTING STANDARDS BOARD (FASB).

Accounts Payable Subsidiary Ledger

A financial record of an individual ACCOUNT PAYABLE in which entries can be made daily.

Accounts Receivable Turnover

Used to measure a company’s ability to collect cash from credit customers. Found by dividing net sales by average net ACCOUNT RECEIVABLE.

Accrual

The recognition of an expense or revenue that has occurred but has not yet been recorded.

Accrual Accounting

The attempt to record the financial effects of transactions and other events in the periods in which those transactions or events occur rather than only in the periods in which cash is received or paid by the business, using all the techniques developed by accountants to apply the MATCHING PRINCIPLE.

Accrual Basis

Method of ACCOUNTING that recognizes REVENUE when earned, rather than when collected. Expenses are recognized when incurred rather than when paid.

Accrued Expense

An expense that has occurred but is not recognized in the accounts.

Accrued Interest

INTEREST that has accumulated between the most recent payment and the sale of a BOND or other fixed-income security.

Accumulated Depreciation

Total DEPRECIATION pertaining to an ASSET or group of assets from the time the assets were placed in services until the date of the FINANCIAL STATEMENT or tax return. This total is the CONTRA ACCOUNT to the related asset account.

Accumulation

Profits that are not paid out as DIVIDENDS but are instead added to the company’s capital base.

Acid-Test Ratio

The relationship of a company’s current assets that can be converted into cash to its current liabilities. It is determined by dividing QUICK ASSETS by current liabilities.

Acquisition

One company taking over controlling interest in another company.

Actuary

Mathematician employed by an insurance company to calculate PREMIUMS, RESERVES, DIVIDENDS, and insurance, PENSION, and ANNUITY rates, using risk factors obtained from experience tables.

Additional Paid in Capital

Amounts paid for stock in excess of its PAR VALUE or STATED VALUE. Also, other amounts paid by stockholders and charged to EQUITY ACCOUNTS other than CAPITAL STOCK.

Adjusted Basis

After a taxpayer's basis in property is determined, it must be adjusted upward to include any additions of capital to the property and reduced by any returns of capital to the taxpayer. Additions might include improvements to the property and subtractions may include depreciation or depletion. A taxpayer's adjusted basis in property is deducted from the amount realized to find the gain or loss on sale or disposition.

Adjusted Gross Income

Gross income reduced by business and other specified expenses of individual taxpayers. The amount of adjusted gross income affects the extent to which medical expenses, non business casualty and theft losses and charitable contributions may be deductible. It is also an important figure in the basis of many other individual planning issues as well as a key line item on the IRS form 1040 and required state forms.

Adjusted Trial Balance

A trial balance prepared after all adjusting entries have been recorded and posted to the accounts. Should have equal credit and debit totals.

Adjusting Journal Entry

An accounting entry made into a subsidiary ledger called the General journal to account for a periods changes, omissions or other financial data required to be reported "in the books" but not usually posted to the journals used for typical period transactions (the cash receipts journal, cash disbursements journal, the payroll journal, sales journal and so on) the entry is posted to the general ledger accounts directly and usually will be numbered itself, dated and have an explanation. Example: AJE# 1 12-31-2003, debit Cash in bank $1,000. Credit interest income $1,000, to record interest income on business bank account at year end, not recorded in cash receipts journal but credited by the bank. (Cross-reference bank reconciliation and account where it was found)

ADR

Receipts for shares of foreign company stock maintained by an intermediary indicating ownership.

Adverse Opinion

Expression of an opinion in an AUDITORS' REPORT which states that FINANCIAL STATEMENTS do not fairly present the financial position, results of operations and cash flows in conformity with GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (GAAP).

Affiliated Company

Company, or other organization related through common ownership, common control of management or owners, or through some other control mechanism, such as a long-term LEASE.

Agency Fund

Fund consisting of ASSETS where the holder agrees to remit the assets, income from the assets, or both, to a specified beneficiary in due course or at a specified time.

AICPA

National professional membership organization that represents practicing CERTIFIED PUBLIC ACCOUNTANTS (CPAs). The AICPA establishes ethical and auditing standards as well as standards for other services performed by its members. Through committees, it develops guidance for specialized industries. It participates with the FINANCIAL ACCOUNTING STANDARDS BOARD (FASB) and the GOVERNMENT ACCOUNTING STANDARDS BOARD (GASB) in establishing accounting principles.

Allocate

To set aside for a specific reason.

Allowance for Doubtful Accounts

A contra-asset account used to reduce ACCOUNTS RECEIVABLE to the amount that is expected to be collected in cash.

Alternative Dispute Resolution

An alternative to formal litigation which includes techniques such as arbitration, mediation, and a non-binding summary jury trial.

Alternative Minimum Tax (AMT)

Tax imposed to back up the regular income tax imposed on CORPORATION and individuals to assure that taxpayers with economically measured income exceeding certain thresholds pay at least some income tax.

American Depository Receipt (ADR)

Receipts for shares of foreign company stock maintained by an intermediary indicating ownership.

American Institute of Certified Public Accountants (AICPA)

National professional membership organization that represents practicing CERTIFIED PUBLIC ACCOUNTANTS (CPAs). The AICPA establishes ethical and auditing standards as well as standards for other services performed by its members. Through committees, it develops guidance for specialized industries. It participates with the FINANCIAL ACCOUNTING STANDARDS BOARD (FASB) and the GOVERNMENT ACCOUNTING STANDARDS BOARD (GASB) in establishing accounting principles.

Amortization

Gradual and periodic reduction of any amount, such as the periodic writedown of a BOND premium, the cost of an intangible ASSET or periodic payment Of MORTGAGES or other DEBT.

AMT

Tax imposed to back up the regular income tax imposed on CORPORATION and individuals to assure that taxpayers with economically measured income exceeding certain thresholds pay at least some income tax.

Analyst

Person in a brokerage house, bank trust dept., or mutual fund group who studies a number of companies and makes buy or sell recommendations on the securities of particular companies and industry groups.

Analytical Procedures

Substantive tests of financial information which examine relationships among data as a means of obtaining evidence. Such procedures include: (1) comparison of financial information with information of comparable prior periods; (2) comparison of financial information with anticipated results (e.g., forecasts); (3) study of relationships between elements of financial information that should conform to predictable patterns based on the entity's experience; (4) comparison of financial information with industry norms.

Annual Report

Report to the stockholders of a company which includes the company's annual, audited BALANCE SHEET and related statements of earnings, stockholders' or owners' equity and cash flows, as well as other financial and business information.

Annuity

Series of payments, usually payable at specified time intervals.

Anti-Dilution

Condition that may increase the computation of EARNINGS PER SHARE (EPS) or decrease loss per share solely because of the inclusion of COMMON STOCK equivalents, such as STOCK OPTIONS, WARRANTS, convertible DEBT or convertible PREFERRED STOCK, nomination or selection of the independent AUDITORs.

APB

Senior technical committee of the AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS (AICPA) which issued pronouncements on accounting principles from 1959-1973. The APB was replaced by the FINANCIAL ACCOUNTING STANDARDS BOARD (FASB).

Appreciation

Increase in the value of an ASSET such as a stock, BOND, commodity, or real estate.

Assembly of Financial Statements

The providing of various accounting or data-processing services by an accountant, the output of which is in the form of financial statements ostensibly to be used solely for internal management purposes.

Assertion

Explicit or implicit representations by an entity's management that are embodied in financial statement components and for which the AUDITOR obtains and evaluates evidential matter when forming his or her opinion on the entity's financial statements.

Asset

An economic resource that is expected to be of benefit in the future. Probable future economic benefits obtained as a result of past transactions or events. Anything of value to which the firm has a legal claim. Any owned tangible or intangible object having economic value useful to the owner.

Asset Turnover

A way of measuring how profitably and efficiently assets are being used to produce sales. This is determined by dividing net sales by average total assets.

At Par

At a price equal to the face, or nominal, value of a security.

Audit

A professional examination of a company’s financial statement by a professional accountant or group to determine that the statement has been presented fairly and prepared using GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (GAAP).

Audit Documentation

The written record of the basis for the AUDITOR's conclusions that provides the support for the auditor's representations, whether those representations are contained in the auditor's report or otherwise. (May be referred to as work papers or working papers).

Audit Engagement

Agreement between a CPA firm and its client to perform an AUDIT.

Audit Risk

The risk that the AUDITOR may unknowingly fail to modify appropriately his or her opinion on financial statements that are materially misstated.

Audit Sampling

Application of an AUDIT procedure to less than 100% of the items within an account BALANCE or class of transactions for the purpose of evaluating some characteristic of the balance or class.

Auditing Standards

Guidelines to which an AUDITOR adheres. Auditing standards encompass the auditor's professional qualities, as well as his or her judgment in performing an AUDIT and in preparing the AUDITORS' REPORT. Audits conducted by independent CERTIFIED PUBLIC ACCOUNTANT (CPA) usually in accordance with GENERALLY ACCEPTED AUDITING STANDARDS (GAAS), which consist of standards approved and adopted by the membership of the AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS (AICPA).

Auditor

Person who AUDITS financial accounts and records kept by others. Includes both public accounting firms registered with the PCAOB and associated persons thereof.

Auditors' Report

Written communication issued by an independent CERTIFIED PUBLIC ACCOUNTANT (CPA) describing the character of his or her work and the degree of responsibility taken. An auditors' report includes a statement that the AUDIT was conducted in accordance with GENERALLY ACCEPTED AUDITING STANDARDS (GAAS), which require that the AUDITOR plan and perform the audit to obtain reasonable assurance about whether the FINANCIAL STATEMENTS are free of material misstatement, as well as a statement that the auditor believes the audit provides a reasonable basis for his or her opinion.

Authorized Shares

Maximum number of shares of any class a company may legally create under the terms of its articles of incorporation.

Average Days’ Inventory On-Hand

The average number of days required to sell the current inventory of products available for sale. It is found by dividing the number of days in a year by inventory turnover.

Average Days’ Sales Uncollected

A ratio that shows the average length of time it takes a company to receive payment for credit sales.

Average-Cost Method

A way of arriving at the cost of inventory that computes the average cost of all goods available for sale during a fixed period in order to determine the value of inventory.

B

Backup Withholding

Payors of interest, dividends and other reportable payments must withhold income tax equal at a rate equal to the fourth lowest rate applicable to single filers if they fail to supply a federal id # or if they fail to certify that they are not subject to it.

Bad Debt

All or portion of an ACCOUNT, loan, or note receivable considered to be uncollectible.

Balance

Basic FINANCIAL STATEMENT, usually accompanied by appropriate DISCLOSURES that describe the basis of ACCOUNTING used in its preparation and presentation of a specified date the entity's ASSETS, LIABILITIES and the EQUITY of its owners. Also known as a STATEMENT OF FINANCIAL CONDITION.

Bank Reconciliation

A process by which an accountant determines whether and why there is a difference between the balance shown on the bank statement and the balance of the cash account in the firm’s GENERAL LEDGER.

Bank Statement

A periodic statement, usually monthly, that a bank sends to the holder of a checking account showing the balance in the account at the beginning of the month, during, and at the end of the month.

Bankruptcy

Legal process, governed by federal statute, whereby the DEBTS of an insolvent person are liquidated after being satisfied to the greatest extent possible by the DEBTOR'S ASSETS. During bankruptcy, the debtor's assets are held and managed by a court appointed TRUSTEE.

Base Market Value

Average market price of a group of securities at a given time.

Beginning Inventory

The quantity of merchandise available for sale at the beginning of an ACCOUNTING period.

Bequest

Legal process, governed by federal statute, whereby the DEBTS of an insolvent person are liquidated after being satisfied to the greatest extent possible by the DEBTOR'S ASSETS. During bankruptcy, the debtor's assets are held and managed by a court appointed TRUSTEE.

Beta Coefficient

Measure of a stock’s relative volatility. The beta is the covariance of a stock in relation to the rest of the stock market.

Bid and Asked

Bid is the highest price a prospective buyer is prepared to pay at a particular time for a trading unit of a given SECURITY; asked is the lowest price acceptable to a prospective seller of the same security. The difference between the prices is the SPREAD.

Blue Sky Laws

State laws that regulate the ISSUANCE of SECURITIES. These laws are coordinated with federal acts.

Board of Directors

Individuals responsible for overseeing the affairs of an entity, including the election of its officers. The board of a CORPORATION that issues stock is elected by stockholders.

Bond

One type of long-term PROMISSORY NOTE, frequently issued to the public as a SECURITY regulated under federal securities laws or state BLUE SKY LAWS. Bonds can either be registered in the owner's name or are issued as bearer instruments.

Bond Discount

The amount below PAR VALUE that a BOND sells for.

Bond Indenture

An additional agreement to a BOND issue that defines the rights, privileges, and limitations of BONDHOLDERS.

Bondholder

A person who owns a BOND certificate issued by a government or CORPORATION.

Book Value

Amount, net or CONTRA ACCOUNT balances, that an ASSET or LIABILITY shows on the BALANCE SHEET of acompany. Also known as CARRYING VALUE.

Bookkeeping

The process of recording financial transactions and keeping financial records.

Boot

The non technical term used by some to describe any cash or other property that is received in exchange of property that would be otherwise nontaxable.

Bottom Line

The line in a FINANCIAL STATEMENT that shows NET INCOME or LOSS.

Break-Even Point

The point at which TOTAL REVENUES equals TOTAL COSTS.

Break-Even Units

The number of units of a product that must be sold before a company makes enough money to pay for direct and indirect costs of making the product.

Budget

Financial plan that serves as an estimate of future cost, REVENUES or both.

Burden Rate

Standard rate multiplied by a level of activity to determine the OVERHEAD cost of that activity. Activity measures include LABOR or machine hours.

Business Combinations

Combining of two entities. Under the PURCHASE METHOD OF ACCOUNTING, one entity is deemed to acquire another and there is a new basis of accounting for the ASSETS and LIABILITIES of the acquired company. In a POOLING OF INTERESTS, two entities merge through an exchange of COMMON STOCK and there is no change in the CARRYING VALUE of the assets or liabilities.

Business Segment

Any division of an organization authorized to operate, within prescribed or otherwise established limitations, under substantial control by its own management.

Buyout

Purchase of at least a controlling percentage of a company’s stock to take over its ASSETS and operations.

Bylaws

Collection of formal, written rules governing the conduct of a CORPORATION'S affairs (such as what officers it will have, what their responsibilities are, and how they are to be chosen). Bylaws are approved by a corporation's stockholders, if a stock corporation, or other owners, if a non-stock corporation.

C

Cafeteria Plan

A benefit plan maintained by an employer for the benefit of the employees under which each participant has the opportunity to select the benefits they desire. Certain minimum choices and nondiscriminatory rules apply.

Call Loan

Loan repayable on demand. Also known as DEMAND LOAN.

Call Price

A specified price, usually above face value, at which a CORPORATION may, at its option, buy back and retire BONDS before maturity.

Callable

Redeemable by the issuer before the scheduled maturity.

Callable Instrument

BOND which accords an issuer the right to redemption before it is due.

Capital Asset Pricing Model (CAPM)

Sophisticated model of the relationship between expected risk and expected return.

Capital Expenditure

Outlay of money to acquire or improve capital assets such as buildings and machinery.

Capital Gain

Portion of the total GAIN recognized on the sale or exchange of a noninventory asset which is not taxed as ORDINARY INCOME. Capital gains have historically been taxed at a lower rate than ordinary income.

Capital Projects Funds

Funds used by a not-for-profit organization to account for all resources used for the development of a land improvement or building addition or renovation.

Capital Stock

Ownership shares of a CORPORATION authorized by its ARTICLES OF INCORPORATION. The money valueassigned to a corporation's issued shares. The BALANCE SHEET account with the aggregate amount of the PAR VALUE or STATED VALUE of all stock issued by a corporation.

Capitalize

Convert a schedule of INCOME into a principal amount, called capitalized value, by dividing by a rate of INTEREST.

Capitalized Cost

Expenditure identified with goods or services acquired and measured by the amount of cash paid or the market value of other property, CAPITAL STOCK, or services surrendered. Expenditures that are written off during two or more accounting periods.

Capitalized Interest

INTEREST cost incurred during the time necessary to bring an ASSET to the condition and location for its intended use and included as part of the HISTORICAL COST of acquiring the asset.

Capitalized Lease

LEASE recorded as an ASSET acquisition accompanied by a corresponding LIABILITY by the LESSEE.

CAPM

Sophisticated model of the relationship between expected risk and expected return.

Carrying Value

Amount, net or CONTRA ACCOUNT balances, that an ASSET or LIABILITY shows on the BALANCE SHEET of a company. Also known as BOOK VALUE.

Carryovers

Provision of tax law that allows current losses or certain tax credits to be utilized in the tax returns of future periods..

Cash

ASSET account on a balance sheet representing paper currency and coins, negotiable money orders and checks, bank balances, and certain short-term government securities.

Cash Account

Brokerage firm account whose transactions are settled on a cash basis.

Cash Basis

Method of bookkeeping by which REVENUES and EXPENDITURES are recorded when they are received and paid.

Cash Dividend

Distribution of a CORPORATION’s earnings to stockholders in the form of CASH.

Cash Equivalents

Short-term (generally less than three months), highly liquid INVESTMENTS that are convertible to known amounts of cash.

Cash Flow to Assets

Used to measure the ability of ASSETS to generate operating CASH FLOWS.

Cash Flow to Sales

A way of measuring the ability of sales to generate operating CASH FLOWS.

Cash Flows

Net of cash receipts and cash disbursements relating to a particular activity during a specified accounting period.

Cash Payments Journal

A multicolumn journal used to record sums of cash paid out for expenses.

Cash Ratio

Ratio of CASH and MARKETABLE SECURITIES to CURRENT LIABILITIES.

Cash Receipts Journal

A multicolumn journal used to record business transactions involving the receipt of CASH from other individuals or businesses.

Casualty Loss

Any loss of an asset due to fire storm act of nature causing asset damage from unexpected or accidental force. Generally it is deductible regardless of whether it is business or personal.

CD

Formal instrument issued by a bank upon the deposit of funds which may not be withdrawn for a specified time period. Typically, an early withdrawal will incur a penalty.

CEO

Officer of a firm principally responsible for the activities of a COMPANY.

Certificate of Deposit (CD)

Formal instrument issued by a bank upon the deposit of funds which may not be withdrawn for a specified time period. Typically, an early withdrawal will incur a penalty.

Certified Financial Planner (CFP)

Individual who is trained to develop and implement financial plans for individuals, businesses, and organizations, utilizing knowledge of income and estate tax, investments, risk management analysis and retirement planning. CFPs are certified after completing a series of requirements that include education, experience, ethics and an exam. CFPs are not regulated by a governmental authority.

Certified Internal Auditor (CIA)

Internal AUDITOR who has satisfied the examination requirements of the Institute of Internal Auditors.

Certified Management Accountant (CMA)

An accreditation conferred by the Institute of Management Accountants that indicates the designee has passed an examination and attained certain levels of education and experience in the practice of accounting in the private sector.

Certified Public Accountant (CPA)

ACCOUNTANT who has satisfied the education, experience, and examination requirements of his or her jurisdiction necessary to be certified as a public accountant.

CFO

Executive officer who is responsible for handling funds, signing CHECKS, keeping financial records, and financial planning for a CORPORATION.

CFP

Individual who is trained to develop and implement financial plans for individuals, businesses, and organizations, utilizing knowledge of income and estate tax, investments, risk management analysis and retirement planning. CFPs are certified after completing a series of requirements that include education, experience, ethics and an exam. CFPs are not regulated by a governmental authority.

Chief Executive Officer (CEO)

Officer of a firm principally responsible for the activities of a COMPANY.

Chief Financial Officer (CFO)

Executive officer who is responsible for handling funds, signing CHECKS, keeping financial records, and financial planning for a CORPORATION.

CIA

Internal AUDITOR who has satisfied the examination requirements of the Institute of Internal Auditors.

Claim for Refund

A refund is not automatically mailed if one is due. A taxpayer, whether business or individual, must file a request on a form. It must also be filed within the timeframe allotted or the refund may be lost. An individual can claim a refund back to whatever year it was due but it will only be paid three years back or less.

Clean Opinion

AUDIT opinion not qualified for any material scope restrictions nor departures from GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (GAAP). Also known as UNQUALIFIED OPINION.

Close

To clear the BALANCES of temporary accounts in order to be ready for the next accounting period.

Closed-End Mutual Fund

MUTUAL FUND with a fixed number of shares outstanding that may be bought or sold. CMO - See COLLATERALIZED MORTGAGE OBLIGATION.

Closing Entry

A journal entry made at the end of an accounting period in order to prepare for the next accounting period by clearing the BALANCES of temporary accounts and summarizing the period’s REVENUES and expenses.

CMA

An accreditation conferred by the Institute of Management Accountants that indicates the designee has passed an examination and attained certain levels of education and experience in the practice of accounting in the private sector.

CMO

SECURITY whose cash flows equal the difference between the cash flows of the collateralizing ASSETS and the collateralized obligations of a securitized TRUST. Characteristics of CMO residuals vary greatly and can be extremely complex in nature.

Co-Mingling

Mixing ASSETS, e.g. customer-owned SECURITIES, with those owned by a firm in its proprietary accounts.

Collateral

ASSET provided to a CREDITOR as security for a loan.

Collateralized Mortgage Obligation (CMO)

SECURITY whose cash flows equal the difference between the cash flows of the collateralizing ASSETS and the collateralized obligations of a securitized TRUST. Characteristics of CMO residuals vary greatly and can be extremely complex in nature.

Combined Financial Statement

FINANCIAL STATEMENT comprising the accounts of two or more entities.

Comfort Letter

Letter provided by a company's independent public accountant to an underwriter when the underwriter has a DUE DILIGENCE responsibility under Section 11 of the Securities Act of 1933 regarding financial information included in an offering statement.

Commercial Paper

A way of borrowing money by using unsecured short-term loans sold directly to the public, usually through professionally managed investments firms.

Commission

Percentage of the selling price of the property, paid by the seller.

Committee of Sponsoring Organizations of the Treadway Commission (COSO)

An alliance of five professional organizations dedicated to disseminating appropriate internal control standards.

Commodities

Bulk goods such as grains, metals, and foods traded on a commodities exchange or on the SPOT MARKET.

Common Stock

CAPITAL STOCK having no preferences generally in terms of dividends, voting rights or distributions.

Company

Organization engaged in business as a PROPRIETORSHIP, PARTNERSHIP, CORPORATION, or other form of enterprise.

Company Level Controls

Controls that exist at the company level that have an impact on controls at the process, transaction, or application level.

Comparative Financial Statement

FINANCIAL STATEMENT presentation in which the current amounts and the corresponding amounts for previous periods or dates also are shown.

Compensate

To pay or make payment for something.

Compensatory Balance

Funds that a borrower must keep on deposit as required by a bank.

Compilation

Presentation of financial statement data without the ACCOUNTANT'S assurance as to conformity with GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (GAAP).

Compilation Engagement

Agreement between a CPA firm and its client to issue a COMPILATION REPORT.

Compilation Report

See ACCOUNTANTS' REPORT.

Complex Trust

A trust that is to be distinguished from a simple trust in the fact that it permits accumulation or distribution of current income during the tax year and provides for charitable contributions.

Compliance Audit

Review of financial records to determine whether the entity is complying with specific procedures or rules.

Compound Interest Principles

Interest computed on principal plus interest earned in previous periods.

Comprehensive Income

Change in EQUITY of a business enterprise during a period from transactions and other events and circumstances from sources not shown in the income statement. The period includes all changes in equity except those resulting from INVESTMENTS by owners and distributions to owners.

Condensed Financial Statement

A FINANCIAL STATEMENT for external reporting that presents only the major categories of information.

Confirmation

AUDITOR'S receipt of a written or oral response from an independent third party verifying the accuracy of information requested.

Conservatism

An investment strategy aimed at long-term capital appreciation with low risk; moderate; cautious; opposite of aggressive behavior; show possible losses but wait for actual profits. Concept which directs the least favorable effect on net income.

Consistency

ACCOUNTING postulate which stipulates that, except as otherwise noted in the FINANCIAL STATEMENT, the same accounting policies and procedures have been followed from period to period by an organization in the preparation and presentation of its financial statements.

Consolidated Financial Statements

Combined FINANCIAL STATEMENTS of a parent company and one or more of its subsidiaries as one economic unit

Consolidation

BUSINESS COMBINATION of two or more entities that occurs when the entities transfer all of their NET ASSETS to a new entity created for that purpose.

Constructive Receipt

A taxpayer is considered to have received the income even though the monies are not in hand, it may have been set aside or otherwise made available. An example is interest on a bank account.

Consumer Goods

Goods bought for personal or household use, as distinguished from capital goods or producer’s goods, which are used to produce other goods.

Contingency

An event that might happen but that is not likely or planned.

Contingent Liability

Potential LIABILITY arising from a past transaction or a subsequent event.

Continuing Operations

Portion of a business entity expected to remain active.

Continuing Professional Education (CPE)

Educational programs for CERTIFIED PUBLIC ACCOUNTANTS (CPAs) to keep informed on changes that occur within the profession. State Boards for Public Accountancy and the AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS (AICPA) each have separate CPE requirements.

Contra Account

ACCOUNT considered to be an offset to another account. Generally established to reduce the other account to amounts that can be realized or collected.

Contra-Liability Account

A deduction from a LIABILITY, such as discounts on notes payable, which is a deduction from the balance of notes payable.

Contract

In general, agreement by which rights or acts are exchanged for lawful consideration.

Contributed Capital

The stockholders’ investment in a CORPORATION.

Contribution Margin

The excess of REVENUES over all variable costs related to a particular sales volume.

Control Deficiency

This exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect misstatements on a timely basis.

Control Risk

Measure of risk that errors exceeding a tolerable amount will not be prevented or detected by an entity's internal controls.

Controls Tests

Tests directed toward the design or operation of an internal control structure policy or procedure to assess its effectiveness in preventing or detecting material misstatements in a financial report.

Conversion

Exchange of a convertible security such as a BOND into another security such as a fixed number of shares of the issuing CORPORATION’s COMMON STOCK.

Convertible Stock

Stock that may be exchanged for other SECURITIES of the issuer.

Copyright

An exclusive right granted by the federal government to the possessor to publish and sell literary, musical, or other artistic materials for a period of the author’s life plus 50 years, including computer programs.

Corporate Bond

DEBT instrument issued by a private CORPORATION, as distinct from one issued by a government agency or a municipality.

Corporate Income Tax

The TAX that an incorporated business must pay to the federal government and, often, to state and city governments as well.

Corporation

Form of doing business pursuant to a charter granted by a state or federal government. Corporations typically are characterized by the issuance of freely transferable CAPITAL STOCK, perpetual life, centralized MANAGEMENT, and limitation of owners' LIABILITY to the amount they INVEST in the business.

COSO

An alliance of five professional organizations dedicated to disseminating appropriate internal control standards.

Cost Accounting

Procedures used for rationally classifying, recording, and allocating current or predicted costs that relate to a certain product or production process.

Cost Basis

Original price of an ASSET, used in determining CAPITAL GAIN.

Cost of Capital

Rate of return that a business could earn if it chose another investment with equivalent risk.

Cost of Goods Sold

Figure representing the cost of buying raw materials and producing finished goods.

Cost Recovery Method

METHOD OF REVENUE RECOGNITION which recognizes profits after costs are completely recovered. Generally used only when the total amount of collections is highly uncertain. In tax, the ACCOUNTING METHOD used to depreciate ASSETS.

Coupon

INTEREST rate on a DEBT SECURITY the ISSUER promises to pay to the holder until maturity, expressed as an annual percentage of FACE VALUE.

Coupon Bond

A BOND that is usually not registered with the issuing CORPORATION but instead bears interest coupons stating the amount of INTEREST due and the payment date.

Coverdell Education Savings Account (Education IRA)

A tax exempt trust exclusively for the purpose of paying qualified higher education costs of the trusts designated beneficiary.

CPA

ACCOUNTANT who has satisfied the education, experience, and examination requirements of his or her jurisdiction necessary to be certified as a public accountant.

CPE

Educational programs for CERTIFIED PUBLIC ACCOUNTANTS (CPAs) to keep informed on changes that occur within the profession. State Boards for Public Accountancy and the AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS (AICPA) each have separate CPE requirements.

Credit

Entry on the right side of a DOUBLE-ENTRY BOOKKEEPING system that represents the reduction of an ASSETor expense or the addition to a LIABILITY or RVENUE.

Credit Agreement

Arrangement in which one party borrows or takes possession in the present by promising to pay in the future.

Credit Balance

BALANCE remaining after one of a series of bookkeeping entries. This amount represents a LIABILITY or incometo the entity.

Creditor

Party that loans money or other ASSETS to another party.

Current Asset

ASSET that one can reasonably expect to convert into cash, sell, or consume in operations within a single operating cycle, or within a year if more than one cycle is completed each year.

Current Liability

Obligation whose LIQUIDATION is expected to require the use of existing resources classified as CURRENT ASSETS, or the creation of other current liabilities.

Current Ratio

Used as an indicator of a COMPANY’s liquidity and ability to pay short-term debts. This is found by dividing CURRENT ASSETS by CURRENT LIABILITIES.

 

Current Value

1) Value of an ASSET at the present time as compared with the asset's HISTORICAL COST. (2) In finance, the amount determined by discounting the future revenue stream of an asset using COMPOUND INTEREST PRINCIPLES.

Current Yield

Annual INTEREST on a BOND divided by the market price.

D

Date of Auditors'/Accountants' Report

Last day the AUDITORS perform fieldwork and the last day of responsibility relating to significant events subsequent to the financial statement date.

DDB

Method of ACCELERATED DEPRECIATION, approved by the INTERNAL REVENUE SERVICE (IRS), permitting twice the rate of annual DEPRECIATION as the STRAIGHT-LINE DEPRECIATION method.

Dealer

Individual or firm acting as a principal in a securities transaction.

Death Benefit

Amounts received under a life insurance contract and paid by reason of the death of the insured. (Although most death benefits are paid at termination of life, certain plans now pay accelerated death benefits while the insured is still alive, i.e.: an AIDS patient might possibly receive accelerated death benefit)

Debenture

General DEBT obligation backed only by the integrity of the borrower and documented by an agreement called and INDENTURE.

Debenture Stock

Stock issued under a contract providing for fixed payments at scheduled intervals and more like preferred stock than a DEBENTURE, since their status in liquidation is EQUITY and not DEBT.

Debit

Entry on the left side of a DOUBLE-ENTRY BOOKKEEPING system that represents the addition of an ASSET or expense or the reduction to a LIABILITY or REVENUE.

Debit Balance

BALANCE remaining after one or a series of bookkeeping entries. This amount represents an ASSET or an expense of the entity.

Debt

General name for money, notes, BONDS, goods or services which represent amounts owed.

Debt Instrument

Written promise to repay a DEBT.

Debt Retirement

Repayment of DEBT.

Debt Security

Document which is evidence of an obligation or LIABILITY.

Debt Service Fund

Fund whose PRINCIPAL or INTEREST is set aside and accumulated to retire DEBT.

Debt-to-Equity Ratio

A way of measuring the relationship of DEBT financing to EQUITY FINANCING, or the extent to which a companyis leveraged.

Debtor

Party owing money or other ASSETS to a CREDITOR.

Decedent

Individual who has died.

Declare

Authorize the payment of DIVIDEND on a specified date, an act of the BOARD OF DIRECTORS of a CORPORATION.

Declining-Balance Method

An accelerated method of depreciating a tangible long-lived ASSET by applying a fixed-rate based on some multiple of the STRAIGHT-LINE DEPRECIATION rate to its CARRYING VALUE.

Defalcation

To misuse or embezzle funds.

Default

Failure to meet any financial obligation. Default triggers a CREDITOR'S rights and remedies identified in the agreement and under the law.

Defeasance

Annulment of a contract or deed; a clause within a contract or deed that provides for annulment.

Deferral

The postponement of the date that an expense already paid or incurred, or of a REVENUE already received, is entered in the LEDGER.

Deferred Charge

Income received but not earned until all events have occurred. Deferred income is reflected as a LIABILITY.

Deferred Income Taxes

ASSETS or LIABILITIES that arise from timing or measurement differences between tax and accounting principles.

Deferred Interest Bond

BOND that pays INTEREST at a later date.

Deferred Payment Annuity

ANNUITY whose contract provides that payments to the annuitant be postponed until a number of periods have elapsed.

Deficiency in Design

This exists when a control necessary to meet the control objective is missing or an existing control is not properly designed so that even if the control operates as designed, the control objective is not always met.

Deficiency in Operation

This exists when a properly designed control does not operate as designed, or when the person performing the control does not possess the necessary authority or qualifications to perform the control effectively.

Deficit

Financial shortage that occurs when LIABILITIES exceed ASSETS.

Defined Benefit Plan

See EMPLOYEE BENEFIT PLAN.

Defined Contribution Plan

See EMPLOYEE BENEFIT PLAN.

Deflation

Decline in the prices of goods and services.

Demand Loan

Loan repayable on demand. Also known as a CALL LOAN.

Dependent Care Expenses

Qualified child care expenses will allow a taxpayer this computed credit against tax. The amounts can be found on the individual forms as the limitations and computation may change each tax year.

Depletion

Method of computing a deduction to ACCOUNT for a reduction in value of extractable natural resources.

Deposit Method

Expense allowance made for wear and tear on an ASSET over its estimated useful life.

Depreciation

Expense allowance made for wear and tear on an ASSET over its estimated useful life.

Derivatives

Financial instruments whose value varies with the value of an underlying asset (such as a stock, BOND, commodity or currency) or index such as interest rates. Financial instruments whose characteristics and value depend on the characterization of an underlying instrument or asset.

Detailed Income Statement

A complete and explicit statement of an economic entity’s financial activities and holdings.

Detection Risk

Risk that the AUDITOR will not detect a material misstatement.

Detective Controls

These have the objective of detecting errors or fraud that have already occurred that could result in a misstatement of the financial statements.

Direct Labor Costs

The labor cost is for specific work that can be easily and economically traced to an end product.

Direct Material

A material that will become part of a finished product and can be easily and economically traced to specific product units.

Direct Overhead

Portion of OVERHEAD costs allocated to manufacturing, by the application of a standard factor termed a BURDEN RATE or OVERHEAD APPLICATION RATE.

Disbursement

Payment by cash or check.

Disclaimer of Opinion

Statement by an AUDITOR indicating inability to express an opinion on the fairness of the FINANCIAL STATEMENTS provided and the reason for the inability. The auditor is required to disclaim depending on the limitation in scope.

Disclosure

Process of divulging accounting information so that the content of FINANCIAL STATEMENTS is understood.

Discontinued Operations

Portion of a business that is planned to be or is discontinued.

Discount

Reduction from the full amount of a price or DEBT.

Discount Bond

BOND selling below its REDEMPTION VALUE.

Discount Rate

Rate at which INTEREST is deducted in advance of the issuance, purchasing, selling, or lending of a financial instrument. Also, the rate used to determine the CURRENT VALUE, or present value, of an ASSET or incomestream.

Discount Yield

Yield on a SECURITY sold at a DISCOUNT.

Discounted Cash Flow

Present value of future cash estimated to be generated.

Discretionary Trust

Arrangement in which the TRUSTEE has the authority to make INVESTMENT decisions and has control over investments within the framework of the TRUST instrument.

Disposable Income

Personal INCOME remaining after personal taxes and noncommercial government fees have been paid.

Dissolution

Termination of a CORPORATION.

Distribution Expense

Expense of selling, advertising, and delivery of goods and services.

Distributions

Payment by a business entity to its owners of items such as cash ASSETS, stocks, or earnings.

Dividend Payout Ratio

Percentage of earnings paid to shareholders in CASH.

Dividends

Distribution of earnings to owners of a CORPORATION in CASH, other ASSETS of the corporation, or the corporation's CAPITAL STOCK.

Dividends in Arrears

DIVIDENDS on cumulative PREFERRED STOCK that remain unpaid in the year they are due.

Dividends Payable

A LIABILITY for payment of a COMPANY’s earnings to its shareholders.

Dividends Yield

Used to measure the current return to an investor in a stock.

Documentation Completion Date

A complete and final set of audit documentation should be assembled for retention as of a date not more than 45 days after the report release date.

Double Taxation

The act of taxing corporate earnings twice, once as the NET INCOME of the CORPORATION and once as the DIVIDENDS distributed to stockholders.

Double-Declining-Balance Depreciation Method (DDB)

Method of ACCELERATED DEPRECIATION, approved by the INTERNAL REVENUE SERVICE (IRS), permitting twice the rate of annual DEPRECIATION as the STRAIGHT-LINE DEPRECIATION method.

Double-Entry Bookkeeping

Method of recording financial transactions in which each transaction is entered in two or more accounts and involves two-way, self-balancing posting. Total DEBITS must equal total CREDITS.

Draft

Signed, written order by which one party (drawer) instructs another party (drawee) to pay a specified sum to a third party (payee).

Dual Dating

Dating of the ACCCOUNTANTS' or AUDITORS' REPORT when a subsequent event disclosed in the FINANCIAL STATEMENTS occurs after completion of the field work but before issuance of the report. For example, "January 3, 19xx, except for Note x, as to which the date is March 10, 19xx."

Due Date

Each governing agency and its forms scheduled reporting and most importantly payments have a required due date. It is this date that if most files timely may result in a penalty, fine, and commence interest charges.

Due Diligence

(1) Procedures performed by underwriters in connection with the issuance of a SECURITIES EXCHANGE COMMISSION (SEC) registration statement. These procedures involve questions concerning the company and its business, products, competitive position, recent financial and other developments and prospects. Also performed by others in connection with acquisitions and other transactions. (2) Requirement found in ethical codes that the person governed by the ethical rules exercise professional care in conducting his or her activities.

Dutch Auction

Auction system in which the price of an item is gradually lowered until it meets a responsive bid and is sold.

E

Earned Income

Wages, salaries, professional fees, and other amounts received as compensation for services rendered.

Earned Income Tax Credit (EITC)

A refundable tax credit for eligible low income workers, subject to computations based on qualifying children and phase in and phase out income levels.

Earnings Per Share (EPS)

Measure of performance calculated by dividing the net earnings of a company by the average number of shares outstanding during a period.

Earnings Price Ratio

Relationship of EARNINGS PER SHARE (EPS) to current stock price.

Econometrics

Use of computer analysis and modeling techniques to describe in mathematical terms the relationship between key economic forces such as labor, capital, interest rates, and government policies, the test the effects of changes in economic scenarios.

Economic Growth Rate

Rate of change in the gross national product, as expressed in an annual percentage.

Economics

The study of the ways goods and services are produced, transported, sold, and used.

Effective Interest Method

A way of AMORTIZING BOND DISCOUNTS or PREMIUMS by applying a constant interest rate to the CARRYING VALUE of the BONDS at the beginning of each interest period.

Effective Interest Rate

The rate of INTEREST actually paid or earned.

Effective Tax Rate

Total income taxes expressed as a percentage of NET INCOME before taxes.

EITC

A refundable tax credit for eligible low income workers, subject to computations based on qualifying children and phase in and phase out income levels.

EITF

Assists the FINANCIAL ACCOUNTING STANDARDS BOARD (FASB) and provides guidance on early identification of emerging issues affecting financial reporting and problems in implementing authoritative pronouncements.

Emerging Issues Task Force (EITF)

Assists the FINANCIAL ACCOUNTING STANDARDS BOARD (FASB) and provides guidance on early identification of emerging issues affecting financial reporting and problems in implementing authoritative pronouncements.

Employee Benefit Plan

Compensation arrangement, generally in writing, used by employers in addition to salary or wages. Some plans such as group term life insurance, medical insurance and qualified retirement plans are treated favorably under the tax law. Most common qualified retirement plans are: (1) defined benefit plans - a promise to pay participants specified benefits that are determinable and based on such factors as age, years of service, and compensation; or (2) defined contribution plans - provide an individual account for each participant and benefits based on items such as amounts contributed to the account by the employer and employee and investment experience. This type includes PROFIT-SHARING PLANS, EMPLOYEE STOCK OWNERSHIP PLANS and 401(k) PLANS.

Employee Stock Ownership Plan (ESOP)

Stock bonus plan of an employer that acquires SECURITIES issued by the plan sponsor.

Encumbrance

(1) MORTGAGE or other lien on the entity's ASSETS; (2) Anticipated EXPENDITURE; (3) Uncompleted or undelivered portion of a purchase commitment.

Ending Inventory

Merchandise on hand at the end of an accounting period

Endorsement

The process by which the payee transfers ownership of a CHECK to a bank or another party by writing his or her name on the back of it.

Engagement Completion Document

A document whereby the AUDITOR identifies all significant findings or issues. The document should be as specific as necessary in the circumstances for a reviewer to gain a thorough understanding of the significant findings or issues.

Entrepreneur

Person who takes on the risks of starting a new business.

EPS

Measure of performance calculated by dividing the net earnings of a company by the average number of shares outstanding during a period.

Equilibrium Price

Price when the supply of goods in a particular market matches demand.

Equity

Residual INTEREST in the ASSETS of an entity that remains after deducting its LIABILITIES. Also, the amount of a business' total assets less total liabilities. Also, the third section of a BALANCE SHEET, the other two being assets and liabilities.

Equity Account

ACCOUNT in the EQUITY section of the BALANCE SHEET. Includes CAPITAL STOCK, ADDITIONAL PAID IN CAPITAL and RETAINED EARNINGS.

Equity Financing

Raising the money by issuing shares of COMMON STOCK or PREFERRED STOCK.

Equity Method of Accounting

Investors cost basis is adjusted up or down (in proportion to the % of stock ownership) as the investee's retained earnings fluctuation; used for long-term investments in equity securities of affiliate where holder can exert significant influence; 20% ownership or greater is arbitrarily presumed to have significant influence over the investee.

Equity Securities

CAPITAL STOCK and other SECURITIES that represent ownership shares, or the legal rights to purchase or acquire CAPITAL STOCK.

Error

Act that departs from what should be done; imprudent deviation, unintentional mistake or omission.

Escrow

Money or property put into the custody of a third party for delivery to a GRANTEE, only after fulfillment of specified conditions.

ESOP

Stock bonus plan of an employer that acquires SECURITIES issued by the plan sponsor.

Estate Tax

Tax on the value of a DECENDENT'S taxable estate, typically defined as the decedent's ASSETS less LIABILITIES and certain expenses which may include funeral and administrative expenses.

Estimated Tax

Amount of tax LIABILITY a taxpayer may expect to pay for the current tax period. Usually paid through quarterly installments.

Estimation Transactions

Activities that involve management judgments or assumptions in formulating account balances in the absence of a precise means of measurement.

Evidential Matter

Underlying ACCOUNTING data and other corroborating information that support the FINANCIAL STATEMENTS.

Exchanges

Transfer of money, property or services in exchange for any combination of these items.

Excise Tax

Tax or duty on the manufacture, sale, or consumption of commodities.

Excluded Income

See EXCLUSIONS.

Exclusions

Income item which is excluded from a taxpayer's gross income by the INTERNAL REVENUE CODE or an administrative action. Common exclusions include gifts, inheritances, and death proceeds paid under a life insurance contract. Also known as excluded income.

Executor

Person appointed by a will to manage a DECENDENT'S estate.

Exempt Organization

Organization which is generally exempt from paying federal income tax. Exempt organizations include religious organizations, charitable organizations, social clubs, and others.

Exemption

Amount of a taxpayer's income that is not subject to tax. All individuals, TRUSTS, and estates qualify for an exemption unless they are claimed as a dependent on another individual's tax return. Exemptions also are granted to taxpayers for their dependents.

Expatriation Tax

Individuals that loose or terminate their residency within the 10 year period immediately preceding the close of a tax year, if the termination or loss is for the sole purpose of avoiding tax.

Expectation Gap

The difference in perception between the public and the CPA as a result of accounting and audit service.

Expenditure

Payment, either in CASH, by assuming a LIABILITY, or by surrendering ASSET.

Expense

Something spent on a specific item or for a particular purpose.

Expense Ratio

Amount, expressed as a percentage of total investment, that shareholders pay for MUTUAL FUND operating expenses and management fees.

Experienced Auditor

An AUDITOR that has a reasonable understanding of audit activities and has studied the company's industry as well as the accounting and auditing issues relevant to the industry.

Exploration Expenditures

An AUDITOR that has a reasonable understanding of audit activities and has studied the company's industry as well as the accounting and auditing issues relevant to the industry.

Exposure Draft

Document issued by the AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS (AICPA), FINANCIAL ACCOUNTING STANDARDS BOARD (FASB), GOVERNMENTAL ACCOUNTING STANDARDS BOARD (GASB)or other standards setting authorities to invite public comment before a final pronouncement is issued.

Extension

Time granted by a taxing authority, such as the INTERNAL REVENUE SERVICE (IRS), a state or city, which allows the taxpayer to file tax returns later than the original due date.

Extent of Tests of Control

Each year the AUDITOR must obtain sufficient evidence about whether the company's internal control over financial reporting, including the controls for all internal control components, is operating effectively.

External Reporting

Reporting to stockholders and the public, as opposed to internal reporting for management's benefit.

Extinguishment of Debt

To get rid of the liability by payment; to bring to an end.

Extraordinary Items

Events and transactions distinguished by their unusual nature and by the infrequency of their occurrence.Extraordinary items are reported separately, less applicable income taxes, in the entity's statement of income or operations.

F

Face Value

Amount due at maturity from a BOND or note.

Factoring

Selling a RECEIVABLE at a discounted value to a third party for cash.

Factoring: Over-Advances

Circumstance where a business receives more money from a factor than the value of the RECEIVABLES, which is a loan against inventory in anticipation of future sales.

Factory Overhead Costs

Various production-related costs that cannot be practically or conveniently traced to an end product.

Fair Credit Reporting Act

Federal law enacted in 1971 giving persons the right to see their credit records at credit reporting bureaus.

Fair Market Value

Price at which property would change hands between a buyer and a seller without any compulsion to buy or sell, and both having reasonable knowledge of the relevant facts.

FASB

Independent, private, non-governmental authority for the establishment of ACCOUNTING principles in the United States.

Favorable Variance

Excess of actual REVENUE over projected revenue, or actual costs over projected costs.

Federal Income Taxes

Taxes on NET INCOME that must be paid to the federal government by individuals and businesses.

Federal Reserve Bank

One of the 12 banks that, with their branches, make up the FEDERAL RESERVE SYSTEM.

Federal Reserve System

System established by the Federal Reserve Act of 1913 to regulate the U.S. monetary and banking system.

Fiduciary

Person who is responsible for the administration of property owned by others. Corporate management is a FIDUCIARY with respect to corporate ASSETS which are beneficially owned by the stockholders and CREDITORS. Similarly, a TRUSTEE is the fiduciary of a TRUST and partners owe fiduciary responsibility to each other and to their creditors.

FIFO

ACCOUNTING method of valuing INVENTORY under which the costs of the first goods acquired are the first costs charged to expense. Commonly known as FIFO.

Filing of Returns

Taxpayers meeting statutory requirements MUST file various returns on the prescribed forms. And they must be filed timely or the y may not be considered as filed.

Finance

The science of the management of money and other financial ASSETS.

Financial Accounting Standards

Official promulgations, known as STATEMENTS OF FINANCIAL ACCOUNTING STANDARDS, by the FINANCIAL ACCOUNTING STANDARDS BOARD (FASB) which are part of GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (GAAP) in the United States.

Financial Accounting Standards Board (FASB)

Independent, private, non-governmental authority for the establishment of ACCOUNTING principles in the United States.

Financial Institution

Organization engaged in any of the many aspects of finance including commercial banks, thrift institutions, investment banks, securities brokers and dealers, credit unions, investment companies, insurance companies, and REAL ESTATE INVESTMENT TRUSTS.

Financial Leverage

The ability to increase earnings for stockholders by earning more on ASSETS than is paid in INTEREST on DEBTincurred to finance the assets.

Financial Statements

Presentation of financial data including BALANCE SHEETS, INCOME STATEMENTS and STATEMENTS OFCASH FLOW, or any supporting statement that is intended to communicate an entity's financial position at a point in time and its results of operations for a period then ended.

Finished Goods

The products that have been made and are ready for sale.

Finished Goods Inventory

An inventory account unique to manufacturing operations.

Firm

A business partnership, especially when it is unincorporated.

First In, First Out (FIFO)

ACCOUNTING method of valuing INVENTORY under which the costs of the first goods acquired are the first costs charged to expense. Commonly known as FIFO.

Fiscal Year

Period of 12 consecutive months chosen by an entity as its ACCOUNTING period which may or may not be a calendar year. Fixed Asset - Any tangible ASSET with a life of more than one year used in an entity's operations.

Fixed Annuity

Investment contract sold by an insurance company that guarantees fixed payments, either for life or for a specified period, to an annuitant.

Fixed Assets

Tangible LONG TERM ASSETS used in the continuing operation of a business that are unlikely to change for a long time.

Fixed Costs

Costs that remain constant within a defined range of activity, volume, or time period.

Fixed Price

In a public offering of new SECURITIES, price at which investment bankers in the underwriting syndicate agree to sell the issue to the public.

Fixture

Attachment to real property that is not intended to be moved and would create damage to the property if it were moved.

Floor

Term used when discussing INVENTORIES. Inventory cannot be valued lower than the "floor" which is the netrealizable value of the inventory less an allowance for a normal profit margin.

Flotation Cost

Cost of issuing new stocks or BONDS.

FOB

Indicates the point at which title to goods passes.

FOB Destination

A shipping term that means that the seller bears transportation costs to the place of delivery.

READ  28 Bookkeeper jobs in Manhattan, NY

FOB Shipping Point

A shipping term that means that the buyer bears transportation costs from the point of origin.

Forecast

Prospective FINANCIAL STATEMENTS that are an entity's expected financial position, results of operations, and cash flows.

Forecasted Balance Sheet

A balance sheet that projects the financial position of a business for a future period.

Forecasted Income Statement

An INCOME STATEMENT that projects the NET INCOME of a business for a future period.

Forecasting of Cash Flow

Projecting the cash receipts and the cash payments for a future period.

Foreclosure

Seizure of COLLATERAL by a CREDITOR when DEFAULT under a loan agreement occurs.

Foreign Corporation

A corporation which is not organized under the laws of ones territories or states. Taxing of foreign corporations depends on whether the corporation has Nexus or effectively connected income in that state.

Foreign Currency Translation

Restating foreign currency in equivalent dollars; unrealized gains or losses are postponed and carried in Stockholder's Equity until the foreign operation is substantially liquidated.

Foreign Exchange

Instruments employed in making payments between countries.

Foreign Tax Credit

A U.S. taxpayer that pays or accrues income tax to a foreign country may elect to credit or deduct these taxes in a determinable us dollar amount. This is usually done on the annual individual tax return and there is s specific form provided for this.

Form 10-K

SEC filing which is the ANNUAL REPORT due 90 days after the registrant's BALANCE SHEET date.

Form 10-Q

SEC filing which is the quarterly report due 45 days after each of the first three quarter.ends of each fiscal year.

Form 8-K

SEC filing which is a filing that must be made on the occurrence of an event that is deemed to be of significant importance to SECURITY holders.

Form W-4

A form that specifies the number of EXEMPTIONS claimed by each employee and that gives the employer the authority to withhold money for an employee’s FEDERAL INCOME TAXES and Federal Insurance Contributions Act (FICA) taxes.

Franchise

Legal arrangement whereby the owner of a trade name, franchisor, contracts with a party that wants to use the name on a non-exclusive basis to sell goods or services, franchisee. Frequently, the franchise agreement grants strict supervisory powers to the franchisor over the franchisee which, nevertheless, is an independent business.

Franchise Tax

State tax which is imposed on a state-chartered CORPORATION for the right to do business under its corporate name.

Fraud

Willful misrepresentation by one person of a fact inflicting damage on another person.

Free Cash Flow

The amount of cash that remains after deducting the funds a COMPANY must commit to continue operating at its planned level.

Free On Board (FOB)

Indicates the point at which title to goods passes.

Freight In

Transportation charges on merchandise purchased for resale.

Freight Out

Transportation charges on merchandise sold; an operating expense.

Full Disclosure

Requirement to disclose all material facts relevant to a transaction.

Fund Accounting

Method of ACCOUNTING and presentation whereby ASSETS and LIABILITIES are grouped according to the purpose for which they are to be used. Generally used by government entities and not-for-profits.

Fundamental Analysis

Research of such factors as interest rates, gross national product, inflation, unemployment, and inventories as tools to predict the direction of the economy.

Funding

Refinancing a DEBT on or before its MATURITY; also called REFUNDING and, in certain instances, pre-refunding.

Future Contract

Transferable agreement to deliver or receive during a specific future month a standardized amount of a commodity.

Future Value

The amount that an investment will be worth at a future date if it is invested at compound interest.

G

GAAP

Conventions, rules, and procedures necessary to define accepted accounting practice at a particular time. The highest level of such principles are set by the FINANCIAL ACCOUNTING STANDARDS BOARD (FASB).

GAAS

See GENERALLY ACCEPTED AUDITING STANDARDS.

Gain

Excess of REVENUES received over costs relating to a specific transaction.

GAO

Accounting and auditing office of the United States government. An independent agency that reviews federal financial transactions and reports directly to Congress.

GASB

Group that has authority to establish standards of financial reporting for all units of state and local government.

General Journal

The simple and most flexible type of journal.

General Ledger

Collection of all ASSET, LIABILITY, owners EQUITY, REVENUE, and expense accounts.

General Partnership

PARTNERSHIP with no limited partners.

Generally Accepted Accounting Principles (GAAP)

Conventions, rules, and procedures necessary to define accepted accounting practice at a particular time. The highest level of such principles are set by the FINANCIAL ACCOUNTING STANDARDS BOARD (FASB).

Generally Accepted Auditing Standards (GAAS)

Standards set by the AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS (AICPA) which concern the AUDITOR'S professional qualities and judgment in the performance of his or her AUDIT and in the actual report.

Gift

A valid transfer of property from one taxpayer to another without consideration or compensation. A gift may be subject to the unified estate and gift transfer tax.

Going Concern

Assumption that a business can remain in operation long enough for all of its current plans to be carried out.

Going Private

Movement from public ownership to private ownership of a COMPANY’s shares either by the company’s repurchase of shares or through purchases by an outside private investor.

Going Public

Activities that relate to offering a private company's shares to the general investing public including registering with the SEC.

Goods Available for Sale

The sum of beginning inventory and the net cost of purchases during a period; the total goods available for sale to customers during an accounting period.

Goodwill

Premium paid in the acquisition of an entity over the fair value of its identifiable tangible and intangible ASSETS less LIABILITIES assumed.

Governing Documents

Official legal documents that dictate how an entity is operated. The governing documents of a CORPORATIONinclude ARTICLES OF INCORPORATION and BYLAWS; a PARTNERSHIP includes the partnership agreement; a TRUST includes the trust agreement or trust indenture; and an LLC includes the ARTICLES OF ORGANIZATIONand OPERATING AGREEMENT.

Government Accountability Office (GAO)

Accounting and auditing office of the United States government. An independent agency that reviews federal financial transactions and reports directly to Congress.

Governmental Accounting Standards Board (GASB)

Group that has authority to establish standards of financial reporting for all units of state and local government.

Grantee

Person to whom property is transferred.

Grantor

(1) Person who transfers property. (2) Person who creates a trust.

Greenmail

Any amount a corporation pays to a shareholder to directly or indirectly buy back its stock.

Gross Income

The beginning point for the determination of income, including income from whatever sources derived.

Gross Margin

The difference between NET SALES and COST OF GOODS SOLD.

Gross Sales

The total amount of sales for cash and on credit accumulated during a specific accounting period.

Guaranty

Legal arrangement involving a promise by one person to perform the obligations of a second person to a third person, in the event the second person fails to perform.

H

Half-Life

Point in time at which half the PRINCIPAL has been repaid in a mortgage-backed security guaranteed or issued by the Government National Mortgage Association, the Federal National Mortgage Association, or the Federal Home Loan Mortgage Corporation.

Head of Household

An individual entitled to special tax rates that fall midway between single rates and married filing joint rates, if they fit the qualifying profile.

Hedge

A financial term for a specific type of commodities planning and trading.

Held-to-Maturity Security

A DEBT SECURITY that management intends to hold to its MATURITY or payment date and whose cash value is not needed until that date.

High-Low Method

A common, simple way of separating VARIABLE COSTS from FIXED COSTS.

High-Premium Convertible Debenture

BOND with a long-term, high-premium, COMMON STOCK conversion feature and also offering a fairly competitive interest rate.

Historical Cost

Original cost of an asset to an entity.

Holding Period

The time in which a taxpayer acquires property and the date on which it is sold.

Hope Scholarship Credit

A maximum allowable credit of $1,500 per student for each of the first 2 years of post-secondary education. It is allowable after all additional requirements are met.

Horizontal Analysis

A technique for analyzing FINANCIAL STATEMENTS that involves the computation of changes in both dollar amounts and percentages from the previous year to the current year.

I

IASC

An independent private sector body, formed in 1973, with the objective of harmonizing the accounting principles which are used in businesses and other organizations for financial reporting around the world. Its members are 143 professional accounting bodies in 104 countries.

IMA

A professional organization made up primarily of management accountants.

Improvement

EXPENDITURE directed to a particular ASSET to improve its performance or useful life.

Imputed Interest

If no interest or an unrealistic amount of interest is charged in a salve involving certain kinds of deferred payments, then the transaction will be treated as if the realistic rate of interest had been used. The difference between the realistic interest and the interest actually used is referred to as imputed interest.

In Arrears

Not paid at the time originally agreed to and overdue.

Income

Inflow of REVENUE during a period of time.

Income from Operation

Gross margin with operating expenses subtracted.

Income Statement

Summary of the effect of REVENUES and expenses over a period of time.

Income Summary

A temporary account used during the closing process that holds a summary of all REVENUES and EXPENSES before the NET INCOME or loss is transferred to the capital account.

Income Tax Basis

(1) For tax purposes, the concept of basis determines the proper amount of gain to report when an ASSET is sold. Basis is generally the cost paid for an asset plus the amounts paid to improve the asset less deductions taken against the asset, such as DEPRECIATION and AMORTIZATION. (2) For accounting purposes, a consistent basis of accounting that uses income tax accounting rules while GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (GAAP) does not.

Incorporation

Process by which a COMPANY receives a state charter allowing it to operate as a CORPORATION.

Incremental Cash Flow

Net of cash outflows and inflows attributable to a corporate investment project.

Indenture

Formal agreement, also called a deed of trust, between an issuer of bonds and the BONDHOLDER covering certain considerations such as form of the BOND for example.

Independence Standard Board (ISB)

This is the private sector standard-setting body governing the independence of AUDITORs from their public company clients. It came about from discussions between the AICPA, other accounting representatives and the SEC.

Independent Broker

New York Stock Exchange member who executes orders for other floor brokers who have more volume than they can handle, or for firms whose exchange members are not on the floor.

Index

Statistical composite that measures changes in the economy or in financial markets, often expressed in percentage changes from a base year or from the previous month.

Indirect Cost

Any cost that cannot be conveniently and economically traced to a specific department; a manufacturing cost that is not easily traced to a specific product and must be assigned using an allocation method.

Indirect Labor Costs

Labor costs for production-related activities that cannot be connected with or conveniently and economically traced to a specific end product.

Indirect Manufacturing Costs

Various production-related costs that cannot be practically or conveniently traced to an end product.

Indirect Materials

Minor materials and other production supplies that cannot be conveniently and economically traced to specific products.

Indirect Method

The procedure for converting the INCOME STATEMENT from an ACCRUAL to a CASH BASIS.

Individual Retirement Account (IRA)

A personal savings plan that allows an individual to make cash contributions per year dependent on the individual'sadjusted gross income and participation in an employer's retirement plan. Under a traditional IRA these earnings are not taxable until the time of withdrawal from the plan.

Inflation

Rise in the prices of goods and services, as happens when spending increases relative to the supply of goods on the market.

Inflation Rate

Rate of change in prices.

Inheritance

As distinguished from a BEQUEST or devise, an inheritance is property acquired through laws of descent and distribution from a person who dies without leaving a will. The value of property inherited id excluded from a taxpayers gross income, but if the property inherited produces income it is included in gross income. A taxpayer's basis in inherited property is the fair market value at the time of death.

Initial Public Offering (IPO)

When a private company goes public for the first time.

Inquiry

A procedure that consists of seeking information, both financial and non financial, of knowledgeable persons throughout the company. It is used extensively throughout the audit and often is complementary to performing other procedures. Inquiries may range from formal written inquiries to informal oral inquiries.

Inside Information

Corporate affairs that have not yet been made public.

Insolvency

Inability to pay DEBTS when due.

Insolvent

When an entity's LIABILITIES exceed its ASSETS.

Installment Method

Tax ACCOUNTING method of reporting GAIN on the sale of an ASSET exchanged for a RECEIVABLE. In general, the gain is reported as the note is paid off.

Institute of Management Accounts (IMA)

A professional organization made up primarily of management accountants.

Instrument

A legal document used for a specific purpose, such as paying for goods received.

Insurance

System whereby individuals and companies that are concerned about potential hazards pay premiums to an insurance company, which reimburses them in the event of loss.

Insured Account

Account at a bank, savings and loan association, credit union, or brokerage firm that belongs to a federal or private insurance organization.

Intangible Asset

Asset having no physical existence such as trademarks and patents.

Interest

Payment for the use or forbearance of money.

Interest Coverage Ratio

A way of measuring the degree of protection that a CREDITOR has from a DEBTOR’s DEFAULT on interestpayments.

Interest Rate

An amount of money charged for borrowing money or paid for the use of somebody else’s money.

Interim Dividend

DIVIDEND declared and paid before annual earnings have been determined, generally quarterly.

Interim Financial Statements

FINANCIAL STATEMENTS that report the operations of an entity for less than one year.

Internal Audit

AUDIT performed within an entity by its staff rather than an independent certified public accountant.

Internal Control

Process designed to provide reasonable assurance regarding achievement of various management objectives such as the reliability of financial reports.

Internal Control Over Financial Reporting

A process designed by, or under the supervision of the company's principal executive and principal financial officers or persons performing similar functions and effected by the company's board of directors, management, and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GENERALLY ACCEPTED ACCOUNTING PRINCIPLES and includes those policies and procedures that:
1. Pertain to the maintenance of records that accurately and fairly reflect the transactions and dispositions of the assets of the company.
2. Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP and that receipts and expenditures are being made only in accordance with authorizations of management and directors of the company.
3. Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company's assets that could have a material effect on the financial statements.

Internal Rate of Return

Method that determines the discount rate at which the present value of the future CASH FLOWS will exactly equal investment outlay.

Internal Revenue Code

Collection of tax rules of the federal government. Also referred to as Title 26 of the United States Code.

Internal Revenue Service (IRS)

Federal agency that administers the INTERNAL REVENUE CODE. The IRS is part of the United States TreasuryDepartment.

International Accounting Standards Committee (IASC)

An independent private sector body, formed in 1973, with the objective of harmonizing the accounting principles which are used in businesses and other organizations for financial reporting around the world. Its members are 143 professional accounting bodies in 104 countries.

International Mutual Fund

MUTUAL FUND that invests in SECURITIES markets throughout the world so that if one market is in a slump, money can still be made in others.

Intrinsic Value

Valuation determined by applying data inputs to a valuation theory or model.

Inventory

Tangible property held for sale, or materials used in a production process to make a product.

Inventory Financing

Circumstance where loans in excess of ACCOUNTS RECEIVABLE are made against inventory in anticipation of future sales. Sometimes used as a synonym for OVER-ADVANCES IN FACTORING.

Inventory Turnover

A ratio used to indicate the number of times a COMPANY’s average inventory is sold during an accounting period.

Invest

To put money into something such as property, stocks, or a business, in order to earn INTEREST or make a profit.

Investing

The practice of putting money into something, such as property, in order to earn INTEREST or make a profit.

Investment

EXPENDITURE used to purchase goods or services that could produce a return to the investor.

Investment Banker

Firm, acting as underwriter or agent, that serves as intermediary between an issuer of SECURITIES and the investing public.

Investment Income

Income from SECURITIES and other non-business investments; such as DIVIDENDS, INTEREST, etc.

Investment Tax Credit

This is a component of the general business credit and consists of the following:
1. The energy credit;
2. The rehabilitation credit; and
3. The reforestation credit.

Invoice

Bill prepared by a seller of goods or services and submitted to the purchaser.

Involuntary Conversions

This is a conversion of property where it is in whole or part destroyed, stolen, seized, requisitioned or condemned (or where there is a threat or imminence of requisition or condemnation).

IPO

When a private company goes public for the first time.

IRA

A personal savings plan that allows an individual to make cash contributions per year dependent on the individual's adjusted gross income and participation in an employer's retirement plan. Under a traditional IRA these earnings are not taxable until the time of withdrawal from the plan.

IRS

Federal agency that administers the INTERNAL REVENUE CODE. The IRS is part of the United States TreasuryDepartment.

ISB

This is the private sector standard-setting body governing the independence of AUDITORs from their public company clients. It came about from discussions between the AICPA, other accounting representatives and the SEC.

Issue

Stock or BONDS sold by a CORPORATION or a government entity at a particular time.

Issued and Outstanding

Shares of a CORPORATION, authorized in the corporate charter, which have been issued and are outstanding.

Issuer

This term means an issuer, the securities of which are registered under Section 12 of the Securities Exchange Act of 1934, or that is required to file reports under Section 15(d) of that Act, or that files or has filed a registration statement with the SEC that has not yet become effective under the Securities Act of 1933 and that it has not withdrawn.

J

Jeopardy

If the IRS believes that collection of tax appears to be in jeopardy (danger of being uncollected), it may immediately assess and collect such tax. The intermediate steps are bypassed.

Job Order

A customer order for a specific number of specially designed, made-to-order products.

Joint Return

A return filed by married taxpayers or surviving spouses.

Joint Venture

When two or more persons or organizations gather CAPITAL to provide a product or service. Often carried out as a PARTNERSHIP.

Journal

Any book containing original entries of daily financial transactions.

Journal Entry

A notation in the GENERAL JOURNAL. It records a single transaction.

Junk Bonds

DEBT SECURITIES issued by companies with higher than normal credit risk. Considered "non-investment grade" bonds, these SECURITIES ordinarily yield a higher rate of interest to compensate for the additional risk.

Just-In-Time

An overall operating philosophy of INVENTORY management in which all resources, including materials, personnel, and facilities, are used only as needed.

K

Keogh Plan

Also known as an HR 10, this is a qualified retirement plan for self employed who do not incorporate their business. If qualifications are met the taxpayer may receive a deduction for contributions made.

Key Employee

For purposes of rules that apply to top heavy plans, a key employee:
1. An officer of the employer earning more than $130,000;
2. An individual who owns more than 5 percent of the employer;
3. An individual who owns more than 1 percent of the employer and compensation greater than $150,000.

Key Industry

Industry of primary importance to a nation’s economy.

Key Person Insurance

Business-owned life insurance contract typically on the lives of principal officers that normally provides for guaranteed death benefits to the company and the accumulation of a cash surrender value.

Kiting

Writing checks against a bank account with insufficient funds to cover them, hoping that the bank will receive deposits before the checks arrive for clearance.

L

Labor

Physical or mental effort; work.

Laissez-Faire

Doctrine that interference of government in business and economic affairs should be minimal.

Land

Property; real estate.

Last In, First Out (LIFO)

ACCOUNTING method of valuing inventory under which the costs of the last goods acquired are the first costs charged to expense. Commonly known as LIFO.

Lay Off

Reduce the risk in standby commitment, under which the bankers agree to purchase and resell to the public any portion of a stock issue not subscribed to by shareowners who hold rights.

Lease

Conveyance of land, buildings, equipment or other ASSETS from one person (LESSOR) to another (LESSEE) for a specific period of time for monetary or other consideration, usually in the form of rent.

Lease Acquisition Cost

Price paid by a real estate limited partnership, when acquiring a lease, including legal fees and related expenses.

Lease-Purchase Agreement

Agreement providing that portions of lease payments may be applied toward the purchase of the property under lease.

Leasehold

Property INTEREST a LESSEE owns in the leased property.

Ledger

Any book of accounts containing the summaries of debit and credit entries.

Ledger Account

A complete record of the transactions recorded in each individual account.

Lender

Individual or firm that extends money to a borrower with the expectation of being repaid, usually with INTEREST.

Lending Securities

SECURITIES borrowed from a broker’s INVENTORY, other MARGIN accounts, or from other brokers, when a customer makes a short sale and the securities must be delivered to the buying customer’s broker.

Lessee

Person or entity that has the right to use property under the terms of a LEASE.

Lessor

Owner of property, the temporary use of which is transferred to another (LESSEE) under the terms of a LEASE.

Letter of Credit

Conditional bank commitment issued on behalf of a customer to pay a third party in accordance with certain terms and conditions. The two primary types are commercial letters of credit and standby letters of credit.

Letter of Intent

Any letter expressing an intention to take an action, sometimes subject to other action being taken.

Leverage

The use of borrowed funds to increase the profit from an investment.

Leveraged Buy Out

Acquisition of a controlling INTEREST in a company in a transaction financed by the issuance of DEBT instruments by the acquired entity.

Leveraged Lease

Transaction under which the LESSOR borrows funds to acquire property which is leased to a third party. The property and lease rentals are security for the LESSOR'S indebtedness.

Liability

DEBTS or OBLIGATIONS owed by one entity (DEBTOR) to another entity (CREDITOR) payable in money, goods, or services.

Lien

CREDITOR’s claim against property. For example a MORTGAGE is a lien against a house.

Life Expectancy

Age to which an average person can be expected to live, as calculated by an ACTUARY.

Lifetime Learning Credit

This allows a credit for 20 percent of qualified tuition and fees paid by the taxpayer with respect to one or more students for any year that the HOPE SHCOLARSHIP CREDIT is not claimed.

LIFO

ACCOUNTING method of valuing inventory under which the costs of the last goods acquired are the first costs charged to expense.

LIFO Liquidation

The reduction of INVENTORY levels at year’s end below beginning-of-the-year levels for businesses using the LAST IN, FIRST OUT (LIFO) inventory method.

Limited Company

A COMPANY, usually registered in the United Kingdom, that is organized to protect its owners from financial responsibility.

Limited Liability

The obligation of owners of a CORPORATION, who are liable only for the amount of their INVESTMENT and are not liable for the corporation’s DEBTS.

Limited Liability Company (LLC)

Form of doing business combining LIMITED LIABILITY for all owners (called members) with taxation as a PARTNERSHIP. An LLC is formed by filing ARTICLES OF ORGANIZATION with an appropriate state official. Rules governing LLCs vary significantly from state to state.

Limited Liability Partnership (LLP)

GENERAL PARTNERSHIP which, via registration with an appropriate state authority, is able to enshroud all its partners in LIMITED LIABILITY. Rules governing LLPs vary significantly from state to state.

Limited Partnership

PARTNERSHIP in which one or more partners, but not all, have LIMITED LIABILITY to CREDITORS of the partnership.

Liquid Assets

Cash, cash equivalents, and marketable SECURITIES.

Liquidation

Winding up an activity by distributing its ASSETS to the appropriate parties and settling its DEBTS.

Liquidity

Available money on hand to pay bills when they are due and to take care of unexpected needs for CASH.

Liquidity Ratio

Measure of a firm’s ability to meet maturing SHORT-TERM OBLIGATIONS.

Listed Property

Limits are imposed on the DEPRECIATION deduction a taxpayer may claim on certain listed property as follows:
1. A passenger car;
2. Other property used as transportation;
3. Property used for purposes of entertainment, recreation, or amusement;
4. A computer and peripheral equipment; and
5. Cellular telephone.

Litigation Support/Dispute Resolution

A service that CPAs often provide to attorneys - e.g., expert testimony about the value of a business or other asset, forensic accounting (a partner stealing from his other partners, or a spouse understating his income in a matrimonial action). The lawyer hires the CPA to do the investigation and determine the amount of money stolen or understated.

LLC

Form of doing business combining LIMITED LIABILITY for all owners (called members) with taxation as a PARTNERSHIP. An LLC is formed by filing ARTICLES OF ORGANIZATION with an appropriate state official. Rules governing LLCs vary significantly from state to state.

LLP

GENERAL PARTNERSHIP which, via registration with an appropriate state authority, is able to enshroud all its partners in LIMITED LIABILITY. Rules governing LLPs vary significantly from state to state.

Loan

Transaction wherein an owner of property, called the LENDER allows another party, the borrower, to use the property.

Loan Value

Amount a LENDER is willing to LOAN against COLLATERAL.

Long Bond

BOND that matures in more than 10 years.

Long Term

HOLDING PERIOD of six months or longer, according to the Tax Reform Act of 1984 and applicable in calculating the CAPITAL GAINS tax until 1988.

Long-Term Asset

An ASSET that has the following characteristics: (1) it has a useful life of more than one year; (2) it is acquired for use in the operation of a business; and (3) it is not intended for resale to customers.

Long-Term Debt

DEBT with a maturity of more than one year from the current date.

Long-Term Gain

Subsequent to the Tax Reform Act of 1984 and prior to provisions of the Tax Reform Act of 1986 effective in 1988, a gain on the sale of a capital asset where the HOLIDNG PERIOD was six months or more and the profit was subject to the LONG-TERM CAPITAL GAINS tax.

Long-Term Investment

An INVESTMENT that management plans to hold for more than one year.

Long-Term Liability

A DEBT that falls due more than one year in the future or beyond the normal OPERATING CYCLE, or that is to be paid out of noncurrent assets.

Long-Term Loss

Negative counterpart to LONG-TERM GAIN as defined by the same legislation.

Loss

Excess of EXPENDITURES over REVENUE for a period or activity. Also, for tax purposes, an excess of basis over the amount realized in a transaction.

Loss on Disposal of Plant and Equipment

The account in which a LOSS is recorded when a firm sells or trades in an ASSET and receives an amount less than the BOOK VALUE for that asset.

Lower of Cost or Market

Valuing ASSETS for financial reporting purposes. Ordinarily, "cost" is the purchase price of the asset and "market" refers to its current replacement cost. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (GAAP) requires that certain assets (e.g., INVENTORIES) be carried at the lower of cost or market.

Lump-Sum Distribution

Single payment to a beneficiary covering the entire amount of an agreement.

M

Macroeconomics

Analysis of a nation’s economy as a whole, using such aggregate data as price levels, unemployment, INFLATION, and industrial production.

Management

Combined fields of policy and administration and the people who provide the decisions and supervision necessary to implement the owner’s business objectives and achieve stability and growth.

Management Accounting

Reporting designed to assist management in decision-making, planning, and control. Also known as MANAGERIAL ACCOUNTING.

Management Discussion and Analysis (MD&A)

SEC requirement in financial reporting for an explanation by management of significant changes in operations, ASSETS, and LIQUIDITY.

Management's Report

Management is required to include in its annual report its assessment of the effectiveness of the company's internal control over financial reporting in addition to its audited financial statements as of the end of the most recent fiscal year.

Managerial Accounting

Reporting designed to assist management in decision-making, planning, and control.

Manipulation

Buying or selling a SECURITY to create a false appearance of active trading and thus influence other investors to buy or sell shares.

Manufacture

To make or process (a product), especially by using machines.

Manufacturing Overhead

Another term for FACTORY OVERHEAD COSTS.

Margin

Excess of selling price over the unit cost.

Margin of Profit

Relationship of gross profits to net sales.

Marginal Cost

Increase or decrease in the TOTAL COSTS of a business firm as the result of one more or one less unit of output.

Marginal Tax Rate

Amount of tax imposed on an additional dollar of income.

Mark-to-Market

Method of valuing ASSETS that results in adjustment of an asset's carrying amount to its market value.

Markdown

Amount subtracted from the selling price, when a customer sells SECURITIES to a DEALER in the OVER-THE-COUNTER market.

Market

Public place where products or services are bought and sold, directly or through intermediaries.

Market Capitalization

Value of a CORPORATION as determined by the MARKET PRICE of its ISSUED AND OUTSTANDING  COMMON STOCK.

Market Index

Numbers representing weighted values of the components that make up the INDEX.

Market Interest Rate

The rate of interest paid in the MARKET on BONDS of similar risk.

Market Price

Last reported price at which a SECURITY was sold on an exchange.

Market Share

Percentage of industry sales of a particular COMPANY or product.

Market Value

The price investors are willing to pay for a share of stock on the open market.

Marketable Securities

Stocks and other negotiable instruments which can be easily bought and sold on either listed exchanges or over-the-counter markets.

Marketing

Moving goods and services from the provider to consumer.

Markup

The amount added to the price of a product by a retailer to arrive at a selling price.

Married Taxpayers

Taxpayers that are married may file a JOINT RETURN, therefore combining their INCOME and expenses. Individuals will be considered married if:
1. They are living as husband and wife;
2. They are recognized living as common law marriage; or
3. Legally married but separated and living apart but not legally divorced.
Marriage is determined as of the last day of the tax year.

Matching Principle

A fundamental concept of basic accounting. In any one given accounting period, you should try to match the revenue you are reporting with the expenses it took to generate that revenue in the same time period, or over the periods in which you will be receiving benefits from that expenditure. A simple example is depreciation expense. If you buy a building that will last for many years, you don't write off the cost of that building all at once. Instead, you take depreciation deductions over the building's estimated useful life. Thus, you've "matched" the expense, or cost, of the building with the benefits it produces, over the course of the years it will be in service.

Material

The substance or substances from which something is made.

Material Weakness

A significant deficiency or combination of significant deficiencies that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected.

Materiality

Magnitude of an omission or misstatements of ACCOUNTING information that, in the light of surrounding circumstances, makes it probable that the judgment of a reasonable person relying on the information would change or be influenced.

Materials Inventory Account

An INVENTORY account made up of the balances of materials, parts, and supplies on hand at a given time.

Maturity

The time at which payment of a loan or BOND becomes due.

Maturity Date

Date on which the principal amount of a NOTE, DRAFT, acceptance, BOND, or other DEBT INSTRUMENTbecomes due and payable.

MD&A

SEC requirement in financial reporting for an explanation by management of significant changes in operations, ASSETS, and LIQUIDITY.

Merchandise

Items that can be bought or sold; commercial goods.

Merchandise Inventory

The goods on hand at any one time that are available for sale to customers in the regular course of business.

Merger

BUSINESS COMBINATION that occurs when one entity directly acquires the ASSETS and LIABILITIES of one or more entities and no new corporation or entity is created.

Microeconomic Pricing Model

An accounting model that is based on the economic theory that profit will be greater when the difference between total revenue and TOTAL COST is the greatest.

Microeconomics

Study of the behavior of basic economic units such as companies, industries, or households.

Mixed Costs

Costs that result when both VARIABLE COSTS and FIXED COSTS are charged to the same GENERAL LEDGER account.

Modeling

Designing and manipulating a mathematical representation of an economic system or corporate financial application so that the effect of changes can be studied and forecast.

Modified Accelerated Cost Recovery System

A mandatory system of DEPRECIATION for income tax purposes, enacted by Congress in 1986.

Monetary Items

Definite fixed amounts stated in terms of dollars, either by law or by contract agreement.

Money Laundering

The use of an intermediate agent, such as a bank, to disguise the source of money received from illegal activities.

Money Market

MARKET for SHORT-TERM DEBT instruments.

Monopoly

Control of the production and distribution of a product or service by one firm or a group of firms acting in concert.

Mortgage

Legal instrument evidencing a security interest in ASSETS, usually real estate. Mortgages serve as COLLATERAL for PROMISSORY NOTES.

Moving Average

Average of SECURITY or COMMODITY prices constructed on a period as short as a few days or as long as several years and showing trends for the latest interval.

Moving Average Method

A modified version of the WEIGHTED-AVERAGE-COST METHOD. It is used to compute the average cost of a PERPETUAL INVENTORY.

Municipal Bond

BOND issued by a government or public body, the INTEREST on which is typically exempt from federal taxation.

Mutual Agency

The ability of each partner in a COMPANY to act as an agent of the company.

Mutual Fund

Investment company which generally offers its shares to the general public and invests the proceeds in a diversified portfolio of SECURITIES.

N

NASBA

Serves as a forum for the 54 State Boards of Accountancy, which administer the uniform CPA examination, license Certified Public Accountants and regulate the practice of public accountancy in the United States.

NASDAQ

National Association of Securities Dealers Automated Quotations system, which is owned and operated by the National Association of Securities Dealers; a computerized system that provides brokers and dealers with price quotations for securities traded OVER-THE-COUNTER as well as for many NEW YORK STOCK EXCHANGE (NYSE) listed securities.

National Association of Securities Dealers Automated Quotations (NASDAQ)

National Association of Securities Dealers Automated Quotations system, which is owned and operated by the National Association of Securities Dealers; a computerized system that provides brokers and dealers with price quotations for securities traded OVER-THE-COUNTER as well as for many NEW YORK STOCK EXCHANGE (NYSE) listed securities.

 

National Association of State Boards of Accountancy (NASBA)

Serves as a forum for the 54 State Boards of Accountancy, which administer the uniform CPA examination, license Certified Public Accountants and regulate the practice of public accountancy in the United States.

 

Nationalization

Takeover of a private company’s assets or operations by a government.

 

NAV

In mutual funds, the MARKET VALUE of a fund share, synonymous with bid price; BOOK VALUE of a company’s different classes of securities, usually stated as NET ASSET value per BOND, net asset value per share of PREFERRED STOCK, and net book value per common share of COMMON STOCK.

 

Negative Assurance

Report issued by an ACCOUNTANT based on limited procedures that states that nothing has come to the accountant's attention to indicate that the financial information is not fairly presented.

 

Negligence

The omission to do something which a reasonable man, guided by those ordinary considerations which ordinarily regulate human affairs, would do, or the doing of something which a reasonable and prudent man would not do. Negligence is the failure to use such care as a reasonably prudent and careful person would use under similar circumstances; it is the doing of some act which a person of ordinary prudence would not have done under similar circumstances or failure to do what a person of ordinary prudence would have done under similar circumstances. The term refers only to that legal delinquency which results whenever a man fails to exhibit the care which he ought to exhibit, whether it be slight, ordinary, or great. It is characterized chiefly by inadvertence, thoughtlessness, inattention, and the like, while "wantonness" or "recklessness" is characterized by willfulness. The law of negligence is founded on reasonable conduct or reasonable care under all circumstances of particular care. Doctrine of negligence rests on duty of every person to exercise due care in his conduct toward others from which injury may result.

 

Negotiable

Something that can be sold or transferred to another party in exchange for money or as settlement of an obligation.

 

Net

Figure remaining after all relevant deductions have been made from the gross amount.

 

Net Asset Value (NAV)

In mutual funds, the MARKET VALUE of a fund share, synonymous with bid price; BOOK VALUE of a company’s different classes of securities, usually stated as NET ASSET value per BOND, net asset value per share of PREFERRED STOCK, and net book value per common share of COMMON STOCK.

 

Net Assets

Excess of the value of SECURITIES owned, cash, receivables, and other ASSETS over the LIABILITIES of the company.

 

Net Current Assets

Difference between current assets and current liabilities; another name for WORKING CAPITAL.

 

Net Income

Excess or DEFICIT of total REVENUES and GAINS compared with total expenses and losses for an ACCOUNTING period.

 

Net Leas

In addition to the rental payment, the LESSEE assumes all property charges such as taxes, insurance, and maintenance.

 

Net Loss

The difference between expenses and REVENUES when expenses exceed revenues over a period of time.

 

Net Present Value (NPV)

Method used in evaluating investments whereby the net present value of all CASH outflows and cash inflows is calculated using a given DISCOUNT RATE, usually required rate of return.

 

Net Present Value Method

A capital INVESTMENT evaluation method that discounts future CASH FLOWS to their PRESENT VALUE.

 

Net Proceeds

Amount received from the sale or disposition of property, from a LOAN, or from the sale or issuance of securities after deduction of all costs incurred in the transaction.

 

Net Sales

Sales at gross invoice amounts less any adjustments for returns, allowances, or discounts taken.

 

Net Worth

Similar to EQUITY, the excess of ASSETS over LIABILITIES.

 

New York Stock Exchange (NYSE)

Oldest and largest stock exchange in the United States, located at 11 Wall Street in New York City; also known as the Big Board and The Exchange.

 

No-Par Stock

Stock authorized to be issued but for which no PAR VALUE is set in the ARTICLES OF INCORORATION. A STATED VALUE is set by the BOARD OF DIRECTORS on the issuance of this type of stock.

 

No-Par Value

Stock or bond that does not have a specific value indicated.

 

Non Routine Transactions

Activities that occur only periodically, the data involved are generally not part of the routine flow of transactions.

 

Non-Callable

PREFERRED STOCK or BOND that cannot be redeemed at the OPTION of the ISSUER.

 

Non-for-Profit Organization/Tax-Exempt Organization

An incorporated organization which exists for educational or charitable purposes, and from which its shareholders or trustees do not benefit financially. Also called NOT-FOR-PROFIT organization.

 

Non-Sufficient Funds (NSF) Check

A CHECK drawn against an ACCOUNT in which there is not enough money to honor it.

 

Nonresident Alien

Any citizen that is not a resident or citizen of the United States. Income of such individuals is subject to taxation if it is effectively connected with a United States trade or business.

 

Not-for-Profit

Type of incorporated organization in which no stockholder or TRUSTEE shares in profits or losses and which usually exists to accomplish some charitable, humanitarian, or educational purpose.

 

Note

Written promise to pay a specified amount to a certain entity on demand or on a specified date.

 

Notes Payable

Collective term for written promissory notes that are due in less than one year.

 

Notes Receivable

Collective term for written promissory notes that are due in less than one year and are held by the entity to whom payment is promised.

 

Notional

Value assigned to ASSETS or LIABILITIES that is not based on cost or market (e.g., the value of a service not yet rendered).

 

NPV

Method used in evaluating investments whereby the net present value of all CASH outflows and cash inflows is calculated using a given DISCOUNT RATE, usually required rate of return.

 

NSF Check

A CHECK drawn against an ACCOUNT in which there is not enough money to honor it.

 

NYSE

Oldest and largest stock exchange in the United States, located at 11 Wall Street in New York City; also known as the Big Board and The Exchange.

 

O

Objectivity

Emphasizing or expressing the nature of reality as it is apart from personal reflection or feelings; independence of mind.

Obligations

Any amount which may require payment by an entity at a future time.

Obsolescence

The process of becoming out-of-date.

 

OCBOA

Consistent accounting basis other than GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (GAAP) used for financial reporting. Examples include an INCOME TAX BASIS or a CASH BASIS.

 

Offer

Price at which someone who owns a SECURITY offers to sell it.

 

Offering Price

Price per share at which a new or secondary distribution of securities is offered for sale to the public.

 

OPEB

All post-retirement benefits other than pensions, provided by employers to employees.

 

Open-End Mutual Fund

MUTUAL FUND that does not have a fixed number of shares outstanding, offers new shares to the public, and buys back outstanding shares at market value.

 

Operating Agreement

Agreement, usually a written document, that sets out the rules by which a LIMITED LIABILITY COMPANY (LLC) is to be operated. It is the LLC equivalent of corporate BYLAWS or a PARTNERSHIP agreement.

 

Operating Cycle

Period of time between the acquisition of goods and services involved in the manufacturing process and the final cash realization resulting from sales and subsequent collections.

 

Operating Expense

An EXPENSE other than COST OF GOODS SOLD that is incurred in running a business.

 

Operating Lease

Type of LEASE, normally involving equipment, whereby the CONTRACT is written for considerably less than the life of the equipment and the lesser handles all maintenance and servicing.

 

Operating Profit (or Loss)

The difference between the REVENUES of a business and the related costs and expenses, excluding INCOME derived from a sources other than its regular activities and before income deductions.

 

Opportunity Cose

Highest price or rate of return an alternative course of action would provide.

 

Option

Right to buy or sell something at a specified price during a specified time period.

 

Ordinary Annuity

A series of equal payments made at the end of equal intervals of time, with compound interest on these payments.

 

Ordinary Income

One of two classes of income (the other being CAPITAL GAINS) taxed under the INTERNAL REVENUE CODE. Historically, ordinary income is taxed at a higher rate than capital gains.

 

Organization

The act of arranging something in an orderly way.

 

Organization Expenditures

The costs of organizing a trade or business or for profit activity before it begins active business. A taxpayer may elect to amortize such expenses for a tern no less than 60 months. If the election is not made then the expenses are not deductible and may only be recovered when the business ceases operation or is sold.

 

Original Cost

In ACCOUNTING, all costs associated with the acquisition of an ASSET.

 

Other Comprehensive Basis of Accounting (OCBOA)

Consistent accounting basis other than GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (GAAP) used for financial reporting. Examples include an INCOME TAX BASIS or a CASH BASIS.

 

Other Post-Retirement Employee Benefit (OPEB)

All post-retirement benefits other than pensions, provided by employers to employees.

 

Output

An amount of something produced, especially during a given period of time.

 

Outsourcing

The act or an instance of purchasing essential products or services from another COMPANY.

 

Outstanding

Not settled or paid.

 

Outstanding Check

A CHECK that has been written by the drawer and deducted on his or her records but has not reached the bank for payment and is not deducted from the bank BALANCE by the time the bank issues its statement.

 

Over-the-Counter

Sold to customers at retail and without any special restrictions.

 

Overhead

Costs of a business that are not directly associated with the production or sale of goods or services.

 

Overhead Application Rate

Standard rate used to calculate the OVERHEAD cost of a given activity. Activity often measured in LABOR or machine hours.

 

Owner’s Equity

The residual INTEREST in the assets of a business entity that remains after deducting the entity’s liabilities.

 

P

P/E Ratio

A ratio that is used as a way of measuring investor confidence in a COMPANY and comparing stocks for profitability. It is found by dividing MARKET PRICE per share by EARNINGS PER SHARE (EPS).

Paid in Capital

Portion of the stockholders' EQUITY which was paid in by the stockholders, as opposed to CAPITAL arising from profitable operations.

Par

Equal to the nominal or face value of a SECURITY.

Par Value

Amount per share set in the ARTICLES OF INCORPORATION of a CORPORATION to be entered in the CAPITAL STOCKS account where it is left permanently and signifies a cushion of EQUITY capital for the protection of CREDITORS.

Parent Company

Company that has a controlling interest in the COMMON STOCK of another.

Partnership

Relationship between two or more persons based on a written, oral, or implied agreement whereby they agree to carry on a trade or business for profit and share the resulting profits. Unlike a CORPORATION'S shareholders, the partnership's general partners are liable for the DEBTS of the partnership.

Passive Activity Loss

LOSS generated from activities involved in the conduct of a trade or business in which the taxpayer does not materially participate.

Passive Income

Includes income derived from such sources as dividends, interest, royalties, rents, amounts received from personal service contracts, and income received as a beneficiary of an estate or trust.

Patronage Dividends

These dividends are amounts paid by a cooperative to its members and customers based on the quantity or value of business conducted with or for the members during the tax year.

Payback Period

In capital budgeting; the length of time needed to recoup the cost of capital investment.

Payback Period Method

A way of judging capital investments that bases the decision to invest in capital equipment on the minimum length of time it will take to earn back in CASH the amount of the initial INVESTMENT.

Payout Ratio

Percentage of a firm’s profits that is paid out to shareholders in the form of DIVIDENDS.

PCAOB

A private-sector, non-profit corporation, created by the Sarbanes-Oxley Act of 2002, to oversee the AUDITORs of public companies in order to protect the interests of investors and further the public interest in the preparation of informative, fair, and independent audit reports.

Peer Review

Process by which an accounting firm's practice is evaluated for compliance with professional standards. The objective is achieved through the performance of an independent review by one's peers.

Penalty

The various government codes contain numerous provisions which impose penalties on a taxpayer (any type of taxpayer) for failure to perform a specific act or omitting vital information on a return.

Pension

Retirement plan offered by an employer for the benefit of an employee, usually at retirement, through a TRUSTEEwho controls the plan ASSETS.

Period

An interval of time with a specified length or characterized by certain conditions.

Periodic Inventory System

A system for determining INVENTORY on hand by a physical count that is taken at the end of an accounting period.

Periodicity

The recognition that NET INCOME for any PERIOD less than the life of the business, although tentative, is still a useful estimate of net income for that period.

Perpetual Inventory

System that requires a continuous record of all receipts and withdrawals of each item of INVENTORY.

Personal Financial Planning

Process for arriving at a comprehensive plan to solve an individual's personal, business, and financial problems and concerns.

Personal Financial Specialist (PFS)

CERTIFIED PUBLIC ACCOUNTANT who specializes in PERSONAL FINANCIAL PLANNING and completes a series of requirements that include education, experience, ethics and an exam.

Personal Financial Statements

FINANCIAL STATEMENTS prepared for an individual or family to show financial status.

Personal Property

Movable property that is not affixed to the land (REAL PROPERTY). Personal property includes tangible items such as cash, cars and computers, as well as intangible items, such as royalties, patents and copyrights.

Petty Cash

A small amount of CASH that a company keeps on hand to pay for minor expenses in an office.

PFS

CERTIFIED PUBLIC ACCOUNTANT who specializes in PERSONAL FINANCIAL PLANNING and completes a series of requirements that include education, experience, ethics and an exam.

Phantom Income

Income reported on a TAX BASIS for which no cash or financial benefit is realized.

Physical Inventory

An actual count of all MERCHANDISE on hand at the end of an accounting period.

Plant

A building or group of buildings where something is made or processed; factory.

Pledged

ASSET placed in a TRUST and used as COLLATERAL for a DEBT.

POB

The POB is an independent oversight board, composed of public members, which monitors and evaluates peer reviews conducted by the SEC Practice Section (SECPS) of the AICPA's Division for CPA Firms as well as other activities of the SECPS.

Pooling of Interest

Used to account for the acquisition of another company when the acquiring company exchanges its voting COMMON STOCK for the voting common stock of the acquired company when certain criteria are met.

Portfolio

Combined holding of more than one stock, BOND, commodity, real estate investment, cash equivalent, or other ASSET by an individual or institutional investor

Post-Closing Trial Balance

A trial BALANCE prepared at the end of an accounting period after all adjusting and closing entries have been posted; a final check on the balance of the LEDGER.

Post-Retirement Benefits

PENSIONS, health care, life insurance and other benefits that are provided by an employer to retirees, their dependents, or survivors.

Predetermined Overhead Rate

A rate that is used as a way of estimating and assigning OVERHEAD costs to products or jobs for each department or operating unit before the end of an accounting period.

Preemptive Right

Right giving existing stockholders the opportunity to purchase shares of a new ISSUE before it is offered to others.

Preferred Stock

Type of CAPITAL STOCK that carries certain preferences over COMMON STOCK, such as a prior claim on DIVIDENDS and ASSETS.

Premium

(1) Excess amount paid for a BOND over its face amount. (2) In insurance, the cost of specified coverage for a designated period of time.

Premium Bond

BOND with a selling price above face or REDEMPTION VALUE.

Prenuptial Contract

Agreement between a future husband and wife that details how the couple’s financial affairs are to be handled both during the marriage and in the event of divorce.

Prepaid Expense

Cost incurred to acquire economically useful goods or services that are expected to be consumed in the revenue-earning process within the operating cycle.

Present Value

CURRENT VALUE of a given future CASH flow stream, discounted at a given rate.

Preventive Controls

These have the objective of preventing errors or fraud from occurring in the first place that could result in a misstatement of the financial statements.

Price Range

High/low range in which a stock has traded over a particular period of time.

Price/Earnings (P/E) Ratio

A ratio that is used as a way of measuring investor confidence in a COMPANY and comparing stocks for profitability. It is found by dividing MARKET PRICE per share by EARNINGS PER SHARE (EPS).

Primary Earnings Per Share

Earnings available to COMMON STOCK divided by the number of common shares OUTSTANDING.

Prime Rate

Rate of INTEREST charged by major U.S. banks on loans made to their preferred customers.

Principal

Face amount of a SECURITY, exclusive of any PREMIUM or INTEREST. The basis for INTEREST computations.

Private Placement

Sales of SECURITIES not involving a PUBLIC OFFERING and exempt from registration pursuant to certain EXEMPTIONS.

Privilege

A right or immunity granted as a peculiar benefit advantage.

Privity

An interest in a transaction, contract or legal action to which one is not a party, arising out of a relationship to one of the parties.

Pro Forma

Presentation of financial information that gives effect to an assumed event (e.g., MERGER).

Pro Rata

Distribution of an expense, fund, or DIVIDEND proportionate with ownership.

Product Line

The place in a factory where products are made.

Production

The act or process of creating something.

Profit

Positive difference that results from selling products and services for more than the cost of producing these goods.

Profit Margin

Used to measure the percentage of each sales dollar that results in NET INCOME.

Profit Margin Pricing

An approach to cost-based pricing in which price is computed using a percentage of a product’s total costs and expenses.

Profit Sharing Plan

DEFINED CONTRIBUTION PLAN characterized by the setting aside of a portion of an entity's profits in participant's accounts.

Profitability

The ability to earn enough INCOME to attract and hold INVESTMENT capital.

Projection

Prospective FINANCIAL STATEMENTS that include one or more hypothetical assumptions.

Promissory Note

Evidence of a DEBT with specific amount due and interest rate. The note may specify a maturity date or it may be payable on demand. The promissory note may or may not accompany other instruments such as a MORTGAGEproviding security for the payment thereof.

Property, Plant, and Equipment

Long-term tangible assets used in the continuing operation of a business for a long time.

Proprietorship

Business owned by an individual without the limited liability protection of a CORPORATION or a LIMITED LIABILITY COMPANY (LLC). Also known as SOLE PROPRIETORSHIP.

Prospective Financial Information (Forecast and Projection)

Forecast: Prospective financial statements that present, to the best of the responsible party's knowledge and belief, an entity's expected financial position, results of operations, and changes in financial position. A financial forecast is based on the responsible party's assumptions reflecting conditions it expects to exist and the course of action it expects to take. Projection: Prospective financial statements that present, to the best of the responsible party's knowledge and belief, given one or more hypothetical assumptions, an entity's expected financial position, results of operations, and changes in financial position.

Prospectus

Major part of the registration statement filed with the SECURITIES AND EXCHANGE COMMISSION (SEC) for PUBLIC OFFERINGS. A prospectus generally describes SECURITIES or partnership interests to be issued and sold.

Proxy

Document authorizing someone other than the shareholder to exercise the right to vote the stock owned by the shareholder.

Public Company Accounting Oversight Board (PCAOB)

A private-sector, non-profit corporation, created by the Sarbanes-Oxley Act of 2002, to oversee the AUDITORs of public companies in order to protect the interests of investors and further the public interest in the preparation of informative, fair, and independent audit reports.

Public Offering

Offering shares to the public. Generally done through SEC filings.

Public Oversight Board (POB)

The POB is an independent oversight board, composed of public members, which monitors and evaluates peer reviews conducted by the SEC Practice Section (SECPS) of the AICPA's Division for CPA Firms as well as other activities of the SECPS.

Purchase Method of Accounting

ACCOUNTING for a MERGER by adding the acquired company's ASSETS at the price paid for them to the acquiring company's assets.

Purchase Order

Written authorization to a vendor to deliver specified goods or services at a stipulated price.

Purchases

A temporary ACCOUNT used under the PERIODIC INVENTORY SYSTEM to record the TOTAL COST of all MERCHANDISE purchased for resale during an accounting period.

Purchases Discounts

Discounts taken by merchants in return for prompt payment for MERCHANDISE purchased for resale.

Purchases Returns and Allowances

A CONTRA ACCOUNT used under the PERIODIC INVENTORY SYSTEM to accumulate CASH refunds, credits on ACCOUNT, and other allowances made by suppliers for unsatisfactory or incorrect MERCHANDISE that was originally purchased for resale.

Push-Down Accounting

Method of ACCOUNTING in which the values that arise from an acquisition are transferred or "pushed down" to the accounts of an acquired company.

Puts

A put is an option to sell a certain number of shares of stock at a stated price within a certain period. The gain or loss on a put is short or long term depending on the holding period of the stock involved.

Q

Qualified Opinion

AUDIT opinion that states, except for the effect of a matter to which a qualification relates, the FINANCIAL STATEMENTS are fairly presented in accordance with GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (GAAP). The AUDITOR is required to qualify when there is a scope limitation.

Qualitative

Relating to quality, especially as distinguished from quantity or amount.

Qualitative Analysis

Analysis that evaluates important factors that cannot be precisely measured.

Quality

An operating environment in which a company’s product or service meets a customer’s specifications the first time it is produced or delivered.

Quantitative Analysis

Analysis dealing with measurable factors as distinguished from such QUALITATIVE considerations as the character of management or the state of employee morale.

Quantity

An amount or number.

Quarter

Three-month intervals of the year.

Quarterly Reports

Another term for INTERIM FINANCIAL STATEMENTS.

Quasi-Reorganization

Type of reorganization in which, with shareholder approval, the management revalues ASSETS and eliminates the DEFICIT (increased by asset devaluations if any) by charging it to other EQUITY accounts without the creation of a new corporate entity or without court intervention.

Quick Assets

Assets that are or are expected to be converted into CASH in the near term: cash, accounts receivable, SHORT-TERM INVESTMENTS.

Quick Ratio

The relationship of a company’s QUICK ASSETS to its current liabilities.

R

R&D

Research is a planned activity aimed at discovery of new knowledge with the hope of developing new or improved products and services. Development is the translation of research findings into a plan or design of new or improved products and services.

Rate of Return

The amount of PROFIT or INTEREST earned on an INVESTMENT, usually expressed as a percentage, such as an interest; the COST OF CAPITAL; the cost of money.

Ratio Analysis

Comparison of actual or projected data for a particular company to other data for that company or industry in order to analyze trends or relationships.

Raw Material

Something in its natural state that will be used in a manufacturing process.

Raw Materials Inventory Account

Another term for MATERIALS INVENTORY ACCOUNT.

Real Estate

Piece of land and all physical property related to it, including houses, fences, landscaping, and all rights to the air above and earth below the property.

Real Estate Investment Trust (REIT)

Investor-owned TRUST which invests in real estate and, instead of paying income tax on its income, reports to each of its owners his or her pro rata share of its income for inclusion on their income tax returns. This unique trust arrangement is specifically provided for in the INTERNAL REVENUE CODE.

Real Estate Mortgage Investment Conduit (REMIC)

An entity that holds a fixed pool of mortgages and issues multiple classes of interests in itself to investors. A qualified REMIC is generally taxed like a partnership, unless it takes contributions after its start up day or engages in a prohibited transaction.

Real Income

Income of an individual, group, or country adjusted for changes in purchasing power caused by INFLATION.

Real Interest Rate

Current INTEREST RATE minus INFLATION RATE.

Real Property

LAND and improvements, including buildings and PERSONAL PROPERTY, that is permanently attached to the land or customarily transferred with the land.

Real Rate of Return

RETURN on an INVESTMENT adjusted for INFLATION.

Realization

Conversion into CASH, as happens in the sale of asset.

Realized Profit (or Loss)

PROFIT or LOSS resulting from the sale or other disposal of a SECURITY.

Reasonable Assurance

Management's assessment of the effectiveness of internal control over financial reporting is expressed at the level of reasonable assurance. It includes the understanding that there is a remote likelihood that material misstatements will not be prevented or detected on a timely basis. It is a high level of assurance.

Rebate

In lending, UNEARNED INTEREST refunded to a borrower if the LOAN is paid off before MATURITY.

Recapitalization

An internal reorganization of a corporation including a rearrangement of the capital structure by changing the kind of stock or the number of shares outstanding or issuing stock instead of bonds. It is distinguished from most other types of reorganization because it involves only one corporation and is usually accomplished by the surrender by shareholders of their securities for other stock or securities of a different type.

Receivable Turnover

A ratio for measuring the relative size of a company’s accounts receivable and the success of its CREDIT and collection policies during an accounting period.

Receivables

Amounts of money due from customers or other DEBTORS.

Recession

Downturn in economic activity, defined by many economists as at least two consecutive quarters of decline in a country’s gross national product.

Reconcile

To resolve.

Reconciliation

Comparison of two numbers to demonstrate the basis for the difference between them.

Recovery

Period in a business cycle when economic activity picks up and the gross national product grows, leading into the expansion phase of the cycle.

Red Herring

"Pre-release" PROSPECTUS offering. An announcement of a future issuance of SECURITIES, given restricted circulation during the waiting period of 20 days or other specified period between the filing of a registration statement with the SEC and the effective date of the statement. A red herring is not an offer to sell or the solicitation of an offer to buy.

Redemption Value

Price to be paid by an ENTITY to retire its BONDS or PREFERRED STOCK.

Refinancing Agreement

Arrangement to provide funding to replace existing financing, the most common being a refinance of a home MORTGAGE.

Refunding

Replacing an old DEBT with a new one, often in order to lower the INTEREST costs of the issuer.

Registrar

Agency responsible for keeping track of the owners of bonds and the issuance of stock.

Regression Analysis

Statistical technique used to establish the relationship of a dependent variable, such as the sales of a COMPANY, and one or more independent variables, such as family formations, gross national product, per capita income, and other economic indicators.

Regressive Rate

Rate that decreases as the calculation base increases. Often used to describe taxes where the TAX rate paid decreases as the TAXABLE INCOME increases.

Regulated Investment Company (RIC)

Commonly called a MUTUAL FUND, this is a domestic corporation that acts as an investment agent for its shareholders by typically investing in government and corporate securities and distributing the DIVIDENDS andINTEREST income earned from such investments. In order to be considered a RIC a CORPORATION must make an irrevocable election tax election in order to be treated as one.

Reinsurance

Process by which an insurance company obtains insurance on its insurance claims with other insurers in order to spread the risk.

Reinvestment Rate

RATE OF RETURN resulting from the reinvestment of the INTEREST from a BOND or other fixed-income SECURITY.

REIT

Investor-owned TRUST which invests in real estate and, instead of paying income tax on its income, reports to each of its owners his or her pro rata share of its income for inclusion on their income tax returns. This unique trust arrangement is specifically provided for in the INTERNAL REVENUE CODE.

Related Party Transaction

Business or other transaction between persons who do not have an arm's-length relationship (e.g., a relationship with independent, competing interests). The most common is between family members or controlled entities. For tax purposes, these types of transactions are generally subject to a greater level of scrutiny.

Relevant Assertions

Assertions that have a meaningful bearing on whether the account is fairly stated.

REMIC

An entity that holds a fixed pool of mortgages and issues multiple classes of interests in itself to investors. A qualified REMIC is generally taxed like a partnership, unless it takes contributions after its start up day or engages in a prohibited transaction.

Reorganization

This is a change in the businesses capital arrangements. If for a CORPORATION there are seven statutory options for reorganization that would cause the corporation and shareholders to not recognize any GAIN or LOSS on the exchange of stock.

Repairs

EXPENDITURES made in order to keep property in good condition but that do not appreciably prolong the life or increase the value of the property.

Replacements

EXPENDITURES for making good or whole the portions of property that have deteriorated through use or have been destroyed through accident.

Report

An oral or written description of something, such as a book, event, or situation.

Report Release Date

The date the company's financial statements are issued.

Repos

Agreement whereby an institution purchases SECURITIES under a stipulation that the seller will repurchase the securities within a certain time period at a certain price.

Repurchase Agreement (Repos)

Agreement whereby an institution purchases SECURITIES under a stipulation that the seller will repurchase the securities within a certain time period at a certain price.

Required Rate of Return

RETURN required by investors before they will commit money to an INVESTMENT at a given level of risk.

Rescind

Cancel a CONTRACT agreement.

Research and Development (R&D)

Research is a planned activity aimed at discovery of new knowledge with the hope of developing new or improved products and services. Development is the translation of research findings into a plan or design of new or improved products and services.

Research and Development Costs

The EXPENSE of FUNDING RESEARCH AND DEVELOPMENT (R&D).

Reserve

ACCOUNT used to earmark a portion of EQUITY or fund balance to indicate that it is not available for expenditure. An obsolete term in the United States. More commonly used in Europe.

Resident Alien

This is an individual that is not a citizen, but who has a residence in the United States. They are taxed on all of their INCOME worldwide in the same manner a citizen of the United States is.

Residual Value

The estimated NET scrap, salvage, or trade-in value of a TANGIBLE ASSET at the estimated date of disposal.

Restricted Assets

Cash or other ASSETS whose use in whole or in part is restricted for specific purposes bound by virtue of contracted agreements.

Restricted Fund

Fund established to account for assets whose income must be used for purposes established by donors or grantors of such ASSETS.

Restructuring

Reorganization within an entity. Restructuring may occur in the form of changing the components of CAPITAL, renegotiating the terms of DEBT agreements, etc.

Retail Method

A way of estimating INVENTORY, used in retail business.

Retained Earnings

Accumulated undistributed earnings of a company retained for future needs or for future distribution to its owners.

Retained Earnings Account

The ACCOUNT that reflects the stockholders’ claim to the assets earned from operations and reinvested in corporate operations.

Retire

To take something, such as a BOND, out of circulation.

Return

PROFIT on a securities or capital INVESTMENT, usually expressed as an annual percentage rate.

Return on Assets

A measurement of a company’s PROFITABILITY or overall earning power, that is, how efficiently a company uses its assets to produce INCOME. It is found by dividing INCOME by average total assets.

Return on Equity

A measurement of PROFITABILITY that relates the amount earned by a business to the stockholders’ investments in the business. It is found by dividing NET INCOME by average OWNER'S EQUITY.

Return on Investment (ROI)

Ratio measure of the profits achieved by a firm through its basic operations. An indicator of management's general effectiveness and efficiency. The simplest version is the ratio of NET INCOME to total ASSETS.

Return on Sales

NET pretax profits as a percentage of NET SALES. A useful measure of overall operational efficiency when compared with the prior periods or with other companies in the same line of business.

Revenue Recognition

Method of determining whether or not income has met the conditions of being earned and realized or is realizable.

Revenues

Sales of products, merchandise, and services; and earnings from INTEREST, DIVIDEND, rents.

Review

Accounting service that provides some assurance as to the reliability of financial information. In a review, a CERTIFIED PUBLIC ACCOUNTANT (CPA) does not conduct an examination under GENERALLY ACCEPTED AUDITING STANDARDS (GAAS).

Review Engagement

Agreement between a CERTIFIED PUBLIC ACCOUNTANT (CPA) and his or her client to perform a review.

Review Report

See Accountants' Report

RIC

Commonly called a MUTUAL FUND, this is a domestic corporation that acts as an investment agent for its shareholders by typically investing in government and corporate securities and distributing the DIVIDENDS and INTEREST income earned from such investments. In order to be considered a RIC a CORPORATION must make an irrevocable election tax election in order to be treated as one.

Right of Rescission

Right granted by the Federal Consumer Credit Protection Act of 1968 to void a CONTRACT within three business days with full refund of any down payment and without penalty.

Right to Setoff

DEBTOR'S legal right, to discharge all or a portion of the DEBT owed to another party by applying against the debt an amount that the other party owes to the debtor.

Risk

Measurable possibility of losing or not gaining value.

Risk Averse

Term referring to the assumption that, given the same RETURN and different RISK alternatives, a rational investor will seek the SECURITY offering the least risk.

Risk Management

Process of identifying and monitoring business risks in a manner that offers a RISK / RETURN relationship that is acceptable to an entity's operating philosophy.

Risk-Adjusted Discount Rate

In portfolio theory and capital budget analysis, the rate necessary to determine the PRESENT VALUE of an uncertain or risky stream of INCOME; it is the RISK-free rate plus a risk premium that is based on an analysis of the risk characteristics of the particular INVESTMENT or project.

ROI

Ratio measure of the profits achieved by a firm through its basic operations. An indicator of management's general effectiveness and efficiency. The simplest version is the ratio of NET INCOME to total ASSETS.

Routine Transactions

Recurring financial activities reflected in the accounting records in the normal course of business.

S

S Corporation

A CORPORATION which, under the INTERNAL REVENUE CODE, is generally not subject to federal income taxes. Instead, taxable income of the corporation is passed through to its stockholders in a manner similar to that of a PARTNERSHIP.

Safe Harbor Rule

Concept in statutes and regulations whereby a person who meets listed requirements will be preserved from adverse legal action. Frequently, safe harbors are used where a legal requirement is somewhat ambiguous and carries a risk of punishment for an unintended violation.

Sale

Any exchange of goods or services for money.

Sale-Leaseback Transaction

Sale of property by a seller who simultaneously leases the property back from the purchaser.

Sales Discount

A discount that is given to a buyer for early payment for a sale made on CREDIT.

Sales Tax

A TAX that is levied by a state or city government on the retail sale of goods and services.

Salvage Value

Selling price assigned to retired FIXED ASSETS or merchandise unsalable through usual channels.

SAS

Statements issued by the Accounting Standards Board of the AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS (AICPA).

Savings Bond

U.S. government BOND issued in face value denominations ranging from $50 to $10,000.

Seasonality

Variations in business or economic activity that recur with regularity as the result of changes in climate, holidays, and vacations.

SEC

Agency authorized by the United States Congress to regulate the financial reporting practices of most public corporations.

SEC Filings

Financial and informational DISCLOSURES required by the SEC in order to comply with certain sections of the Securities Act of 1933 and the Securities and Exchange Act of 1934. Some of the more common filings that publicly owned companies must submit are the FORM 10-K, FORM 10-Q and FORM 8-K.

SEC Registration Statement

DISCLOSURE document that must be filed with the SEC in connection with a public offering of SECURITIES, unless the offering is exempt.

Secondary Market

EXCHANGES and OVER-THE-COUNTER markets where securities are bought and sold subsequent to original issuance, which took place in the primary MARKET.

Secured Bond

A BOND that gives the bondholders a pledge of certain company assets as a guarantee of repayment.

Secured Debt

DEBT guaranteed by the pledge of assets or other COLLATERAL.

Securities and Commodities Exchanges

Organized, national EXCHANGES where securities, options, and futures contracts are traded by members for their own accounts and for the accounts of customers.

Securities and Exchange Commission (SEC)

Agency authorized by the United States Congress to regulate the financial reporting practices of most public corporations.

Securities Industry Association (SIA)

Trade group that represents broker-dealers.

Securitization

Source of financing whereby an entity's ASSETS (typically mortgage loans, lease obligations or other types of RECEIVABLES) are placed in a special purpose vehicle that issues SECURITIES collateralized by such assets.

Security

Any kind of transferable certificate of ownership including EQUITY SECURITIES and DEBT SECURITIES.

Security Interest

Legal interest of one person in the property of another to assure performance of a second person under a contract.

Self Employment Tax

Most individuals that are in business for themselves, such as SOLE PROPRIETORS, PARTNERS or independent contractor, are subject to self employment taxes. The taxes provide coverage for the self employed individual for social security (OASDI) and Medicare benefits (HI) similar to the taxes withheld by employers from wages it pays the employees.

Sell Out

LIQUIDATION of a MARGIN ACCOUNT by a broker after a margin call has failed to produce additional EQUITY to bring the margin to the required level.

Selling, General, and Administrative (SG&A) Expenses

Grouping of expenses reported on a company’s PROFIT and LOSS statement between COST OF GOODS SOLDand INCOME deductions.

Sensitivity Analysis

Study measuring the effect of a change in a variable on the RISK or PROFITABILITY of an INVESTMENT.

SEP Plan

PENSION plan in which both the employee and the employer contribute to an INDIVIDUAL RETIREMENT ACCOUNT (IRA).

Separate Entity

A business that is treated as distinct from its creditors, customers, and owners.

Serial Bond

BOND ISSUE, usually of a municipality, with various maturity dates scheduled at regular intervals until the entire issue is retired.

Settlement Method

Method of ACCOUNTING for SECURITIES whereby transactions are recorded on the date the securities settle by the delivery or receipt of securities and the receipt or payment of cash.

SFAS

Statements issued by the FINANCIAL ACCOUNTING STANDARDS BOARD (FASB).

Share

Unit of EQUITY in a CORPORATION.

Shareholder

Owner of one or more shares of stock in a CORPORATION.

Shares Authorized

Number of shares of stock provided for in the articles of INCORPORATION of a COMPANY.

Shares Outstanding

The number of shares in a COMPANY that have been issued and remain in circulation.

Short Bond

BOND with a short MATURITY; a somewhat subjective concept, but generally meaning two years or less.

Short Coupon

BOND INTEREST payment covering less than the conventional six-month period.

Short Interest

Total amount of shares of stock that have been sold short and have not yet been repurchased to close out short positions.

Short Sale

Sale of an item before it is purchased. A person entering into a short sale believes the price of the item will decline between the date of the short sale and the date he or she must purchase the item to deliver the item under the terms of the short sale.

Short-Term

Current; ordinarily due within one year.

Short-Term Debt

All DEBT obligations coming due within one year; show on a balance sheet as CURRENT LIABILITIES.

Short-Term Gain or Loss

For TAX purposes, the PROFIT or LOSS realized from the sale of securities or other capital assets held six months or less.

Short-Term Investment

The temporary INVESTMENT of excess CASH, intended to be held until needed to pay current OBLIGATIONS.

SIA

Trade group that represents broker-dealers.

Significant Accounts

An account is significant if there is more than a remote likelihood that the account could contain misstatements that individually or when aggregated with others, could have a material effect on the financial statements, considering the risks of both overstatement and understatement.

Significant Deficiency

A control deficiency or combination of control deficiencies, that adversely affects the company's ability to initiate, authorize, record, process or report external financial data reliably in accordance with GAAP such that there is more than a remote likelihood that a misstatement of the company's annual or interim financial statements that is more than inconsequential will not be prevented or detected.

Significant Findings or Issues

Substantive matters that are important to the procedures performed, evidence obtained, or conclusions reached and include but are not limited to:
1. significant matters;
2. results of auditing procedures indicating a need for significant modification of planned auditing procedures;
3. audit adjustments;
4. disagreements among members of the engagement team;
5. circumstances that cause difficulty in applying auditing procedures;
6. significant changes in the assessed level of AUDIT RISK;
7. matters that could result in modification of the AUDITORS' REPORT.

Simple Interest

INTEREST calculation based only on the original PRINCIPAL amount.

Simple Plans

An employer may adopt a simplified retirement plan called a SIMPLE Plan (Savings incentive match plan for employees) if it has fewer than 100 employees that received at least $5,000 in compensation in the preceding year.

Simple Trust

This type of TRUST is required to distribute all its income currently, whether or not the TRUSTEE actually does so, and it has no provision in the trust instrument for charitable contributions. It is to be distinguished from a COMPLEX TRUST. A trust may be a simple trust in one year and a complex trust in another year. In the year in which the trust distributes its corpus, it loses its classification as a simple trust.

Simplified Employee Pension (SEP) Plan

PENSION plan in which both the employee and the employer contribute to an INDIVIDUAL RETIREMENT ACCOUNT (IRA).

Single Audit Act

The Single Audit Act of 1984 and the Single Audit Act Amendments of 1996 establish requirements for audits of states, local governments, and nonprofit organizations that administer federal financial assistance programs above a certain threshold.

Single-Premium Deferred Annuity (SPDA)

TAX-deferred INVESTMENT similar to an INDIVIDUAL RETIREMENT ACCOUNT (IRA), without many of the IRA restrictions.

Sinking Fund

Money accumulated on a regular basis in a separate custodial ACCOUNT that is used to redeem DEBT securities or PREFERRED STOCK issues.

Small Business Stock

Noncorporate investors may exclude up to 50 percent of the GAIN they realize on the disposition of qualified small business stock issued after Aug. 10, 1993, and held for more than five years. The amount of gain eligible for the 50 percent exclusion is subject to per-issuer limits. In order to qualify for the EXCLUSION, the CORPORATIONissuing the stock must be a C Corporation (but excluding certain investment corporations) and it must use at least 80 percent of its assets in active conduct of one or more qualified trade or businesses. In addition, its gross assets cannot exceed $50 million.

Sole Proprietorship

See Proprietorship.

Solvency

State of being able to meet maturing OBLIGATIONS as they come due.

Solvent

Capable of paying one’s financial obligations.

SPDA

TAX-deferred INVESTMENT similar to an INDIVIDUAL RETIREMENT ACCOUNT (IRA), without many of the IRA restrictions.

Special Assessment

Charge made by a local government for the cost of an improvement or service. It is usually levied on those who will benefit from the service.

Special Report

A term applied to AUDITORS' REPORTS issued in connection with various types of financial presentations, including: FINANCIAL STATEMENTS that are prepared in conformity with a comprehensive basis of accountingother than generally accepted accounting principles. Specified elements, accounts or items of a financial statement. Compliance with aspects of contractual agreements or regulatory requirements related to audited financial statements. Financial presentations to comply with contractual agreements or regulatory provisions. Financial information presented in prescribed forms or schedules that require a prescribed form of auditor's reports.

Specialist

Member of a stock exchange who maintains a fair and orderly MARKET in one or more securities.

Specialized Mutual Fund

Fund that limits its investments to a particular sector of the marketplace.

Specific Identification Method

A way of pricing the cost of INVENTORY as coming from a specific purchase.

Speculation

Assumption of RISK in anticipation of gain but recognizing a higher than average possibility of LOSS.

Spinoff

Transfer of all, or a portion of, a subsidiary's stock or other ASSETS to the stockholders of its PARENT COMPANYon a PRO RATA basis.

Split Offering

New MUNICIPAL BOND ISSUE, part of which is represented by serial bonds and part by TERM MATURITYbonds.

Spot Market

MARKET for buying and selling COMMODITIES or financial instruments for immediate delivery and payment based on the settlement conventions of the particular market.

Spread

Difference between two prices, usually a buying and selling price.

Spreadsheet

An ACCOUNTING or BOOKKEEPING application for use on a computer.

SSARS

Statements issued by the AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS (AICPA) that specifically relate to REVIEWS and COMPILATIONS.

Standard

A widely known and accepted measurement or weight used as a basis for a system of measurements.

Standard Cost

Realistic costs for direct materials, direct labor, and factory overhead that have been determined before they occur.

Standard Deduction

Individual taxpayers who do not itemize their deductions are entitled to a standard deduction amount by which to reduce ADJUSTED GROSS INCOME in arriving at taxable income. The amount of the standard deduction varies by the type of the taxpayer and changes each year. A schedule of standard deductions is easily found in the instructions for the federal form 1040. Each state may also use a standard deduction format, but the amounts and computations differ from the federal and from state to state. Certain taxpayers may not be entitled to use the standard deduction. An example of this would be a married filing separate taxpayer. If one taxpayer itemizes then the other is required to by law even if the married filing separate taxpayer is unknowing of what is included on the spouses separate return. A reason for this might be the prevention of pooling and duplication of deductions.

Standard Deviation

Statistical measure of the degree to which an individual value in a probability distribution tends to vary from the mean of the distribution.

Start-Up Costs

(1) Costs, excluding acquisition costs, incurred to bring a new unit into production. (2) Costs incurred to begin a business.

Stated Value

Per share amount set by the BOARD OF DIRECTORS to be placed in the CAPITAL STOCK account upon issuance of NO-PAR VALUE.

Statement

Summary for customers of the transactions that occurred over the preceding month.

Statement of Cash Flows

One of the basic FINANCIAL STATEMENTS that isGENERALLY ACCEPTED ACCOUNTING PRINCIPLES (GAAP) required as part of a complete set of financial statements prepared in conformity with . It categorizes net cash provided or used during a period as operating, investing and financing activities, and reconciles beginning and ending cash and cash equivalents.

Statement of Cost of Goods Manufactured

A formal STATEMENT summarizing the flow of all manufacturing costs incurred during an accounting period.

Statement of Financial Accounting Standards (SFAS)

Statements issued by the FINANCIAL ACCOUNTING STANDARDS BOARD (FASB).

Statement of Financial Condition

Basic FINANCIAL STATEMENT, usually accompanied by appropriate DISCLOSURES that describe the basis of ACCOUNTING used in its preparation and presentation as of a specified date, the entity's ASSETS, LIABILITIES and the EQUITY of its owners. Also known as BALANCE SHEET.

Statement of Owner’s Equity

The financial STATEMENT that shows how and why an OWNER’S EQUITY, or capital, ACCOUNT has changed over s specific financial PERIOD.

Statements on Auditing Standards (SAS)

Statements issued by the Accounting Standards Board of the AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS (AICPA).

Statements on Standards for Accounting and Review Services (SSARS)

Statements issued by the AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS (AICPA) that specifically relate to REVIEWS and COMPILATIONS.

Statute of Limitations

This sets out the period within which actions may be brought upon claims or within which rights may be enforced. As it pertains to tax returns, the statute of limitations is generally three years from the date a return is due or filed.

Stepped Up Basis

Generally, the basis of property acquired by INHERITENCE, BEQUEST or device from a DECENDANT is the FAIR MARKET VALUE of the property on the date of the decendant's death. Thus if the fair market value is more than the decedent's basis, a taxpayers basis in the property received is stepped-up.

Stock Compensation Plan

FRINGE BENEFIT that gives employees the option to purchase the employer's stock at a specified price during a specified period.

Stock Exchange

Organized marketplace in which stocks, COMMON STOCK equivalents, and bonds are traded by members of the exchange, acting both as agents and principals.

Stock Market

General term referring to the organized trading of securities through the various EXCHANGES and the OVER-THE-COUNTER MARKET.

Stock Options

Right to purchase or sell a specified number of shares of stock at specified prices and times.

1) Terminology

  1. a) Grant date - The date at which an employer and an employee reach a mutual understanding of the key terms and conditions of a share-based payment award. The employer becomes contingently obligated on the grant date to issueequityinstruments or transfer assets to an employee who renders the requisite service. Awards made under an arrangement that is subject to shareholder approval are not deemed to be granted until that approval is obtained unless approval is essentially a formality (or perfunctory), for example, if management and the members of the board of directors control enough votes to approve the arrangement. Similarly, individual awards that are subject to approval by the board of directors, management, or both are not deemed to be granted until all such approvals are obtained. The grant date for an award of equity instruments is the date that an employee begins to benefit from, or be adversely affected by, subsequent changes in the price of the employer’s equity shares.
  2. b) Measurement Date – The date at which the equity share price and other pertinent factors, such as expectedvolatility, that enter into measurement of the total recognized amount of compensation cost for an award of share-based payment are fixed
  3. c) Fair value- The amount at which an asset (or liability) could be bought (or incurred) or sold (or settled) in a current transactionbetween willing parties, that is, other than in a forced or liquidation sale.
  4. d) In the Money option- Option granted with an exercise price below the market priceon the grant date
  5. e) Out of the Money option – Option granted with an exercise price above the market
  6. f) Backdating
  7. i) Exercise price is based on a lower share price prior to the option grant date. The practice of marking a document with a date that precedes the actual date.
    ii) Example – Option is approved by the board permits the stock to be priced based upon the lowest price in the past 30 days- permits options to be in the money when issued. Options are suppose to be issued at option price that is neutral at time of issuance.
    iii) May not be illegal if

(1) Clearly communicated to shareholders
(2) No documents forged
(3) Reflected in earnings of the company

(a) If under A PB 25 –the granting of in the money options resulted in recognition of compensation expense in earnings. If options were neutral or out of the money then. no compensation would be recognized
(b) If under 123R expense is based upon fair value at grant date. and compensation is recognized it the earningsstatement

  1. g) Spring loading - Timing of option grants to take place before good news or after bad news is released
  2. i) Concerns about insider trading
  3. h) Forward loading – Term used for setting the option grant date to occur after predicted fall in stock price or before predicted stock price increase
  4. i) Terms might involve option to be issued with price to be determined based upon the lowest price as of the issue date or for the next 30 days after the issuance. Grant date does not occur until the conclusion of the 30 day periodwhen the price is known. To determine the price the company needs to look back at the stock price for the last 30 days to determine what the exercise price should be. This is another version of backdating.
  5. i) Discounted options – options that have an exercise price that is less than fair value on the date of grant.

2) Accounting and Tax Ramifications

  1. a) Accounting ramifications
  2. i) Restatement
    ii) Unable to file on timely basis while go back and determine what periods are effected
    iii) Calls into questions company’s internal controls and governance
    iv) Will be unable to file shelf registration
    v) May be delisted from exchange
  3. b) SECreporting implications
  4. i) Potentially inaccurate reporting of executive compensation in proxystatements and annual reports
    ii) Potential violation of securities and Law for executive oficiers and directors with Section 16 (a) of the Securities and exchange Act of 1934. required to report on form 4
    iii) Potential false or misleading disclosures about the company’s stock optionplan in periodic reports filed with the SEC – Failure to disclose the practice of backdating may violate securities and laws against false or misleading disclosures
    iv) Potential false Section 302 certifications – Principal and financial executives are required to sign certifications in quarterly and annual reports certifying that among other things that the report filed with the SEC does not include any false statements of amaterial fact or state material facts necessary in order to make the disclosures not misleading.
  5. c) Tax Ramifications
  6. i) Exercise price effects capital gains of the individual and effects compensation expense used by corporationfor calculating company’s compensation expense for tax purposes,
    ii) Tax ramifications – company

(1) Discounted options that become vested on or after January 1, 2005 are subject to non qualifying deferred compensation rules -
Holder is required to select a fixed exercise date no later than December 31, 2006 or be subject to immediate taxation on vesting , a 20 percent penalty and an interest assessment.
(2) May cause the loss of tax deductions under Section 162 (m), the deduction that public companies take for compensation to chief executive officer and next four highest compensated officers is limited to $1 million each. The deduction for stock options in not usually limited. However, discounted options do not qualify as performance based compensation and therefore the deduction that the company would get may be partially or completely lost. In addition discounted stock options do not qualify for Incentive Stock option (ISO) treatment. (ISO there is no payroll tax or withholding requirements for ISO’s) – If company mistakenly treats backdated stock as an ISO the company my fail to meet payroll tax and income tax withholding requirements.

  1. d) New Rules SEC
  2. i) Effective for years after December 15, 2006
    ii) New Disclosures mandated

(1) Fairvalue of options on grant date
(2) Value of grant per 123R
(3) Closing price market price on the date of grant if it is greather than the excericise price of the award
(4) The date the compensation committee or board took action to grant an award if theat date is different than the actual grant date.
(5) Also if the exercise price of an option grant differs from the closing market price per share on the grant date companies must include a description of the method for determining the exercise price.

Stock Rights

Stock rights are rights issued to stockholders of a CORPORATION that entitle them to purchase new shares of stock in the corporation for a stated price that is often substantially less than the FAIR MARKET VALUE of the stock. These rights may be exercised by paying the stated price, may be sold, or may be allowed to expire or lapse. Stock rights are generally treated as stock DIVIDENDS.

Stock Split

Increase in the number of shares of a company's COMMON STOCK outstanding that result from the issuance of additional shares proportionally to existing stockholders without additional capital investment. The PAR VALUE of each share is reduced proportionally.

Stockholder

A person who owns shares of STOCK in a COMPANY.

Stockholders’ Equity

The OWNER'S EQUITY in a CORPORATION.

Straight-Line Depreciation

ACCOUNTING method that reflects an equal amount of wear and tear during each period of an ASSET'S useful life. For instance, the annual STRAIGHT-LINE DEPRECIATION of a $2,500 asset expected to last five years is $500.

Straight-Line Percentage

A percentage used to determine the amount of DEPRECIATION to be recorded each ACCOUNTING period for the straight-line method.

Strike Price

Price of a financial instrument at which conversion or exercise occurs.

Subsequent Event

Material event that occurs after the end of the accounting period and before the publication of an entity'sFINANCIAL STATEMENTS. Such events are disclosed in the notes to the financial statements.

Subsidiary

COMPANY of which more than 50% of the voting shares are owned by another CORPORATION, called the PARENT COMPANY.

Sum-of-the-Years-Digits Method

An accelerated method of DEPRECIATION in which the depreciable value if an ASSET is multiplied by a decreasing fraction each year of the asset’s useful life.

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Surplus

Not needed; extra.

Surviving Spouse

This is a person whose husband or wife died during the tax year. A surviving spouse may file a JOINT RETURN for the year in which the death occurred. In addition a joint return may be filed for the two succeeding tax years if during that time the surviving spouse:
1. Remains unmarried; and
2. Maintains as his home a household that is the principal place of abode during the entire TAX YEAR for a child for whom a dependency exemption may be claimed.

Swap

Financial contract in which two parties agree to exchange net streams of payments over a specified period. The payments are usually determined by applying different indices (e.g., interest rates, foreign exchange rates, equityindices) to a NOTIONAL amount. The term notional is used because swap contracts generally do not involve exchanges of PRINCIPAL.

T

T Account

The simplest form of an ACCOUNT, shaped like the letter T, in which increases and decreases in the account can be recorded.

Takeover

The act or an instance of taking control of something, especially by force.

Tangible Asset

ASSETS having a physical existence, such as cash, land, buildings, machinery, or claims on property, investments or goods in process.

Target Costing

A pricing method that (1) identifies the price at which a product will be competitive in the marketplace, (2) identifies the minimum desired PROFIT to be made on the product, and (3) computes a target cost for the product by subtracting the desired profit from the competitive MARKET PRICE.

Tax

Charge levied by a governmental unit on income, consumption, wealth, or other basis.

Tax Basis

Original cost of an ASSET, less ACCUMULATED DEPRECIATION, that goes into the calculation of a GAIN  or LOSS for TAX purposes.

Tax Court

The U.S. Tax Court is a legislative court functioning to adjudicate controversies between taxpayers and the IRS arising out of deficiencies assessed by the IRS for INCOME, GIFT, ESTATE, windfall profit and certain EXCISE TAXES. It has no jurisdiction over other taxes such as employment taxes. Various sales taxes and certain excise taxes.

Tax Credit for the Elderly and Disabled

Taxpayers age 65 or older or those under 65 who are retired with permanent and total disability are eligible to claim a credit to reduce the amount of their tax liability. It is designed primarily to benefit those individuals who receive small amounts of retirement INCOME. Each taxpayer is allocated an initial base amount based on his or her filing status determining the credit. The base amount is then reduced by the amount of nontaxable income, or is phased out for taxpayers whose ADJUSTED GROSS INCOME exceeds certain levels.

Tax Lien

ENCUMBRANCE placed on property as security for unpaid taxes.

Tax Shelter

Arrangement in which allowable tax deductions or EXCLUSIONS result in the deferral of tax on INCOME that would otherwise be payable currently.

Tax Year

The period used to compute a taxpayer's TAXABLE INCOME is tax year. It is an annual period that is either a calendar year , FISCAL YEAR or fractional part of a year for which the return is made.

Taxable Earnings

The amount of an employee’s earnings subject to a TAX.

Taxable Income

Taxable income is generally equal to a taxpayer's ADJUSTED GROSS INCOME during the TAX YEAR less any allowable EXEMPTIONS and deductions.

Taxable Municipal Bond

Taxable DEBT obligation of a state or local government entity, an outgrowth of the Tax Reform Act of 1986.

Taxpayer Identification Number (TIN)

Any individual or other taxable entity that is required to file a return, statement or any other document with the IRSmust indicate his (or its) taxpayer identification number. For an individual, the social security number is used, and if you do not have a social security number, the IRS will assign you a TIN. A federal or employer ID number is assigned to other types of entities and will use that as their TIN.

Tenancy-in-Common

Co-ownership of property. In a valid tenancy-in-common, a deceased co-owner's title passes to his or her heirs without being included in the estate of the deceased co-owner.

Term

Period of time during which the conditions of a CONTRACT will be carried out.

Term Loan

Loan for a specified time period.

Test

Criterion used to measure compliance with financial ratio requirements of indentures and other LOAN agreements.

Time Value

Price put on the time an investor has to wait until an INVESTMENT matures, as determined by calculating the PRESENT VALUE of the investment at MATURITY.

Time Value of Money

The concept that CASH FLOWS of equal dollar amounts separated by a time interval have different present values because of the effect of compound INTEREST.

Timing of Tests of Control

The AUDITOR must perform tests of controls over a period of time that is adequate to determine whether, as of the date specified in management's report, the controls necessary for achieving the objectives of the control criteria are operating effectively.

TIN

Any individual or other taxable entity that is required to file a return, statement or any other document with the IRSmust indicate his (or its) taxpayer identification number. For an individual, the social security number is used, and if you do not have a social security number, the IRS will assign you a TIN. A federal or employer ID number is assigned to other types of entities and will use that as their TIN.

Tip

Information passed by one person to another as a basis for buy or sell action in a SECURITY.

Title

The written evidence, such as a deed, that proves legal right of possession or control.

Ton

BOND traders’ jargon for $100 million.

Total Capitalization

Capital structure of a COMPANY, including LONG-TERM DEBT and all forms of EQUITY.

Total Cost

Sum of FIXED COSTS, semi-variable costs, and VARIABLE COSTS.

Total Direct Labor Cost Variance

The difference between the actual LABOR costs incurred and the standard labor costs for the good units produced.

Total Direct Materials Cost Variance

The difference between the actual materials costs incurred and the standard costs of those items.

Total Gain

Excess of the proceeds realized on the sale of either INVENTORY or noninventory goods.

Total Inventory Method

A lower-of-cost-or-market method of valuing INVENTORY.

Total Quality Management

An organizational environment in which all business functions work together to build quality into the firm’s products or services.

Trade

Buying or selling goods and services among companies, states, or countries, called commerce.

Trade Date

Date when a SECURITY transaction is entered into, to be settled on at a later date. Transactions involving financial instruments are generally accounted for on the trade date.

Trademark

Distinctive name, symbol, motto, or emblem that identifies a product, service, or firm.

Trader

Anyone who buys and sells goods or services for PROFIT; a DEALER or merchant.

Transaction

The act of transacting, especially a business agreement or exchange; event or condition recognized by an entry in the book ACCOUNT.

Transfer

To move or cause to go from one place, person, or thing to another.

Transfer Agent

Agent, usually a commercial bank, appointed by a COPORATION, to maintain records of stock and BOND owners, to cancel and issue certificates, and to resolve problems arising from lost, destroyed, or stolen certificates.

Transfer Price

Price charged by individual entities in a multi-entity COPORATION on transactions among themselves; also termed transfer cost.

Transfer Tax

Combined federal TAX on gifts and estates.

Transferee Liability

A person may be held LIABLE for another taxpayer's delinquent taxes if:

  1. The transferee received assets of the transferor-taxpayer; and
    2. The transferor was INSOLVENT at the time or was rendered insolvent by that transfer or related series of transfers.

However the insolvency requirement does not apply to GIFT taxes. The transferee is only liable to the extent of the value of the property received from the transferor. Thus, transferee liability merely provides a means for the IRS to recover any assets the transferor-taxpayer attempts to transfer to avoid paying taxes.

Transferred Basis

A transferred basis is the basis of property in the hands of a transferor, donor or GRANTOR. In this sense a prior owner's basis in the property is transferred to the taxpayer. Transferred basis occurs in the following transactions: GIFTS, transfers in trusts, certain transfers to controlled CORPORATIONS, contributions to PARTNERSHIPS and LIQUIDATING distributions from a corporation.

Treasurer

COMPANY officer responsible for the receipt, custody, INVESTMENT, and DISBURSEMENT of funds, for borrowings, and, if it is a public company, for the maintenance of a MARKET for its securities.

Treasury

A place where private or public funds are controlled.

Treasury Bill

Short-term obligation that bears no INTEREST and is sold at a discount.

Treasury Bond

Long-term obligation that matures more than five years from issuance and bears INTEREST.

Treasury Instruments

Direct financial obligations of the United States government.

Treasury Note

Intermediate-term obligation that matures one to five years from issuance and bears INTEREST.

Treasury Stock

Stock reacquired by the issuing company. It may be held indefinitely, retired, issued upon exercise of STOCK OPTIONS or resold.

Trend

Long-term price or trading volume movements either up, down, or sideways, which characterize a particular MARKET, commodity or SECURITY.

Trend Analysis

A type of horizontal analysis in which percentage changes are calculated for related items for several successive years instead of for two years.

Trial Balance

A comparison of the total of DEBIT and CREDIT balances in the LEDGER to check that they are equal.

Troubled Debt Restructuring

Agreement between DEBTOR and CREDITOR which amends the terms of a DEBT that has little chance of being paid in accordance with its contractual terms. The agreement may involve the transfer of ASSETS in full or partial satisfaction of the debt.

Trust

Ancient legal practice where one person (the GRANTOR) transfers the legal title to an ASSET, called the principal or corpus, to another person (the TRUSTEE), with specific instructions about how the corpus is to be managed and disposed.

Trustee

Person who is given legal title to, and management authority over, the property placed in a TRUST.

Turnover

The number of times a particular product is sold and restocked during a fixed period of time.

U

UAA

The proposal for a new regulatory framework for the public accounting profession which was developed jointly by the AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS (AICPA) and the NATIONAL ASSOCIATION of STATE BOARDS of ACCOUNTANCY (NASBA). The new framework is intended to enhance interstate reciprocity and practice across state lines by CPAs, meet the future needs of the profession, respond to the marketplace and protect the public that the profession serves.

Unamortized Bond Discount

Difference between the FACE VALUE of a BOND and the proceeds received from the sale of the bond by the issuing COMPANY, less whatever portion has been amortized, that is, written off to EXPENSE as recorded periodically on the PROFIT and LOSS statement.

Unamortized Premiums on Investments

Unexpensed portion of the amount by which the price paid for a SECURITY exceeded its PAR VALUE.

Unaudited Financial Statements

FINANCIAL STATEMENTS which have not undergone a detailed AUDIT examination by an independent CERTIFIED PUBLIC ACCOUNTANT (CPA).

Underlying Debt

MUNICIPAL BOND term referring to the debt of government entities within the jurisdiction of larger government entities and for which the larger entity has partial CREDIT responsibility.

Underlying Security

SECURITY that must be delivered if a put OPTIONS or call option contract is exercised.

Undervalued

SECURITY selling below its LIQUIDATION value or the MARKET VALUE analysts believe it deserves.

Underwrite

To assume the RISK of buying a new ISSUE of securities from the issuing CORPORATION or government entity and reselling them to the public, either directly or through dealers.

Unearned Discount

ACCOUNT on the books of a lending institution recognizing INTEREST deducted in advance and which will be taken into INCOME as earned over the life of the LOAN.

Unearned Income

Payments received for services which have not yet been performed.

Unearned Interest

INTEREST that has already been collected on a LOAN by a FINANCIAL INSTITUTION, but that cannot yet be counted as part of earnings because the PRINCIPAL of the loan has not been OUTSTANDING long enough.

Unequal Cash Flows

Cash flow from an ASSET that may vary from one year to the next.

Uniform Accountancy Act (UAA)

The proposal for a new regulatory framework for the public accounting profession which was developed jointly by the AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS (AICPA) and the NATIONAL ASSOCIATION of STATE BOARDS of ACCOUNTANCY (NASBA). The new framework is intended to enhance interstate reciprocity and practice across state lines by CPAs, meet the future needs of the profession, respond to the marketplace and protect the public that the profession serves.

Uniform Capitalization Rules

These are a set of rules intended to be a single comprehensive set of rules to govern the capitalization, or inclusion in INVENTORY of direct and indirect cost of producing, acquiring and holding property. Under the rules, taxpayers are required to capitalize the direct costs and an allocable portion of the indirect costs attributable to real and tangible personal property produced or acquired for resale. The obvious effect of the uniform capitalization rules is that taxpayers may not take current deductions for these costs but instead must be recovered through DEPRECIATION or AMORTIZATION.

Unissued Stock

Shares of a corporation’s stock authorized in its charter but not issued.

Unit

Any division of quantity accepted as a standard of measurement or of exchange.

Unlimited Liability

The responsibility of all the partners in a COMPANY for its DEBT.

Unqualified Opinion

AUDIT opinion not qualified for any material scope restrictions nor departures from GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (GAAP). The AUDITOR may issue an unqualified opinion only when there are no identified material weaknesses and when there have been no restrictions on the scope of the auditor's work. Also known as CLEAN OPINION.

Unrealized Loss or Gain on Long-Term Investments

A BALANCE sheet ACCOUNT for entering increases or decreases in the value of long-term investments.

Unrealized Profit (or Loss)

PROFIT or LOSS that has not become actual.

Unrestricted Funds

Resources of a not-for-profit entity that have no restrictions as to use or purpose.

Unsecured Bond

A BOND issued on the general CREDIT of a COMPANY.

Use of Professional Skepticism when Evaluating the Results of Testing

The AUDITOR must conduct the audit of internal control over financial reporting and the audit of the financial statements with professional skepticism, which is an attitude that includes a questioning mind and a critical assessment of audit evidence.

V

Valuation

The process of determining the PRESENT VALUE of a BOND based on the current MARKET INTEREST RATE.

Valuation Allowance

Method of lowering or raising an object's CURRENT VALUE by adjusting its acquisition cost to reflect its market value by use of a CONTRA ACCOUNT.

Value

How much money something is worth.

Value-Added Tax (VAT)

Consumption TAX levied on the VALUE added to a product at each stage of its manufacturing cycle as well as at the time of purchase by the ultimate consumer

Variable Annuity

Life insurance ANNUITY CONTRACT whose VALUE fluctuates with that of an underlying securities PORTFOLIO or other INDEXof performance.

Variable Costs

Total costs that change in direct proportion to changes in productive output or any other measure of volume.

Variable Manufacturing Costs

Costs that increase or decrease in direct proportion to the number of units produced.

Variable Overhead

The portion of mixed or semi-variable overhead costs that changes proportionately with some measure of activity or output.

Variable Rate Loan

Loan whose interest rate changes over its life in relation to the level of an index.

Variance

Deviation or difference between an estimated value and the actual value.

VAT

Consumption TAX levied on the VALUE added to a product at each stage of its manufacturing cycle as well as at the time of purchase by the ultimate consumer.

Velocity

Rate of spending, or turnover of money- in other words, how many times a dollar is spent in a given period of time.

Vendor

Supplier of goods or services of a commercial nature; may be a manufacturer, importer, or wholesale distributor.

Venture Capital

Investment company whose primary objective is capital growth. New ASSETS invested largely in companies that are developing new ideas, products, or processes.

Vertical Analysis

A technique for analyzing FINANCIAL STATEMENTS that uses percentages to show the relationships of each stated item to the total, which is 100 percent of the figure in a single statement.

Vesting

Point at which certain benefits available to an employee are no longer contingent on the employee continuing to work for the employer.

Voidable

CONTRACT that can be annulled by either party after it is signed because FRAUD, incompetence, or another illegality exists or because a right of rescission applies.

Volatile

Tending to rapid and extreme fluctuations.

Volatility

Characteristic of a SECURITY, commodity, or MARKET to rise or fall sharply in price within a SHORT-TERM period.

Volume

Total number of stock shares, bonds, or COMMODITIES futures contracts traded in a particular period.

W

Wage

Payment for services of employees at an hourly rate.

Walkthroughs

The most effective means for an AUDITOR to confirm his understanding how internal control over financial reporting is designed and operates to evaluate and test its effectiveness. It includes making inquiries of and observing the personnel who actually perform the controls; reviewing documents that are used in, and that result from, the application of the controls; and comparing supporting documentation to the accounting records. In a walkthrough, the auditor traces a transaction from origination through the company's information systems to the point where it is reflected in the company's financial reports. Walkthroughs provide the auditor with evidence to:

  1. Confirm the auditor's understanding of the process flow of transactions.
    2. Confirm the auditor's understanding of the design of controls identified for all five components of internal control over financial reporting, including those related to the prevention or detection of fraud.
    3. Confirm that the auditor's understanding of the process is complete by determining whether all points in the process at which misstatements related to each relevant financial statement assertion that could occur have been identified.
    4. Evaluate the effectiveness of the design of controls.
    5. Confirm whether controls have been placed in operation.

Warrant

Option to purchase additional SECURITIES from the issuer.

Wash Sale

A wash sale occurs if stock or securities are sold at a LOSS and the seller acquires substantially identical stock or SECURITIES 30 days before or after the sale. Stock or securities for this purpose includes contracts or operations to acquire or sell stock or securities. Losses incurred in a wash sale cannot be deducted. It does not matter if the total 60 day period begins in one tax year and ends in another. However, the disallowed loss is not permanently lost. Instead, the basis in the newly acquired stock or securities is the same basis as of the stock or securities sold, adjusted by the difference in price of the stock or securities.

Weighted-Average-Cost Method

An AVERAGE-COST METHOD procedure for determining the cost of ENDING INVENTORY under the PERIODIC INVENTORY SYSTEM

Wholesale

The sale of goods in large quantities, especially to a person or COMPANY that plans to sell them at retail.

Wholesaler

Middleman or distributor who sells mainly to retailers, jobbers, other merchants, and industrial, commercial, and institutional users as distinguished from consumers.

With Recourse

Able to collect losses on uncollectible accounts from the seller.

Withholding

Amount withheld or deducted from employee salaries by the employer and paid by the employer, for the employee, to the proper authority.

Withholding Allowance

Each taxpayer is allowed to claim a withholding allowance, which exempts a certain amount of wages from being subject to WITHHOLDING. The allowance is designed to prevent too much taxes being withheld from a taxpayers wages and a person can compute this by completing form W-4 and submitting it to their employer.

Without Recourse

Obligated to bear losses from uncollectible accounts.

Work in Progress

INVENTORY account consisting of partially completed goods awaiting completion and transfer to finished inventory.

Working Capital

Excess of CURRENT ASSETS over CURRENT LIABILITIES.

Working Interest

Direct participation with UNLIMITED LIABILITY, as distinguished from passive LIMITED PARTNERSHIP shares.

Working Papers

(1) Records kept by the AUDITOR of the procedures applied, the tests performed, the information obtained, and the pertinent conclusions reached in the course of the AUDIT. (2) Any records developed by a CERTIFIED PUBLIC ACCOUNTANT (CPA) during an audit.

Worksheet

A type of working paper used as a preliminary step in the preparation of FINANCIAL STATEMENTS.

Wrap-Around Mortgage

Second MORTGAGE which conveniently expands the total amount of borrowing by the mortgagor without disturbing the original mortgage.

Write Off

Charging an ASSET ACCOUNT to EXPENSE or LOSS.

Y

Yellow Book

Written by the GENERAL ACCOUNTABILITY OFFICE, the yellow book sets forth standards to be followed in auditing the FINANCIAL STATEMENTS of entities that receive federal financial assistance. "Yellow Book" is the name given to "Government Auditing Standards" issued by the Comptroller General of the United States which contains standards for audits of government organizations, programs, activities and functions, and of government assistance received by contractors, nonprofit organizations and other nongovernment organizations.

Yield

Return on an INVESTMENT an investor receives from DIVIDENDS or INTEREST expressed as a percentage of the cost of the SECURITY.

Yield Curve

Graph showing the TERM structure of interest rates by plotting the yields of all bonds of the same quality with maturities ranging from the shortest to the longest available.

Yield to Call

YIELD on a BOND assuming the bond will be redeemed by the ISSUER at the first call date specified in the INDENTURE agreement.

Yield to Maturity

Rate of return on a SECURITY to its maturity, giving effect to the stated interest rate, accrual of discount, or AMORTIZATION of PREMIUM.

Z

Zero-Coupon Bond

BOND on which the holder receives only one payment at maturity which includes both PRINCIPAL and INTERESTfrom issuance to maturity.

Zero-Coupon Convertible Security

ZERO-COUPON BOND convertible into the COMMON STOCKof the issuing COMPANY when the stock reaches a predetermined price.

Few Latest Accounting Terms

Entering into the accounting field can be a little confusing at first with all of the new terminology to learn. Don't feel left out in conversations and don't be left behind because you aren't sure what someone is talking about. Check out the accounting terms below and find out what that last conversation was about. Learn these terms before starting your first big job and you will WOW your employer. Learn these terms before your accounting classes start and you will definitely be a step ahead of everyone else in your classes.

Accounting Terms

Accounting Equation - The Accounting Equation is Assets = Liabilities + Equity. With accurate financial records, the equation balances.

Accounting - Accounting keeps track of the financial records of a business. In addition to recording financial transactions, it involves reporting, analyzing and summarizing information.

Accounts Payable - Accounts Payable are liabilities of a business and represent money owed to others.

Accounts Receivable - Assets of a business and represent money owed to a business by others.

Accrual Accounting - Records financial transactions when they occur rather than when cash changes hands. For example, when goods are received without payment, an Accounts Payable is recorded.

Accruals - Accruals acknowledge revenue when it is earned and expenses when they are incurred even though a cash transaction may not be involved.

Amortization - Reduces debts through equal payments that include interest.

Asset - Items of value that are owned.

Audit Trail - Allow financial transactions to be traced to their source.

Auditors - Examine financial accounts and records to evaluate their accuracy and the financial condition of the entity.

Balance Sheet - Provides a snapshot of a business' assets, liabilities, and equity on a given date.

Bookkeeping - Recording of financial transactions in an accounting system.

Budgeting - Budgeting involves maintaining a financial plan to control cash flow.

Capital Stock - Total amount of common and preferred stock issued by a company.

Capital Surplus - The amount in excess of par value for shares of common stock.

Capitalized Expense - Accumulated expenses that are expensed over time.

Cash Flow - The difference in money flowing in and out. A negative flow indicates more money going out than coming in. A positive flow shows more money coming in than going out.

Cash-Basis Accounting - Records when cash is received through revenues and disbursed for expenses.

Chart of Accounts - An organization's list of accounts used to record financial transactions.

Closing the Books/Year End Closing - Closing the Books occurs at the end of the annual period and allows for a start with a clean book at the beginning of the next year.

Cost Accounting - Used internally to determine the cost of operations and to establish a budget to increase profitability.

Credit - Entered in the right column of accounts. Liability, equity and revenue increase on the credit side.

Debit - Entered in the left column of accounts. Assets and expenses increase on the debit side.

Departmental Accounting - Shows individual departments' income, expenses and net profit.

Depreciation - The decrease in an asset's value over time.

Dividends - Profits returned to the shareholders of a corporation.

Double-Entry Bookkeeping - Requires entries of debits and credits for each financial transaction.

Equity - Represents the value of company ownership.

Financial Accounting - The accounting branch that prepares financial reporting primarily for external users.

Financial Statement - Financial Statements detail the financial activities of a business.

Fixed Asset - Used for a long period of time, e.g. - equipment or buildings.

General Ledger - Where debit and credit transactions are recorded.

Goodwill - Intangible asset a business enjoys like its reputation or brand popularity.

Income Statement - A Financial Statement documents the difference in revenue and expenses resulting in income.

Inventory Valuation - A valuation method modified for use in real estate and business appraisals.

Inventory - Inventory consists of raw materials, work in progress, and finished goods.

Invoice - An Invoice shows the amount of money owed for goods or services received.

In The Black - Makes reference to a profit on the books; opposite of “in the red.” Black Friday sales are known for the profit retailers are adding to their books.

In The Red - Makes reference to a loss on the books; opposite of “in the black.” In the days of handwritten accounting, ledger entries written in black meant there was a profit, but those in red meant there was a loss.

Job Costing - Job Costing tracks costs of a particular job against its revenues.

Journal - The first place financial transactions are entered. They are entered chronologically.

Liability - Liabilities are the obligations of an entity, usually financial in nature.

Liquid Asset - Consist of cash and other assets that can be easily converted to cash.

Loan - A monetary advance from a lender to a borrower.

Master Account - A Master Account has subsidiary accounts. Accounts Receivable could be a master account for various individual receivable accounts.

Net Income - Net Income equals revenue minus expenses, taxes, depreciation and interest.

Non-Cash Expense - Does not require cash outlay, e.g. - depreciation.

Non-operating Income - Income not generated from the business. An example might be the sale of unused equipment.

Note - A Note is a document promising to repay a debt.

Operating Income - Determined by subtracting operating expenses from operating revenue. Interest and income tax expenses are not included.

Other Income - Non-recurring income, e.g. - interest.

Payroll - An account listing employees and any wages and salaries due them.

Posting - Refers to the recording of ledger entries.

Profit - Profit is revenue minus expenses. Reductions for taxes, interest, and depreciation are included.

Profit/Loss Statement - A financial report issued by a company on a regular basis that discloses earnings, expenses and net profit for a given time period.

Reconciliation - The act of proving an account balances; debits and credits equal. An example of reconciling an account is to verify that the bank statement matches the checkbook balance, making allowances for outstanding checks and deposits.

Retained Earnings - Money left after all the bills have been paid and all the shareholder dividends have been distributed; often reinvested in the business.

Revenue - The actual amount of money a company brings in during a particular time period; gross income.

Shareholder Equity - A company’s total assets less its total liabilities; owner’s equity; net worth. Shareholder equity comes from the start-up capital of the business plus retained earnings amassed over time.

Single-Entry Bookkeeping - An accounting process that uses on one entry, instead of debit and credit entries. Small businesses using cash accounting system benefit from the ease of this system, which is much like keeping a checkbook.

Statement of Account - A written document that shows all charges and payments; accounts receivable statement; accounts payable statement. Generally, a monthly accounts receivable statement is sent to a charge customer; and reconciled by an accounts payable clerk for payment.

Subsidiary Accounts - Accounts that are under a control account; they must equal the main account balance. Examples of subsidiary accounts may be “Office Supplies,” or “Cleaning Supplies,” under the control account called “Supplies.”

Supplies - Consumable materials used in business and replenished as needed. Supplies are not inventory for sale; rather they are used to carry out business activities.

Treasury Stock - Shares a company retains or buys back once offered to the public for purchase.

Write-down/Write-off - An accounting transaction that reduces the value of an asset.

Salary $15000 Monthly ✓ 36 Accountant Jobs in Accounting & Bookkeeping Services -

New York (NY) USA ✓

 

Accounting Executive Jobs in New York (NY) in Accounting & Bookkeeping Services, New York - USA ‎✓ Salary 15000 USD Monthly ✓ Hiring Immediately.  Entry Level & Experienced jobs. View Local Openings & Apply.

 

 

  • Accountant Job Description as per Accounting definitionsNY ACCOUNTING SERVICES is assisting a local client in recruiting for a current Accounting Clerk or Bookkeepers in The city.. As an Accounting Clerk you will compute, classify, and record numerical data to keep office financial records complete. You may also perform any combination of routine calculating, journal entry, general ledger, posting, and verifying primary financial data for use in maintaining accounting records. Accounting Clerks will also check the accuracy of figures, calculations, and postings pertaining to business transactions recorded by other associates. If you meet the qualifications listed below please Apply Now!Responsibilities for this Accounting Clerk job include:

    Operate computers programmed with accounting software to record, store, and analyze information

  • Check figures, postings, and documents for correct entry, mathematical accuracy, and proper codes
  • Classify, record, and summarize numerical and financial data to compile and keep financial records, using journal entries and general ledgers or computers
  • Debit, credit, and total accounts on computer spreadsheets and databases, using specialized accounting software
  • Operate 10-key calculators, and copy machines to perform calculations and produce documents
    Receive, record, and process cash, checks, and vouchers
  • Comply with federal, state, and company policies, procedures, and regulations
  • Compile statistical, financial, accounting or auditing reports and tables pertaining to such matters as cash receipts, expenditures, accounts payable and receivable, and profits and losses
  • Reconcile or note and report discrepancies found in records

Qualifications:

Associates Degree
2-3 years experience
Excellent Excel Skills

Job Description for Bookkeeping,  Accounting, or Auditing Clerk

Bookkeeping, accounting, and auditing clerks work primarily in office settings, including within the accounting and payroll departments of organizations, to maintain various ledgers, review and deposit checks, and process accounts receivable, accounts payable, expense accounts, and revenue-related accounts.

These clerks may be responsible for analyzing accounts receivable aging reports and informing supervisors regarding delinquent accounts, and a high school diploma or equivalent may be a minimum requirement for this position while relevant experience is also necessary. Some employers may require certification from a college or trade school and provide on-the-job training to new employees. They may report to accountants or CPAs and must be able to use accounting software, such as QuickBooks, and Microsoft Office programs.

Bookkeeping, accounting, and auditing clerks may perform Excel spreadsheet data entry on a regular basis, as well as bank and account reconciliation, and must be able to multitask and pay close attention to detail. They should be able to work with minimal supervision as well as in a team environment, and may respond to questions from customers or internal clients via email or phone. Some may attend regular training classes as required by their employers.

 

Bookkeeping, Accounting, or Auditing Clerk Tasks

  • Process and validate incoming payments, enter data, and resolve discrepancies as they arise.
  • Provide general filing, clerical, and other help.
  • Make, track, and report deposits.
  • Create reports and audits, verify accuracy, and reconcile errors.

 

Hiring Organization

NEW YORK NY’s Bookkeeping Services

Bookkeeping excellence for over 15 years, NY’s Bookkeeping Services provides professional bookkeeping to any business or non for profit organization. Get started with a free consultation.

New York’s Largest Dedicated Bookkeeping Firm

Our professional staff devotes itself to providing bookkeeping services in a timely, accurate manner, showing respect and awareness of the confidentiality and individual needs of our clientele.

Initial Set-up and Clean up

Payroll Services

Annual 1099 and W-9 Processing

Monthly Financial Statements Preparation

Controller Services

Staff Training

Works with a Wide Range of Clients

With the breadth of our experience, we can design, implement, and maintain bookkeeping systems that are tailor-made for any business.

Bookkeeping for Businesses

Find out how we can help you get control of your business finances.

Bookkeeping for Not For Profits

Learn more about our discounted offers for not for profits.

Bookkeeping For Individuals

Get assistance with your personal financial records.

Bookkeeping Training and Consulting

We train everybody from individuals to company teams.

Bookkeeping for International Businesses

Initial setup of New Businesses in the US or expansion of your company to the US NYet.

Startups, Incubator Companies for Funding

We help you follow GAAP in preparation of getting your start-up funded.

Online Store & Shopping Cart Integration

Manage your online store with an accurate accounting system.

 

Provides a full set of bookkeeping services, including, but not limited to:

Bookkeeping for Businesses

Learn how we can get your business finances under control.

As New York’s largest independent bookkeeping firm NY Bookkeeping Services (NY) has the staff and experience to help you to grow your business.  NY can help you to setup a new business or cleanup and existing company that has not had professional help.  We can setup the reporting and systems needed to understand your business better.

Your NY Bookkeeper can create a budget and projections so that you can forecast and plan properly.  NY can help with Sales Tax, Payroll Setup and Integration of your existing systems or help to streamline your bookkeeping systems with the correct checks and balances for Best Practices.  NY works with your CPA to assure that he/she is able to provide the best tax planning based on accurate bookkeeping and reporting.

 

NY’s Bookkeeping Services supports ALL accounting programs including:

  • Sage 50, 100
  • PC-Law
  • Juris
  • QuickBooks
  • Freshbooks
  • Xero
  • Financial Force
  • Mircosoft Dynamics
  • Oracle Netsuite
  • MYOB

Bookkeeping For Not For Profits

See how NY specializes in NFP needs.

NY’s Bookkeeping Services has bookkeepers that are dedicated to Not For Profit (NFP) bookkeeping and are fully versed in the special needs of Non-Profits bookkeeping. We can help track your ratios for breaking down the Program, Administrative and Program expenses NY Bookkeepers can make sure that your chart of accounts is setup to make preparing your 990 or 1042-S filings easy for your CPA to file.  NY Bookkeepers will work with you and your CPA for your yearly audit to make sure it runs smoothly.  NY offers discounted rates for NFPs.

Whether you are an experienced Executive Director of a NFP or a Startup NFP that needs help and advice, NY can help you.

Some examples of programs we support:

  • Donor Perfect
  • FundEZ
  • QuickBooks NFP
Bookkeeping For Individuals

Get your personal finances in order.

Whether you are a High Net Worth Individual with Investments to track or just need someone to make sure you are staying organized and on budget your NY Bookkeeper can help. We can help you setup a simply process to keep track of your spending and will help you to utilize the available applications that make sense for you.

Some examples of programs we support:

  • ReceiptBank
  • Expensify
  • OneReceipt
  • Mint
  • Freshbooks
  • OutRight
  • Kashoo

Bookkeeping for International Businesses

Get your business setup in the U.S.

NY’s Bookkeeping Services can help you to set up your business as a US Entity.  Whether you are a new business wanting to setup a NY Company or just thinking about it NY can help.  For new companies NY can be your office address until you are ready to take office space or can be your Accounting & Finance offices to while you setup your new business.  We request that you setup an email address for us at your domain name (Accounting@yourdomain) NY will never appear as a separate company in our support of your company.

We will always represent ourselves as the bookkeeping and accounting part of your company.  NY can help you setup payroll and help to navigate the requirements for new businesses operating in the US. NY can refer you to a list of CPA’s we have work with in the past or can work with any CPA that you prefer. We work with ALL licensed CPA’s.

Bookkeeping for Startups

Get help with your funding efforts.

NY’s Bookkeeping Services works with Startups and Internet Companies to help them while they work towards funding.  NY handles the setup and day to day bookkeeping needs as well as provides the financial reporting needed by your Investment Advisors.

NY can work with your financial advisors to provide the reporting and recordkeeping needed to help you obtain Seed Capitalization.

Shopping Cart Integration & Online Store

We manage your online store with an accurate accounting system.

NY’s Bookkeeping Services provides support for Shopping Cart Integration. NY will work with your IT and Web Designer to make sure that your Online Store will work correctly with your Accounting Program.

NY will work with your Web Designer to provide the correct reporting to analyze your business and to provide the reporting needed by you and the government agencies for tax reporting.

We support:

  • All shopping carts

Bookkeeping Training & Consulting

Get training in bookkeeping, QuickBooks, Excel and more.

NY also provides accounting programs training and consulting. We work with you and your staff to ensure that you have the best possible systems, procedures, and bookkeeping programs or apps working for you and your business.

Not every company needs (or can afford) a full-time or outside bookkeeping staff. But every company needs (and can’t afford not to have) a robust accounting system to maintain financial health and provide reporting on business performance.

Mission Statement

Our mission is to provide professional bookkeeping services as well as app integration to businesses whose current needs are not being adequately met. We optimize the business performance of our clientele by providing them with the necessary tools to assess their financial position at any given point in time. Our professional staff devotes itself to providing bookkeeping services in a timely, accurate manner, showing respect and awareness of the confidentiality and individual needs of our clientele. NY is committed to ensuring the highest level of excellence to all who avail themselves of our service.

Audit and Assurance Services

For Now and What’s Next

Corporate leaders today navigate a complex and constantly changing set of needs related to accounting regulations, financial statement audits and attestation. You need technical expertise to get the job done, but ideally an expert who cares about your long-term goals.
Frazier & Deeter’s brand promise is Investing in Relationships to Make a Difference. We bring this long-term mindset to our client and associate relationships and it shows in the long-term, strong relationships we have with our clients.

Our team provides deep expertise regarding:

  • Audits, compilations and reviews
  • Employee benefit plan (ERISA) audits
  • Fraud detection
  • Forecasts, budgets, and cash flow projections
  • Internal audit services
  • Technology consulting
  • Compliance
  • SOC examinations (formerly SAS 70)
  • SOX readiness and compliance

Accounting/Financial Reporting

A streamlined, pragmatic approach to accounting services

We offer a wide range of accounting and financial reporting services to serve the needs of companies of all sizes and industries. Our award-winning firm is registered with the Public Company Accounting Oversight Board and participates in the AICPA peer review program, so you can rest easy that we can help you resolve your accounting questions and move ahead.

·  The NY  Approach

We utilize a risk-sensitive approach with consideration of:

  • Specific abilities of your internal accounting staff
  • Any financial disclosure requirements
  • All federal, state and regulatory compliance issues

By assessing the level of sophistication of your financial operations, we can minimize excessive fees and redundancies. Examining a company’s operations with a fresh perspective enables our team to make observations and recommendations that are substantive, relevant and practical.

·  Internal Control Review

This procedure concentrates on the control structure that produces your company’s financial information and not on the financial information itself. It is a thorough assessment of strengths and weaknesses, with particular focus on how these weaknesses could adversely affect the company’s ability to record, process, summarize and report financial information.

We provide recommendations to strengthen internal controls, develop asset protection and assure that transactions are executed in accordance with management’s authorization.

·         Agreed-Upon Procedures

This is the process of applying specific procedures to an area of a financial statement or within a specific accounting cycle.

A member of our team meets with you to determine what specific business goals you are trying to accomplish. You then receive an outline of recommended procedures necessary to achieve those goals. All agreed-upon procedures are then performed.

·         Ratio Analysis

This financial analysis identifies trends concerning your company’s financial stability and its ability to meet current operational obligations.

The services are based upon comparisons with prior years, as well as with comparable industry competitors. This information assists management in focusing on the company’s financial strengths and weaknesses and can offer another way to interpret current financial information.

Audit

Top-tier auditors focused on long-term relationships

We are a nationally-ranked, Top 100 accounting firm offering assurance practices led by some of the country’s most-respected CPAs. Your NYteam is focused first and foremost on developing a solid relationship; and is set apart by our extensive experience with public, private and benefit plan audit experience.

·         Overview of an Audit

An audit provides the highest level of assurance that your company’s financial statements fairly and accurately represent your financial position, and ensures operations and cash flows are in accordance with U.S. generally accepted accounting principles.

An audit must be conducted by a third-party CPA independent of your company and requires full disclosure of all necessary financial statements, as well as:

    • Confirmation of third-party accounts
    • Physical inspections and observations
    • Testing of selected transactions through review of supporting documents

·         Recognized PCAOB Intelligence

NYis recognized as a leader in audit methodology and quality controls.

NY is one of the few CPA firms in the United States to have former members of the Public Company Accounting and Oversight Board (PCAOB) leading our audit and assurance practice. These members were instrumental in writing policies and evaluating firms across the nation, and have used that expertise to standardize our superior approach to auditing.

·         International Affiliations with PKF International

We are members of PKF International, a global network of CPA and consulting firms that is regarded as one of the leading firms in the industry. As a member of PKF, we provide you with access to the top talent and resources at participating firms in 150 countries.

·         PCAOB Report and AICPA Peer Review

In addition to maintaining our registered membership with the Public Company Accounting and Oversight Board (PCAOB), we routinely undergo regulatory inspections, as well as, a Peer Reviews and internal inspections.

Compilations

Take Your Financial Reporting to the Next Level

Our CPAs provide financial assurance compilations and reviews on request. Our extensive team renders reports on a monthly, quarterly or annual basis based on information provided by your management. Receiving streamlined data in the proper financial statement format simplifies progress comparison and makes it easy for your management to identify patterns or potential issues.

Should your business need to provide multiple degrees of assurance to outside groups, our review or audit services may be necessary to validate the reliability of your financial statements.

Employee Benefit Plan Audit

Navigating Change and Mitigating Risk

Failure to comply with the continually changing requirements for employee benefits can result in substantial penalties for your company. Your best approach for navigating these myriad responsibilities is the support of a highly qualified advisory team. All NYplan auditors are dedicated ERISA specialists who help you monitor, manage and mitigate issues in the benefits segment of your financial statements.

Our team also assists with plan design issues, plan operation and compliance and other general employee benefit areas. Working closely with your human resources and benefits group, our ERISA specialists strive to improve the plan’s administrative processes wherever possible.

Specialization in the Employee Benefit Plan Industry

The Department of Labor has advised plan sponsors to use only auditors who specialize in plan audits in order to reduce the extremely high error rates of unqualified auditors. In a typical year, our team of ERISA specialists performs nearly 200 plan audits for some of the country’s largest employers.

NYis a charter member of the American Institute of Certified Public Accountants’ (“AICPA”) Employee Benefit Plan Audit Quality Center (“EBPAQC”). Membership requires a firm to staff dedicated ERISA audit partners and team members and to meet continuing professional education requirements specific with employee benefit plans for staff who manage ERISA audits and quality control programs for ERISA audits.

Avoiding Common Benefit Plan Errors

Learn to recognize common errors that occur when choosing an employee benefits plan; establish recommended internal control measures to prevent errors; and identify the major causes.

·         Assurance Services

    • Audits (Full Scope and Limited Scope) of qualified defined contribution and defined benefit employee benefit plans as required by ERISA 103(a)(3)(A) and 29CFR 2520.103-1(b)
    • Audits of plans requiring filing of Form 11K
    • Audits of welfare benefit plans with a 501(c)(9) or other trust arrangements
    • Audits of 403(b) plans
    • Plan controls recommendations and management communication
    • Required governance communication

·         Consulting & Compliance Services

    • Preparation and review of Form 5500 and Form 5330
    • Plan compliance reviews and audits
    • Full HR department compliance reviews
    • Plan design and development
    • Assistance with plan operational issues and correction
    • Plan compliance review
    • Plan fiduciary review
    • Plan mergers and termination
    • Fee and other plan benchmarking
    • HR best practices and administrative process improvement
    • Tax and tax planning services
    • Assistance with both IRS and DOL audits

Reviews

Streamlining Financial Performance Reports

An audit is not always necessary to validate your financial reporting. For simple reporting of your financial position to third parties, such as regulatory agencies or creditors, a financial review provides inquiry and analytical procedures applied to financial data without the need for outside verification.

This procedure differs from a compilation in two ways — our team must be independent of your company, and all appropriate disclosures must be included in the reviewed financial statements. A review is a mid-tier assurance procedure that provides more reliance than a compilation but is not as invasive as an audit.

A financial statement review may also be useful to business owners who are not actively involved in managing their companies; and receive reporting with limited assurance that material modifications to the financial statements are not necessary.

SOC Examinations

 

A Service Organization’s Symbol of Strong Internal Controls

NY Process, Risk & Governance (PRG) Practice Group provides customized risk management solutions to improve efficiency and add value. We deliver assurance and consulting services to clients large and small and also have extensive expertise in IT risk management.

A Service Organization Controls (SOC) examination helps service organizations identify and enhance a competitive edge. A SOC examination (formerly SAS 70) proves your commitment to maintaining internal controls by providing third-party attestation to the reliability of the design, implementation and operating effectiveness of your controls. A SOC examination can reduce impact on your internal resources by minimizing the need for external audits and can identify improvements to strengthen your operations.

SOC Reporting Overview

Learn the differences between a SOC 1 and SOC 2 report, as well as how to choose which is right for your organization. Plus, get insights into the trust principals that are the basis for SOC reporting, such as data privacy.

Understanding and Leveraging the New Standards of SOC 2 Reports

Learn about the challenges and advantages of the updated “Common Criteria” for SOC 2 reporting, including the Trust Services Principles and Criteria related to Security, Availability, Processing Integrity, Confidentiality and/or Privacy.

Forensic Accounting and Fraud Investigation

Supporting Litigation for Fraudulent Financial Activity

We offer a full suite of forensic accounting services, including those designed to prevent and detect fraud. We integrate accounting, auditing and investigative skills to reveal fraud and support all aspects of litigation.

Our team of CPA professionals includes many certified fraud examiners (CFEs). This department is led by a highly experienced CFE who is also a licensed private investigator. The NYfraud team can help you investigate sensitive situations, as well as support your efforts through final prosecution or civil litigation, with experienced expert witness services.

·         Expert Witness & Investigation Services

Our forensic and investigative services uncover occupational fraud and abuse, from asset misappropriation to bribery and corruption and money laundering. Some cases require us to provide dispute analysis and litigation support, and we have extensive experience serving as expert witnesses.

·         Fraud Risk & Internal Controls Assessment

We help you identify process and control weaknesses that can lead to fraud or abuse. We not only identify and evaluate areas of risk, but also recommend management and control systems and operational improvements to minimize future risk.

·         Training

We provide risk assessment and fraud awareness training and give you the tools and knowledge to be proactive. By setting up fraud prevention programs, our clients can increase awareness and detect potential fraud schemes before they cause damage.

·         Specialty Services

    • Analysis of business disputes
    • Cross examination & opposing expert critiques
    • Expert witness testimony
    • Calculation of financial & economic damages
    • Forensic audits
    • Fraud prevention measures
    • Operational & efficiency reviews
    • Technology audits
    • Forensic accounting investigation of:
      • Fraud & white collar crime
      • Theft & embezzlement
      • Investment & securities fraud

Internal Audit

Supporting Your Internal Compliance Resources

If your company’s internal resources lack the capacity, objectivity or specialized technical skills to address evolving business needs, Frazier & Deeter’s Process, Risk & Governance advisors can help you across a broad spectrum of operational, compliance, IT and Financial audit needs. We support the overall Enterprise Risk Management efforts of companies with varying needs, including Emerging Growth, High Growth, Public and Pre-IPO organizations.

Outsourcing & Co-Sourcing of Internal Audit

Learn how our experienced PRG professionals can help you maintain tight internal controls through outsourcing — management, staffing and execution; or co-sourcing — bringing individual expertise to augment an in-house internal audit team.

·         Internal Audit Co-sourcing & Outsourcing

Our PRG professionals are available to help you meet all internal audit requirements. We can:

    • Provide audit professionals with extensive internal audit experience to deliver your audit needs
    • Supplement your current Internal Audit function to address issues of capacity or technical knowledge
    • Satisfy third party regulatory requirements
    • Design improved internal processes and controls
    • Assist in implementing consistent policies and procedures company-wide
    • Work with business process auditors to ensure adequate understanding of business risks

·         SOX Readiness and Compliance

A Sarbanes-Oxley Section 404 effort is executed in multiple stages. Our team is overseen by several members that have worked at the Public Company Accounting Oversight Board (the PCAOB) and provides comprehensive guidance or assistance in any stage of the project:

    • Planning and scoping
    • Documenting significant processes and controls
    • Evaluating internal control effectiveness
    • Identifying issues and designing corrective actions
    • Implementing solutions and remediation efforts
    • Internal control reporting

·         Quality Assurance Reviews (QAR) & Transformation

Conforming to the Institute of Internal Auditor’s International Standards for the Professional Practice of Internal Auditing (IISPPA) is a critical requirement.

Our PRG professionals perform a detailed analysis of every aspect of your Internal Audit department, including its organizational structure, technical competency and staff performance. We provide recommendations and strategies that improve performance and increase value to the organization.

·         Business Process Improvement

Our professionals design and implement solutions to improve internal and external business performance. We examine technology, resources, processes and procedures, adopting and implementing best practices in accordance with the needs of the organization.

·         Audit Committee Advisory Services

Our professionals optimize the effectiveness of communication with Audit Committees by:

    • Providing guidance on emerging audit, risk management and governance topics
    • Increasing awareness of audit and risk management concepts that improve corporate governance results
    • Communicating regulatory best practices

·         Internal Audit Tools & Technology

As the organization evolves, the need often emerges to update tools, methodologies and technologies. We offer an informed and objective team to help you identify relevant risks, assist in the design and testing of your controls to address those risks and effectively report results to management.

·         FCPA Program Design

·         Foreign Corrupt Practices Act Training

 

·         Bookkeeping Services

Bookkeeping Preparation Bookkeeping Planning Bookkeeping Problems

·         Business Services

Small Business Accounting Payroll Part-Time CFO Services

·         QuickBooks Services

Why Quickbooks QuickBooks Setup QuickBooks Training

·         Individual Services

Individual Bookkeeping

Help for Busy Individuals!!!

If you are too busy with work and family to effectively handle your finances, Atlanta Bookkeeping Solutions is here to help.  Stop the collections calls and paying late fees.  We want to help you keep more money in your pocket.

We provide the following services for individuals:

- bill payments
- prepare and make bank deposits
- prepare household budgets
- shop for insurance quotes
- contact vendors with account issues

Stress No More!! We are here to make your life easier!!

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Small Business Accounting

As a small business owner you have more important things to do than to keep your own books. We take care of your books for you, so you can get back to the job of running your business and generating profits.

Each month or quarter we'll do the following things for you...

  • Reconcile your bank account
  • Generate an income statement
  • Generate a balance sheet
  • Clean up your general ledger

These tasks form the solid foundation of your small business bookkeeping system. You can customize the package of services you receive by adding payroll, tax preparation, or any of our other services.


Bank Reconciliation

Reconciling your business checking account each month allow us to keep your bank account, accounting, and taxes up-to-date.

Having us reconcile your account each month allows you to...

  • Identify lost checks, lost deposits and unauthorized wire transactions.
  • Detect and prevent excess/unjustified bank charges and ensures transactions are posted correctly by your bank.
  • Detect and prevent embezzlement of funds from within your company.
  • Know how your business is doing? You can't really know unless all accounts are reconciled and properly accounted for on your financial statement.
  • Manage your cash more effectively. Proper management of funds not only saves money, it makes money for you.
  • Protect yourself. By timely reconciling and promptly objecting to your bank about any unauthorized, fraudulent or forged checks presented to your bank and paid by that bank, you can relieve your agency of responsibility for the shortfall and transfer the risk to the bank. This reason to reconcile alone should be enough. Crime exists.
  • Sleep Better. You will sleep more peacefully at night knowing your bank accounts are reconciled, in balance and that all escrow funds, accounts, checks and disbursed funds are properly accounted for.

Income Statement

An income statement, otherwise known as a profit and loss statement, basically adds an itemized list of all your revenues and subtracts an itemized list of all your expenses to come up with a profit or loss for the period.

An income statement allows you to...

  • Track revenues and expenses so that you can determine the operating performance of your business.
  • Determine what areas of your business are over-budget or under-budget.
  • Identify specific items that are causing unexpected expenditures. Like phone, fax, mail, or supply expenses.
  • Track dramatic increases in product returns or cost of goods sold as a percentage of sales.
  • Determine your income tax liability.


Balance Sheet

A balance sheet gives you a snapshot of your business' financial condition at a specific moment in time.

A balance sheet helps you...

  • Quickly get a handle on the financial strength and capabilities of your business.
  • Identify and analyze trends, particularly in the area of receivables and payables. For example, if your receivables cycle is lengthening, maybe you can collect your receivables more aggressively.
  • Determine if your business is in a position to expand.
  • Determine if your business can easily handle the normal financial ebbs and flows of revenues and expenses?
  • Determine if you need to take immediate steps to bolster cash reserves?
  • Determine if your business has been slowing down payables to forestall an inevitable cash shortage?

Balance sheets, along with income statements, are the most basic elements in providing financial reporting to potential lenders such as banks, investors, and vendors who are considering how much credit to grant you.

Maintaining a Clean General Ledger

The general ledger is the core of your company's financial records. These records constitute the central "books" of your system. Since every transaction flows through the general ledger, a problem with your general ledger throws off all your books.

Having us review your general ledger system each month allows us to hunt down any discrepancies such as double billings or any unrecorded payments. Then we'll fix the discrepancies so your books are always accurate and kept in tip top shape.


Unlimited Consultations

We are always available to spend time with you so you fully understand how to interpret and utilize the financial information we provide. Our consultations are already included in our price, so please feel free to call us whenever you have a question or concern.

If you'd like to receive a Free Consultation on our Small Business Accounting Service, please complete this form.

Payroll

When it comes to paying employees, laws and the IRS have made the payroll function a time consuming nightmare for the small business owner.

Small business owners spend an average of eight hours a month performing payroll functions. That's 12 full days a year that could be spent generating sales, prospecting new business opportunities, improving products or services, or servicing customers.

We offer payroll solutions that meet your business's needs and enable you to spend time doing what you do best--running your company.

Why Outsource Your Payroll...

  • It's Cost Effective
    Use your staff more efficiently by letting us handle payroll and the associated legal details. Reduce overhead by removing the need to hire specialized employees.
  • It's a Time Saver
    Our payroll service eliminates the burden of customizing, updating and maintaining your own payroll system--no more data entry, no more researching updates or new laws, no more worries.
  • Worry Free Payroll Tax Filing
    Eliminate the risks of calculating and filing your own payroll taxes by having professionals do it for you. Federal, state and local payroll tax laws are frequently changing and becoming more complex.  How much time do you want to spend  learning all the rules and keeping your information up to date?
  • Allows You To Focus On Core Competencies
    Our professional staff allow you to focus on the core competencies of your business. We are accounting professionals--you get the experts working for you and with you.
  • Comprehensive Reports
    You get a wide variety of user-friendly and accurate payroll reports. For a nominal fee, we will include union reports, certified payroll, workers' compensation reports and much more.

Get the Payroll Solution That Best Fits Your Needs.
We know that when it comes to payroll service - no one size fits all. That's why we offer the following 3 custom payroll processing options.

1. Comprehensive Payroll Services
Our Comprehensive Payroll Service takes care of all of the payroll processing for you, so that you won't have to. You get...

  • Your payroll checks prepared and printed on-time, every-time.
  • All of your payroll checks are laser printed on "blank" check stock to ensure maximum security and meet the micro encoding standards as set forth by the Federal Reserve System.
  • Free Direct Deposits
  • Worry Free IRS and State tax reporting as well as EFTPS tax deposits.
  • User friendly, and easy to understand monthly, quarterly, and annual payroll tax reports, including W-2, W-3 and 1099 forms.
  • Detailed reports on your employee's vacation, sick days, and personal days accruals.
  • Creation and filing of the required new hire reports
  • Your payroll records maintained in tip top shape.

2. After-the-Fact-Payroll Services
We will take your manually-prepared payroll records and other payroll information and post this information to our data files, so you get...

  • Worry Free IRS and State tax reporting as well as EFTPS tax deposits.
  • User friendly, and easy to understand monthly, quarterly, and annual payroll tax reports, including W-2, W-3 and 1099 forms.
  • Detailed reports on your employee's vacation, sick days, and personal days accruals.
  • Creation and filing of the required new hire reports
  • Your payroll records maintained in tip top shape.

3. Online Payroll Processing
You can enter your employee's hours and earnings securely online and get...

  • The ability to instantly print payroll checks on your own printer.
  • Free Direct Deposits
  • Worry Free IRS and State tax reporting as well as EFTPS tax deposits.
  • User friendly, and easy to understand monthly, quarterly, and annual payroll tax reports, including W-2, W-3 and 1099 forms.
  • Detailed reports on your employee's vacation, sick days, and personal days accruals.
  • Creation and filing of the required new hire reports
  • Your payroll records maintained in tip top shape.

Custom Payroll Reports Service
There seems to be an endless amount of special reports Government agencies require. We can prepare the following reports for you.

  • Worker's Compensation Audits
  • Unemployment Claims
  • Social Security Audits
  • Child Support Audits
  • W-2 and W-3 processing
  • 1099 and 1096 processing
  • Preparation/assistance with Federal and State registration forms

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Bookkeeping and Accounting - A Beginning Tutorial

Bookkeeping and Accounting

Bookkeeping in a business firm is the basis of the firm's accounting system. Bookkeepers are responsible for recording and classifying the accounting transactions of the business firm and techniques involving recording those transactions.

If you are a small business owner, you either have to set up your own accounting system or you have to hire someone to set it up for you. If you are self-employed and it is a one-person business, you will do it yourself. If you are hiring staff and anticipate a lot of growth, you may hire a controller to handle your financial management and accounting. If your business is going to grow but you anticipate slow growth, you may simply hire an accountant or bookkeeper to handle the accounting system.

What Does the Accountant do?

Where the bookkeeper records and classifies the financial transactions of the company, the accountant takes the next steps and analyzes, reviews, reports, and interprets financial information for the company.

What Does a Controller do?

The controller is actually a company's chief accounting officer. He/she is responsible for setting up and maintaining the company's accounting system. The controller is responsible for financial and managerial accounting; in other words, responding to the firm's accounting data in an appropriate and responsible manner. A controller is usually hired as a business gets larger.

Bookkeeping With and Without a Computer Program

This tutorial on bookkeeping teaches you basic bookkeeping without using a computer program. Why do you need to know that since there are so many computer programs out there you can use? Have you ever heard the saying, "Garbage in, garbage out?" You have to understand the basic bookkeeping behind what you enter into the computer program in order to enter in the correct information. A later tutorial will deal with using a computer program to handle bookkeeping for your business organization.

2. Should you use Single or Double Entry Bookkeeping?

Single-Entry bookkeeping is much like keeping your check register. You record transactions as you pay bills and make deposits into your company account. This works only if yours is a small company with a low volume of transactions.

If your company is of any size and complexity, you will want to set up a double-entry bookkeeping system. Two entries, at least, are made for each transaction. A debit is made to one account and a credit is made to another accounting. That is the key to double-entry accounting.

 

3. Should you use Cash or Accrual Accounting?

One of the first decisions you have to make when setting up your bookkeeping system is whether or not to use a cash or accrual accounting system. If you are operating a small, one-person business from home or even a larger consulting practice from a one-person office, you might want to stick with cash accounting. If you use cash accounting, you record your transaction when cash actually changes hands. Cash can be anything from actual money to electronic funds transfer. Sometimes firms start their business using cash accounting and switch to accrual accounting as they grow.

If you are going to offer your customers credit or if you are going to request credit from your suppliers, then you have to use an accrual accounting system. Using accrual accounting, you record purchases or sales immediately, even if the cash doesn't change hands until a later time, such as in the case of Accounts Payable or Accounts Receivable.

4. The Basics - Understanding Assets, Liabilities, and Equity

Before you set up your bookkeeping system, you have to understand the firm's basic accounts - assets, liabilities and equity. Assets are those things the company owns such as its inventory and accounts receivables. Liabilities are those things the company owes such as what they owe to their suppliers (accounts payable), bank and business loans, mortgages, and any other debt on the books. Equity is the ownership the business owner and any investors have in the firm.

Balancing the Books

In order to balance your books, you have to keep careful track of these items and be sure the transactions that deal with assets, liabilities, and equity are recorded correctly and in the right place. There is a key formula you can use to make sure your books always balance. That formula is called the accounting equation:

Assets = Liabilities + Equity

The accounting equation means that everything the business owns (assets) is balanced against claims against the business (liabilities and equity). Liabilities are claims based on what you owe vendors and lenders. Owners of the business have claims against the remaining assets (equity).

Initial Bookkeeping Terms Related to the Accounting Equation

Let's take a closer look at assets, liabilities, and equity so you will have a complete understanding of what comprises each one.

  • Assets: If you look you look at the format of a balance sheet, you will see the asset, liability, and equity accounts. Asset accounts usually start with the cash account and the NYetable securities account. Then, inventory, accounts receivable, and fixed assets such as land, buildings, and plant and equipment are listed. Those are tangible assets. You can actually touch them. Firms also have intangible assets such as customer goodwill.
  • Liabilities: The liability accounts on a balance sheet include both current and long-term liabilities. Current liabilities are usually accounts payable and accruals. Accounts payable are usually what the business owes to its suppliers, credit cards, and bank loans. Accruals will consist of taxes owed including sales tax owed and federal, state, social security, and Medicare tax on the employees which are generally paid quarterly.
  • Equity: The equity accounts include all the claims the owners have against the company. Clearly, the business owner has an investment and it may be the only investment in the firm. If the firm has taken on other investment, that is considered here as well.

5. Income Statement Basics - Revenue, Expenses, Costs

 

If you look at the balance sheet in Step 4, you learn about assets, liabilities and equity. If you move on to the income statement, you learn about revenue, expenses, and costs.

Revenue is all the income a business receives in selling its products or services. Costs, also called cost of goods sold, is all the money a business spends to buy or manufacture the goods or services it sells to its customers. The Purchases account tracks goods purchased. Expenses are all the money that is spent to run the company that is not specifically related to a product or service being sold. An example of an expense account is Salaries and Wages.

A bookkeeper is responsible for identifying the accounts in which transactions should be recorded. For example, if the business makes a cash sale to a customer and your business uses double-entry bookkeeping, you would record the cash received in the asset account called Cash and the sale would be recorded in the revenue account called Sales. Here is another example of a bookkeeping entry for a cash sale. This one throws in another variable - what the bookkeeper has to do when sales tax is involved.

Bookkeeping (Explanation)

Introduction; Bookkeeping: Past and Present

 

Accrual Method

 

Double-Entry, Debits and Credits

 

General Ledger Accounts

 

Debits and Credits in the Accounts

 

Asset Accounts

 

Liability and Stockholders' Equity Accounts

 

Income Statement Accounts

 

Recording Transactions; Bank Reconciliation

 

Adjusting Entries; Reversing Entries

 

Balance Sheet; Income Statement; Balance Sheet and Income Statement are Linked

 

Cash Flow Statement

 

Statement of Stockholders' Equity; Closing Cut-Off; Importance of Controls

 

Introduction to Bookkeeping

The term bookkeeping means different things to different people:

  • Some people think that bookkeeping is the same as accounting. They assume that keeping a company's books and preparing its financial statements and tax reports are all part of bookkeeping. Accountants do not share their view.
  • Others see bookkeeping as limited to recording transactions in journals or daybooks and then posting the amounts into accounts in ledgers. After the amounts are posted, the bookkeeping has ended and an accountant with a college degree takes over. The accountant will make adjusting entries and then prepare the financial statements and other reports.
  • The past distinctions between bookkeeping and accounting have become blurred with the use of computers and accounting software. For example, a person with little bookkeeping training can use the accounting software to record vendor invoices, prepare sales invoices, etc. and the software will update the accounts in the general ledger automatically. Once the format of the financial statements has been established, the software will be able to generate the financial statements with the click of a button.
  • At mid-size and larger corporations the term bookkeeping might be absent. Often corporations have accounting departments staffed with accounting clerks who process accounts payable, accounts receivable, payroll, etc. The accounting clerks will be supervised by one or more accountants.

Our explanation of bookkeeping attempts to provide you with an understanding of bookkeeping and its relationship with accounting. Our goal is to increase your knowledge and confidence in bookkeeping, accounting and business. In turn, we hope that you will become more valuable in your current and future roles.

Note: We provide a Bookkeeping Cheat Sheet, a Guide to Bookkeeping Concepts, a Bookkeeping Basics Video Seminar, a Bookkeeping Quick Test, Bookkeeping Tests for Prospective Employees, and Bookkeeping Flashcards for members of AccountingCoach PRO.

Bookkeeping: Past and Present

Bookkeeping in the Old Days

Prior to computers and software, the bookkeeping for small businesses usually began by writing entries into journals. Journals were defined as the books of original entry. In order to reduce the amount of writing in a general journal, special journals or daybooks were introduced. The special or specialized journals consisted of a sales journal, purchases journal, cash receipts journal, and cash payments journal.

The company's transactions were written in the journals in date order. Later, the amounts in the journals would be posted to the designated accounts located in the general ledger. Examples of accounts include Sales, Rent Expense, Wages Expense, Cash, Loans Payable, etc. Each account's balance had to be calculated and the account balances were used in the company's financial statements. In addition to the general ledger, a company may have had subsidiary ledgers for accounts such as Accounts Receivable.

Handwriting the many transactions into journals, rewriting the amounts in the accounts, and manually calculating the account balances would likely result in some incorrect amounts. To determine whether errors had occurred, the bookkeeper prepared a trial balance. A trial balance is an internal report that lists 1) each account name, and 2) each account's balance in the appropriate debit column or credit column. If the total of the debit column did not equal the total of the credit column, there was at least one error occurring somewhere between the journal entry and the trial balance. Finding the one or more errors often meant spending hours retracing the entries and postings.

After locating and correcting the errors the bookkeeping phase was completed and the accounting phase began. It began with an accountant preparing adjusting entries so that the accounts reflected the accrual basis of accounting. Adjusting entries were necessary for the following reasons:

  • additional revenues and assets may have been earned but were not recorded
  • additional expenses and liabilities may have been incurred but were not recorded
  • some of the amounts that had been recorded by the bookkeeper may have been prepayments which are no longer prepaid
  • depreciation and other non-routine adjustments needed to be computed and recorded

After all of the adjustments were made, the accountant presented the adjusted account balances in the form of financial statements.

After each year's financial statements were completed, closing entries were needed. The purpose of closing entries is to get the balances in all of the income statement accounts (revenues, expenses) to be zero before the start of the new accounting year. The net amount of the income statement account balances would ultimately be transferred to the proprietor's capital account or to the stockholders' retained earnings account.

Bookkeeping Today

The electronic speed of computers and accounting software gives the appearance that many of the bookkeeping and accounting tasks have been eliminated or are occurring simultaneously. For example, the preparation of a sales invoice will automatically update the relevant general ledger accounts (Sales, Accounts Receivable, Inventory, Cost of Goods Sold), update the customer's detailed information, and store the information for the financial statements as well as other reports.

The accounting software has been written so that every transaction must have the debit amounts equal to the credit amounts. The electronic accuracy also eliminates the errors that had occurred when amounts were manually written, rewritten and calculated. As a result, the debits will always equal the credits and the trial balance will always be in balance. No longer will hours be spent looking for errors that occurred in a manual system.

CAUTION: While the accounting software is amazingly fast and accurate in processing the information that is entered, the software is unable to detect whether some transactions have been omitted, have been entered twice, or if incorrect accounts were used. Fraudulent transactions and amounts could also be entered if a company fails to have internal controls.

After the sales invoices, vendor invoices, payroll and other transactions have been processed for each accounting period, some adjusting entries are still required. The adjusting entries will involve:

  • revenues and assets that were earned, but not yet entered into the software
  • expenses and liabilities that were incurred, but not yet entered into the software
  • prepayments that are no longer prepaid
  • recording depreciation expense, bad debts expense, etc.

The adjusting entries will require a person to determine the amounts and the accounts. Without adjusting entries the accounting software will be producing incomplete, inaccurate, and perhaps misleading financial statements.

After the financial statements for the year are released, the software will transfer the balances from the income statement accounts to the sole proprietor's capital account or to the stockholders' retained earnings account. This allows for the following year's income statement accounts to begin with zero balances. (The balance sheet accounts are not closed as their balances are carried forward to the next accounting year.)

Recording Transactions

Bookkeeping (and accounting) involves the recording of a company's financial transactions. The transactions will have to be identified, approved, sorted and stored in a manner so they can be retrieved and presented in the company's financial statements and other reports.

Here are a few examples of some of a company's financial transactions:

  • The purchase of supplies with cash.
  • The purchase of merchandise on credit.
  • The sale of merchandise on credit.
  • Rent for the business office.
  • Salaries and wages earned by employees.
  • Buying equipment for the office.
  • Borrowing money from a bank.

The transactions will be sorted into perhaps hundreds of accounts including Cash, Accounts Receivable, Loans Payable, Accounts Payable, Sales, Rent Expense, Salaries Expense, Wages Expense Dept 1, Wages Expense Dept 2, etc. The amounts in each of the accounts will be reported on the company's financial statements in detail or in summary form.

With hundreds of accounts and perhaps thousands of transactions, it is clear that once a person learns the accounting software there will be efficiencies and better information available for managing a business.

Accrual Method

There are two main methods of accounting (or bookkeeping):

  • Accrual method
  • Cash method

The accrual method of accounting is the preferred method because it provides:

  1. a more complete reporting of the company's assets, liabilities, and stockholders' equity at the end of an accounting period, and
  2. a more realistic reporting of a company's revenues, expenses, and net income for a specific time interval such as a month, quarter or year.

As a result, US GAAP requires most corporations to use the accrual method of accounting.

The following table compares the accrual and cash methods of accounting:

Cash basis vs. accrual basis accounting

The cash basis and accrual basis of accounting are two different methods used to record accounting transactions. The core underlying difference between the two methods is in the timing of transaction recordation. When aggregated over time, the results of the two methods are approximately the same. A brief description of each method follows:

  • Cash basis. Revenue is recorded when cash is received from customers, and expenses are recorded when cash is paid to suppliers and employees.
  • Accrual basis. Revenue is recorded when earned and expenses are recorded when consumed.

The timing difference between the two methods occurs because revenue recognition is delayed under the cash basis until customer payments arrive at the company. Similarly, the recognition of expenses under the cash basis can be delayed until such time as a supplier invoice is paid. To apply these concepts, here are several examples:

  • Revenue recognition. A company sells $10,000 of green widgets to a customer in March, which pays the invoice in April. Under the cash basis, the seller recognizes the sale in April, when the cash is received. Under the accrual basis, the seller recognizes the sale in March, when it issues the invoice.
  • Expense recognition. A company buys $500 of office supplies in May, which it pays for in June. Under the cash basis, the buyer recognizes the purchase in June, when it pays the bill. Under the accrual basis, the buyer recognizes the purchase in May, when it receives the supplier's invoice.

The cash basis is only available for use if a company has no more than $5 million of sales per year (as per the IRS). It is easiest to account for transactions using the cash basis, since no complex accounting transactions such as accruals and deferrals are needed. Given its ease of use, the cash basis is widely used in small businesses. However, the relatively random timing of cash receipts and expenditures means that reported results can vary between unusually high and low profits.

The accrual basis is used by all larger companies, for several reasons. First, its use is required for tax reporting when sales exceed $5 million. Also, a company's financial statements can only be audited if they have been prepared using the accrual basis. In addition, the financial results of a business under the accrual basis are more likely to match revenues and expenses in the same reporting period, so that the true profitability of an organization can be discerned. However, unless a statement of cash flows is included in the financial statements, this approach does not reveal the ability of a business to generate cash.

 

 

Note: Some small companies may be allowed to use the cash method of accounting and in turn may experience an income tax benefit. Since our website does not provide income tax information, you should seek tax advice from a tax professional or from IRS.gov.

 

Revenues and Receivables

Under the accrual method, revenues are to be reported in the accounting period in which they are earned (which may be different from the period in which the money is received).

To illustrate the reporting of revenues under the accrual method, let's assume that the hypothetical business Servco provides a service to a customer on December 27. Servco prepares a sales invoice for the agreed upon amount of $1,000. The invoice is dated December 27 and states that the amount is due in 30 days.

Under the accrual method, on December 27 Servco:

  • has earned revenue of $1,000, and
  • has earned a receivable of $1,000.

If Servco uses accounting software to prepare the invoice, the following will be recorded automatically as of December 27:

  • the income statement account Service Revenues will be increased by $1,000, and
  • the asset Accounts Receivable will be increased by $1,000

In addition to updating the general ledger accounts (which are used in preparing the financial statements), the software will update and store the customer's information for generating an aging of accounts receivable and a statement of each customer's activity.

Expenses and Payables

Under the accrual method, expenses should be reported on the income statement in the period in which they best match with the revenues. If a cause and effect relationship is not obvious, the expense should be reported on the income statement when the cost is used up or expires. In any event, the payment of cash is not the primary factor for determining the accounting period in which an expense is reported on the income statement.

To illustrate, let's assume that Servco uses a temporary help agency at a cost of $200 in order to assist in earning revenues on December 27. The invoice from the temp agency is received on December 27, but it will not be paid until January 4.

Under the accrual method, on December 27 Servco:

  • has incurred an expense of $200, and
  • has incurred a liability of $200.

If accounting software is used to record the temp agency invoice, the following will occur automatically as of December 27:

  • the income statement account Temporary Help Expense will be increased by $200, and
  • the liability Accounts Payable will be increased by $200.

When Servco issues its check on January 4:

  • the asset Cash will be decreased by $200, and
  • the liability Accounts Payable will be decreased by $200.

Net Income

If Servco had only the two transactions described above, its net income under the accrual method for the day of December 27 will consist of the following:

  • Earned revenue of $1,000
  • Incurred an expense of $200
  • Earned a net income of $800 ($1,000 of revenues minus $200 of expenses).
[The cash method of accounting would have reported a much different picture:

    • No revenue, expense or net income would have been reported on the December income statement.
    • The revenues of $1,000 might be reported in February if the customer paid in 35 days.
    • The expense of $200 will be reported in January when Servco pays the temp agency.]

Obviously, the accrual method does a better job of reporting what occurred on December 27, the date that Servco actually provided the services and incurred the expense.

Double-Entry, Debits and Credits

Double-Entry

Except for some very small companies, the standard method for recording transactions is double-entry. Double-entry bookkeeping or double-entry accounting means that every transaction will involve at least two accounts. To illustrate, here are a few transactions and the two accounts that will be affected:

 

Note: Double-entry bookkeeping means that every transaction will involve a minimum of two accounts.

Debits and Credits

The words debit and credit have been associated with double-entry bookkeeping and accounting for more than 500 years. Here are the meanings of those words:

debit: an entry on the left side of an account

credit: an entry on the right side of an account

 

The debit and credit rule in double-entry bookkeeping can be stated several ways:

  • For each and every transaction, the total amount entered on the left side of an account (or accounts) must be equal to the total amount entered on the right side of another account (or accounts).
  • For each and every transaction, the total of the debit amounts must be equal to the total of the credit amounts.
  • Debits must equal credits.

In short...

Debit Amount = Credit amounts

Debits = credits

Dependable accounting software will be written/coded to enforce the rule of debits equal to credits. In other words, a transaction will be accepted and processed only if the amount of the debits is equal to the amount of the credits.

The accuracy of accounting software will also ensure that the accounts and the trial balance will always be in balance. Here is an example of a partial trial balance:

 

Even though the accounting software has eliminated the clerical errors that occurred because amounts were handwritten and the account balances were calculated manually, some other errors can still occur. Here are some errors that will not be detected by the accounting software:

  • An entire transaction (both the debit amount and the credit amount) was omitted.
  • An entire transaction was entered twice.
  • An incorrect amount was entered both as a debit and as a credit.
  • An incorrect account was debited.
  • An incorrect account was credited.

Even with the above errors, the trial balance will remain in balance. The reason is that the total of the debit balances will still be equal to the total of the credit balances.

T-Accounts

To assist in visualizing the effect of recording a debit or credit amount and the resulting balances of general ledger accounts, it is helpful to draw a T-account,

Debit amounts will be entered on the left side of the T-account, and credit amounts will be entered on the right side. The title of the account will appear at the top of each "T".

Since every transaction will involve at least two accounts, we recommend that you always begin by drawing two T-accounts. For example, if a company pays its rent of $2,000 for the current month, the transaction could be depicted with the following T-accounts:

Note that one T-account (Rent Expense) has a debit of 2,000 and that one T-account (Cash) has a credit amount of 2,000. Hence, the transaction had debits equal to credits.

 

General Ledger Accounts

The accounts that are used to sort and store transactions are found in the company's general ledger. The general ledger is often arranged according to the following seven classifications. (A few examples of the related account titles are shown in parentheses.)

  • Assets (Cash, Accounts Receivable, Land, Equipment)
  • Liabilities (Loans Payable, Accounts Payable, Bonds Payable)
  • Stockholders' equity (Common Stock, Retained Earnings)
  • Operating revenues (Sales, Service Fees)
  • Operating expenses (Salaries Expense, Rent Expense, Depreciation Expense)
  • Non-operating revenues and gains (Investment Income, Gain on Disposal of Truck)
  • Non-operating expenses and losses (Interest Expense, Loss on Disposal of Equipment)

Balance Sheet Accounts

The first three classifications are referred to as balance sheet accounts since the balances in these accounts are reported on the financial statement known as the balance sheet.

  • Balance sheet accounts
    • Assets
    • Liabilities
    • Stockholders' (or Owner's) equity

The balance sheet accounts are also known as permanent accounts (or real accounts) since the balances in these accounts will not be closed at the end of an accounting year. Instead, these account balances are carried forward to the next accounting year.

Income Statement Accounts

The four remaining classifications of accounts are referred to as income statement accounts since the amounts in these accounts will be reported on the financial statement known as the income statement.

  • Income statement accounts
    • Operating revenues
    • Operating expenses
    • Non-operating revenues and gains
    • Non-operating expenses and losses

The income statement accounts are also known as temporary accounts since the balances in these accounts will be closed at the end of the accounting year. Each income statement account is closed in order to begin the next accounting year with a zero balance.

The year-end balances from all of the income statement accounts will be combined and entered as a single net amount in Retained Earnings (a balance sheet account within stockholders' equity) or in a proprietor's capital account.

Note: If an account has not had any activity in the current or recent periods, it is often omitted from the current general ledger.

 

Chart of Accounts

The chart of accounts is simply a list of all of the accounts that are available for recording transactions. This means that the number of accounts in the chart of accounts will be greater than the number of accounts in the general ledger. (The reason is that accounts with zero balances and no recent entries are often omitted from the general ledger until there is a transaction for the account.)

The chart of accounts is organized similar to the general ledger: balance sheet accounts followed by the income statement accounts. However, the chart of accounts does not contain any entries or account balances.

The chart of accounts allows you to find the name of an account, its account number, and perhaps a brief description. It is important to expand and/or alter the chart of accounts to accommodate the changes to an organization and when there is a need for improved reporting of information.

In some accounting software, the chart of accounts is also used to designate where an account will be reported in the financial statements.

Debits and Credits in the Accounts

If you already understand debits and credits, the following table summarizes how debits and credits are used in the accounts.

Debit and Credit Definitions

Business transactions are events that have a monetary impact on the financial statements of an organization. When accounting for these transactions, we record numbers in two accounts, where the debit column is on the left and the credit column is on the right.

  • A debit is an accounting entry that either increases an asset or expense account, or decreases a liability or equity account. It is positioned to the left in an accounting entry.
  • A credit is an accounting entry that either increases a liability or equity account, or decreases an asset or expense account. It is positioned to the right in an accounting entry.

Debit and Credit Usage

Whenever an accounting transaction is created, at least two accounts are always impacted, with a debit entry being recorded against one account and a credit entry being recorded against the other account. There is no upper limit to the number of accounts involved in a transaction - but the minimum is no less than two accounts. The totals of the debits and credits for any transaction must always equal each other, so that an accounting transaction is always said to be "in balance." If a transaction were not in balance, then it would not be possible to create financial statements. Thus, the use of debits and credits in a two-column transaction recording format is the most essential of all controls over accounting accuracy.

There can be considerable confusion about the inherent meaning of a debit or a credit. For example, if you debit a cash account, then this means that the amount of cash on hand increases. However, if you debit an accounts payable account, this means that the amount of accounts payable liability decreases. These differences arise because debits and credits have different impacts across several broad types of accounts, which are:

  • Asset accounts. A debit increases the balance and a credit decreases the balance.
  • Liability accounts. A debit decreases the balance and a credit increases the balance.
  • Equity accounts. A debit decreases the balance and a credit increases the balance.

The reason for this seeming reversal of the use of debits and credits is caused by the underlying accounting equation upon which the entire structure of accounting transactions are built, which is:

Assets = Liabilities + Equity

Thus, in a sense, you can only have assets if you have paid for them with liabilities or equity, so you must have one in order to have the other. Consequently, if you create a transaction with a debit and a credit, you are usually increasing an asset while also increasing a liability or equity account (or vice versa). There are some exceptions, such as increasing one asset account while decreasing another asset account.

If you are more concerned with accounts that appear on the income statement, then these additional rules apply:

  • Revenue accounts. A debit decreases the balance and a credit increases the balance.
  • Expense accounts. A debit increases the balance and a credit decreases the balance.
  • Gain accounts. A debit decreases the balance and a credit increases the balance.
  • Loss accounts. A debit increases the balance and a credit decreases the balance.

If you are really confused by these issues, then just remember that debits always go in the left column, and credits always go in the right column. There are no exceptions.

Debit and Credit Rules

The rules governing the use of debits and credits are as follows:

  • All accounts that normally contain a debit balance will increase in amount when a debit (left column) is added to them, and reduced when a credit (right column) is added to them. The types of accounts to which this rule applies are expenses, assets, and dividends.
  • All accounts that normally contain a credit balance will increase in amount when a credit (right column) is added to them, and reduced when a debit (left column) is added to them. The types of accounts to which this rule applies are liabilities, revenues, and equity.
  • The total amount of debits must equal the total amount of credits in a transaction. Otherwise, an accounting transaction is said to be unbalanced, and will not be accepted by the accounting software.

Debits and Credits in Common Accounting Transactions

The following bullet points note the use of debits and credits in the more common business transactions:

  • Sale for cash: Debit the cash account | Credit the revenue account
  • Sale on credit: Debit the accounts receivable account | Credit the revenue account
  • Receive cash in payment of an account receivable: Debit the cash account | Credit the accounts receivable account
  • Purchase supplies from supplier for cash: Debit the supplies expense account | Credit the cash account
  • Purchase supplies from supplier on credit: Debit the supplies expense account | Credit the accounts payable account
  • Purchase inventory from supplier for cash: Debit the inventory account | Credit the cash account
  • Purchase inventory from supplier on credit: Debit the inventory account | Credit the accounts payable account
  • Pay employees: Debit the wages expense and payroll tax accounts | Credit the cash account
  • Take out a loan: Debit cash account | Credit loans payable account
  • Repay a loan: Debit loans payable account | Credit cash account

Debit and Credit Examples

Arnold Corporation sells a product to a customer for $1,000 in cash. This results in revenue of $1,000 and cash of $1,000. Arnold must record an increase of the cash (asset) account with a debit, and an increase of the revenue account with a credit. The entry is:

DebitCredit
Cash2,000
     Revenue2,000

Arnold Corporation also buys a machine for $15,000 on credit. This results in an addition to the Machinery fixed assets account with a debit, and an increase in the accounts payable (liability) account with a credit. The entry is:

DebitCredit
Machinery - Fixed Assets14,000
     Accounts Payable14,000

Other Debit and Credit Issues

A debit is commonly abbreviated as dr. in an accounting transaction, while a credit is abbreviated as cr. in an accounting transaction.

Debits and credits are not used in a single entry system. In this system, only a single notation is made of a transaction; it is usually an entry in a check book or cash journal, indicating the receipt or expenditure of cash. A single entry system is only designed to produce an income statement.

Debits and Credits in the Accounts

If you already understand debits and credits, the following table summarizes how debits and credits are used in the accounts.

If you are not familiar with debits and credits or if you want a better understanding, we will provide a few insights to help you. We will also provide links to our visual tutorial, quiz, puzzles, etc. that will further assist you.

Accounting Equation Can Help

The accounting equation is a central part of bookkeeping and accounting. It can also provide insights into debits and credits. The basic accounting equation is:

Assets = Liabilities + Stockholders' equity (if a corporation)

or

Assets = Liabilities + Owner's equity (if a sole proprietorship)

With double-entry accounting, the accounting equation should always be in balance. In other words, not only will debits be equal to credits, but the amount of assets will be equal to the amount of liabilities plus the amount of owner's equity.

The accounting equation is also the framework of the balance sheet, one of the main financial statements. Hence the balance sheet must also be in balance.

We will use the accounting equation to explain why we sometimes debit an account and at other times we credit an account.

Assets are on the left side of the accounting equation.
Asset account balances should be on the left side of the accounts.

In the accounting equation you can see that assets are on the left side of the equation:

Earlier you learned that debit means left side. Recall our T-account that showed debits on the left side:

Hence, asset accounts such as Cash, Accounts Receivable, Inventory, and Equipment should have debit balances.

Liabilities are on the right side of the accounting equation.
Liability account balances should be on the right side of the accounts.

In the accounting equation you can see that liabilities are on the right side of the equation:

Earlier you learned that credit means right side. Recall our T-account that showed credits on the right side:

Thus liability accounts such as Accounts Payable, Notes Payable, Wages Payable, and Interest Payable should have credit balances.

Stockholders' equity is on the right side of the accounting equation.
Stockholders' equity account balances should be on the right side of the accounts.

In the accounting equation you can see that stockholders' equity is on the right side of the equation:

Again, credit means right side and our T-account showed credits on the right side. This means that stockholders' equity accounts such as Common Stock, Retained Earnings, and M J Smith, Capital should have credit balances.

Example

To demonstrate the debits and credits of double-entry with a transaction, let's assume that a new corporation is formed and the stockholders invest $100,000 in exchange for shares of common stock. There are two effects of this transaction:

  1. The corporation receives cash, which is recorded as a corporation asset.
  2. The corporation issues shares of common stock. The amount received for the shares will be recorded as part of the corporation's stockholders' equity.

Here's how the transaction will impact the accounting equation and the company's balance sheet:

Here is what will occur in the general ledger accounts:

If this transaction is entered in a general journal, it would appear as follows:

Revenues increase stockholders' equity (which is on the right side of the accounting equation).
Therefore the balances in the revenue accounts will be on the right side.

To illustrate, let's assume that a company provides a service and bills the customer $400 with the amount due in 30 days. Two things occur:

  1. Revenues of $400 are earned and that causes stockholders' equity to increase.
  2. The company earns the right to receive $400. This increases the company's asset account Accounts Receivable.

Here's the effect on the accounting equation and the company's balance sheet as a result of earning the revenues:

Here is what occurs in the general ledger accounts:

Note: Even though stockholders' equity will increase, the transaction is recorded in the account Service Revenues. The reason is that we want the amount of revenues to be reported on the current period's income statement. (In other words, we temporarily credit Service Revenues instead of crediting the stockholders' equity account Retained Earnings. At the end of the accounting year, the balances in all of the income statement accounts will be closed/transferred to Retained Earnings.)

If this transaction were entered in a general journal, it would appear as follows:

Expenses decrease stockholders' equity (which is on the right side of the accounting equation).
Therefore expense accounts will have their balances on the left side.

To reduce the normal credit balance in stockholders' equity accounts, a debit will be needed. Hence, the accounts such as Rent Expense, Advertising Expense, etc. will have their balances on the left side.

For example, when a company pays cash of $150 for advertising materials that are distributed immediately at a local event, two things occur:

  1. An expense of $150 occurred and the expense will cause stockholders' equity to decrease.
  2. The company has reduced its asset Cash by $150.

The effect on the accounting equation and the company's balance sheet is:

The effect on the company's general ledger accounts is shown here:

Note: Even though this expense causes stockholders' equity to decrease, the transaction is recorded in the account Advertising Expense. The reason is that we want the current period's income statement to report this expense. (In other words, we temporarily debit Advertising Expense instead of debiting the stockholders' equity account Retained Earnings. At the end of the accounting year, all of the balances in the income statement accounts will be closed/transferred to Retained Earnings.)

If this transaction were entered in a general journal, it would appear as follows:

A few tips about debits and credits:

  • When cash is received, debit Cash.
  • When cash is paid out, credit Cash.
  • When revenues are earned, credit a revenue account.
  • When expenses are incurred, debit an expense account.

Here are some common transactions with the appropriate debits and credits:

QuickMBA / Accounting / Debits and Credits

 

Debits and Credits

In double entry accounting, rather than using a single column for each account and entering some numbers as positive and others as negative, we use two columns for each account and enter only positive numbers. Whether the entry increases or decreases the account is determined by choice of the column in which it is entered. Entries in the left column are referred to as debits, and entries in the right column are referred to as credits.

 

Two accounts always are affected by each transaction, and one of those entries must be a debit and the other must be a credit of equal amount. Actually, more than two accounts can be used if the transaction is spread among them, just as long as the sum of debits for the transaction equals the sum of credits for it.

 

The double entry accounting system provides a system of checks and balances. By summing up all of the debits and summing up all of the credits and comparing the two totals, one can detect and have the opportunity to correct many common types of bookkeeping errors.

 

To avoid confusion over debits and credits, avoid thinking of them in the way that they are used in everyday language, which often refers to a credit as increasing an account and a debit as decreasing an account. For example, if our bank credits our checking account, money is added to it and the balance increases. In accounting terms, however, if a transaction causes a company's checking account to be credited, its balance decreases. Moreover, crediting another company account such as accounts payable will increase its balance. Without further explanation, it is no wonder that there often is confusion between debits and credits.

 

The confusion can be eliminated by remembering one thing. In accounting, the verbs "debit" and "credit" have the following meanings:

Debit

"Enter in the left column of"    Credit

"Enter in the right column of"

Thats all. Debit refers to the left column; credit refers to the right column. To debit the cash account simply means to enter the value in the left column of the cash account. There are no deeper meanings with which to be concerned.

 

The reason for the apparent inconsistency when comparing everyday language to accounting language is that from the bank customer's perspective, a checking account is an asset account. From the bank's perspective, the customer's account appears on the balance sheet as a liability account, and a liability account's balance is increased by crediting it. In common use, we use the terminology from the perspective of the bank's books, hence the apparent inconsistency.

 

Whether a debit or a credit increases or decreases an account balance depends on the type of account. Asset and expense accounts are increased on the debit side, and liability, equity, and revenue accounts are increased on the credit side. The following chart serves as a graphical reference for increasing and decreasing account balances:

Assets = Liabilities + Owner's Equity

 

Cash =  + Debit - Credit

A/P = - Debit + Credit

Retained Earnings = - Debit+Credit

Expense = + Debit - Credit

Revenue = - Debit +  Credit

 

 

The previous chapter showed how transactions caused financial statement amounts to change. “Before” and “after” examples were used to develop the illustrations. Imagine if a real business tried to keep up with its affairs this way! Perhaps a giant NYer board could be set up in the accounting department. As transactions occurred, they would be communicated to the department and the NYer board would be updated. Chaos would quickly rule. Even if the business could manage to figure out what its financial statements were supposed to contain, it probably could not systematically describe the transactions that produced those results. Obviously, a system is needed.

It is imperative that a business develop a reliable accounting system to capture and summarize its voluminous transaction data. The system must be sufficient to fuel the preparation of the financial statements, and be capable of maintaining retrievable documentation for each and every transaction. In other words, some transaction logging process must be in place.

In general terms, an accounting system is a system where transactions and events are reliably processed and summarized into useful financial statements and reports. Whether this system is manual or automated, the heart of the system will contain the basic processing tools: accounts, debits and credits, journals, and the general ledger. This chapter will provide insight into these tools and the general structure of a typical accounting system.

Accounts

The records that are kept for the individual asset, liability, equity, revenue, expense, and dividend components are known as accounts. In other words, a business would maintain an account for cash, another account for inventory, and so forth for every other financial statement element. All accounts, collectively, are said to comprise a firm’s general ledger. In a manual processing system, imagine the general ledger as nothing more than a notebook, with a separate page for every account. Thus, one could thumb through the notebook to see the “ins” and “outs” of every account, as well as existing balances. The following example reveals that cash has a balance of $63,000 as of January 12. By examining the account, one can see the various transactions that caused increases and decreases to the $50,000 beginning- of-month cash balance.

 

In many respects, this Cash account resembles the “register” one might keep for a wallet-style checkbook. A balance sheet on January 12 would include cash for the indicated amount (and, so forth for each of the other accounts comprising the entire financial statements). Notice that column headings for this illustrative Cash account included “increase” and “decrease” labels. In actuality, these labels would instead be “debit” and “credit.” The reason for this distinction will become apparent in the following discussion.

 

Debits and Credits

References to debits and credits are quite common. A business may indicate it is “crediting” an account. “Debit” cards may be used to buy goods. Debits and credits (abbreviated “dr” and “cr”) are unique accounting tools to describe the change in a particular account that is necessitated by a transaction. In other words, instead of saying that cash is “increased” or “decreased,” it is said that cash is “debited” or “credited.” This method is again traced to Pacioli, the Franciscan monk who is given credit for the development of our enduring accounting model. Why add this complexity — why not just use plus and minus like in the previous chapter? There is an ingenious answer to this question that will soon be discovered!

Understanding the answer to this question begins by taking note of two very important observations:

(1) every transaction can be described in debit/credit form

and

(2) for every transaction, debits = credits

 

The Fallacy of a “+/-” System

The second observation above would not be true for an increase/decrease system. For example, if services are provided to customers for cash, both cash and revenues would increase (a “+/+” outcome). On the other hand, paying an account payable causes a decrease in cash and a decrease in accounts payable (a “-/-” outcome). Finally, some transactions are a mixture of increase/decrease effects; using cash to buy land causes cash to decrease and land to increase (a “-/+” outcome). In the previous chapter, the “+/-” nomenclature was used for the various illustrations. Take time to review the comprehensive illustration that was provided in Chapter 1, and notice that various combinations of pluses and minuses were needed.

As one can tell by reviewing the illustration, the “+/-” system lacks internal consistency. Therefore, it is easy to get something wrong and be completely unaware that something has gone amiss. On the other hand, the debit/credit system has internal consistency. If one attempts to describe the effects of a transaction in debit/credit form, it will be readily apparent that something is wrong when debits do not equal credits. Even modern computerized systems will challenge or preclude any attempt to enter an “unbalanced” transaction that does not satisfy the condition of debits = credits.

The debit/credit rules are built upon an inherently logical structure. Nevertheless, many students will initially find them confusing, and somewhat frustrating. This is a bit similar to learning a new language. As such, memorization usually precedes comprehension. Take time now to memorize the “debit/credit” rules that are reflected in the following diagrams. Going forward, one needs to have instant recall of these rules, and memorization will allow the study of accounting to continue on a much smoother pathway. Full comprehension will follow in short order.

Assets/Expenses/Dividends

As shown at left, asset, expense and dividend accounts each follow the same set of debit/credit rules. Debits increase these accounts and credits decrease these accounts. These accounts normally carry a debit balance. To aid recall, rely on this mnemonic: D-E-A-D = debits increase expenses, assets, and dividends.

 

Liabilities/Revenues/Equity

Liability, revenue, and equity accounts each follow rules that are the opposite of those just described. Credits increase liabilities, revenues, and equity, while debits result in decreases. These accounts normally carry a credit balance.

 

Transaction Analysis

It is now apparent that transactions and events can be expressed in “debit/credit” terminology. In essence, accountants have their own unique shorthand to portray the financial statement consequence for every recordable event. This means that as transactions occur, it is necessary to perform an analysis to determine (a) what accounts are impacted and (b) how they are impacted (increased or decreased). Then, debits and credits are applied to the accounts, utilizing the rules set forth in the preceding paragraphs.

Source Documents

Usually, a recordable transaction will be evidenced by a source document. A disbursement will be supported by the issuance of a check. A sale might be supported by an invoice issued to a customer. A time report may support payroll costs. A tax statement may document the amount paid for taxes. A cash register tape may show cash sales. A bank deposit slip may show collections of customer receivables. Suffice it to say, there are many potential source documents, and this is just a small sample. Source documents usually serve as the trigger for initiating the recording of a transaction. The source documents are analyzed to determine the nature of a transaction and what accounts are impacted. Source documents should be retained (perhaps in electronic form) as an important part of the records supporting the various debits and credits that are entered into the accounting records. To illustrate, assume that Jill Aoki is an architect. Concurrent with delivering completed blueprints to one of her clients, she also prepared and presented an invoice for $2,500. The invoice is the source document evidencing the completed work for which payment is now due. Therefore, Accounts Receivable is to be increased (debited) and Revenues must be increased (credited). When her client pays, the resulting bank deposit receipt will provide evidence for an entry to debit Cash (increased) and credit Accounts Receivable (decreased).

A properly designed accounting system will have controls to make sure that all transactions are fully captured. It would not do for transactions to slip through the cracks and go unrecorded. There are many such safeguards that can be put in place, including use of prenumbered documents and regular reconciliations. For example, an individual might maintain a checkbook for recording cash disbursements. A monthly reconciliation should be performed to make sure that the checkbook accounting system has correctly reflected all disbursements. A business must engage in similar activities to make sure that all transactions and events are recorded correctly. Good controls are essential to business success. Much of the work performed by a professional accountant relates to the design, implementation, and evaluation of properly functioning control systems.

An Account’s Balance

The balance of a specific account can be determined by considering its beginning (of period) balance, and then netting or offsetting all of the additional debits and credits to that account during the period. Earlier, an illustration for a Cash account was presented. That illustration was developed before the introduction of debits and credits. However, accounts are maintained by using the debit/ credit system. The Cash account is repeated below, except that the increase/decrease columns have been replaced with the more traditional debit/credit column headings. A typical Cash account would look similar to this illustration:

Bear in mind that each of the debits and credits to Cash shown in the preceding illustration will have some offsetting effect on another account. For instance, the $10,000 debit on January 2 would be offset by a $10,000 credit to Accounts Receivable. The process by which this occurs will become clear in the following sections of this chapter.

 

A Common Misunderstanding About Credits

Many people wrongly assume that credits always reduce an account balance. However, a quick review of the debit/credit rules reveals that this is not true. Where does this notion come from? Probably because of the common phrase “we will credit your account.” This wording is often used when one returns goods purchased on credit. Carefully consider that the account (with the store) is on the store’s books as an asset account (specifically, an account receivable). Thus, the store is reducing its accounts receivable asset account (with a credit) when it agrees to credit the account. On the customer’s books one would debit (decrease) a payable account (liability).

On the other hand, some may assume that a credit always increases an account. This incorrect notion may originate with common banking terminology. Assume that Matthew made a deposit to his account at Monalo Bank. Monalo’s balance sheet would include an obligation (“liability”) to Matthew for the amount of money on deposit. This liability would be credited each time Matthew adds to his account. Thus, Matthew is told that his account is being “credited” when he makes a deposit.

 

Asset Accounts

Asset accounts are one of the three major classifications of balance sheet accounts:

  • Assets
  • Liabilities
  • Stockholders' equity (or owner's equity)

The ending balances in the balance sheet accounts will be carried forward to the next accounting year. Hence the balance sheet accounts are called permanent accounts or real accounts.

The asset accounts are usually listed first in the company's chart of accounts and in the general ledger. In the general ledger the asset accounts will normally have debit balances.

The balances in some of the asset accounts will be combined and presented as a single amount when the balance sheet is prepared. For example, if a company has ten checking accounts, the balances will be combined and the total amount will be reported on the balance sheet as the asset Cash.

Assets include the things or resources that a company owns, that were acquired in a transaction, and have a future value that can be measured. Assets also include some costs that are prepaid or deferred and will become expenses as the costs are used up over time.

Here are some examples of asset accounts:

  • Cash
  • Short-term Investments
  • Accounts Receivable
  • Allowance for Doubtful Accounts (a contra-asset account)
  • Accrued Revenues/Receivables
  • Prepaid Expenses
  • Inventory
  • Supplies
  • Long-term Investments
  • Land
  • Buildings
  • Equipment
  • Vehicles
  • Furniture and Fixtures
  • Accumulated Depreciation (a contra-asset account)

Descriptions of asset accounts

The following are brief descriptions of some common asset accounts.

Cash
Cash includes currency, coins, checking account balances, petty cash funds, and customers' checks that have not yet been deposited. A company is likely to have a separate general ledger account for each checking account, petty cash fund, etc. but will combine the amounts and will report the total as Cash (or Cash and Cash Equivalents) on the balance sheet.

Short-term Investments
Short-term or temporary investments may include certificates of deposit, bonds, notes, etc. that will mature in less than one year. It may also include investments in the common or preferred stock of another corporation if the stock can be easily sold on a stock exchange.

Accounts Receivable
Accounts receivable is a right to receive an amount as the result of delivering goods or services on credit. Under the accrual method of accounting, Accounts Receivable is debited at the time of a credit sale. Later, when the customer pays the amount owed, the company will credit Accounts Receivable (and will debit Cash).

Allowance for Doubtful Accounts
The Allowance for Doubtful Accounts is a contra-asset account since its balance is intended to be a credit balance (or a zero balance). When the balance in this account is combined with the balance in Accounts Receivable, the resulting amount is known as the net realizable value of the receivables. The Allowance for Doubtful Accounts is used under the allowance method of reporting bad debts expense.

Accrued Revenues/Receivables
Under the accrual method of accounting, revenues are to be reported when goods or services have been delivered even if a sales invoice has not been generated. This account will report the amounts that a company has a right to receive but the sales invoices have yet to be prepared or entered in Accounts Receivable.

Prepaid Expenses
These are future expenses that have already been paid. The amounts appear as assets until the costs have been used up or expire. A common example of a prepaid expense is the payment for vehicle insurance. To illustrate this, let's assume that on December 29, a new company pays $6,000 for the insurance covering its vehicles for the six-month period that will begin on January 1. As of December 31, the entire $6,000 will be a prepaid expense because none of the cost has expired. Since none of the cost expired in December, there is no insurance expense in December. The insurance expense will begin in January at a rate of $1,000 per month. This is depicted in the following charts which are available on Google search.

*The expense is the amount that is expiring during the month.
**The prepaid amounts are the unexpired amounts and should be the balance in the asset account Prepaid Expenses or Prepaid Insurance at the end of each of the months.

Inventory
Inventory is the cost of goods that have been purchased or manufactured and have not yet been sold.

Supplies
Supplies could be office supplies, manufacturing supplies, packaging supplies or other supplies that are on hand. The cost of the supplies that remain on hand is reported as an asset.

Long-term Investments
This account or asset category will be reported on the balance sheet immediately following current assets. It may include investments in the common stock, preferred stock, and bonds of another corporation. It also includes real estate being held for sale and also the money that is restricted for a long-term purpose such as a building project or the repurchase of bonds payable. The cash surrender value of a life insurance policy owned by a company is also reported under this asset heading.

Land
This account represents the property portion of the balance sheet heading "Property, plant and equipment." It reports the cost of land used in a business. Since land is assumed to last indefinitely, the cost of land is not depreciated.

Buildings
This account will report the cost of the building used in the business. The cost of buildings will be depreciated over their useful lives.

Equipment
This account reports the cost of the machinery and equipment used in the business. The cost of equipment will be depreciated over the equipment's useful life.

Vehicles
This account reports the cost of trucks, trailers, and automobiles used in the business. The cost of vehicles is to be depreciated over the vehicles' useful lives.

Furniture and Fixtures
This account reports the cost of desks, chairs, shelving, etc. that are used in the business. The cost of furniture and fixtures is to be depreciated over the useful lives.

Accumulated Depreciation
Accumulated Depreciation is known as a contra asset account because it has a credit balance instead of a debit balance that is typical for asset accounts. Whenever Depreciation Expense is debited for the periodic depreciation of the buildings, equipment, vehicles, etc. the account Accumulated Depreciation is credited. The credit balance in Accumulated Depreciation will continue to grow until an asset is sold or scrapped. However, the maximum amount of the credit balance is the cost of the asset(s).

 

Liability and Stockholders' Equity Accounts

Liability Accounts

A company's liability accounts appear in the chart of accounts, general ledger, and balance sheet immediately following the asset accounts. In the general ledger, the liability accounts will usually have credit balances.

Note: Liabilities are a company's obligations. They are the amounts that the company owes. Liabilities also include amounts received from customers in advance of being earned.

Here are some examples of liability accounts:

  • Short-term Loans Payable
  • Current Portion of Long-term Debt
  • Accounts Payable
  • Accrued Expenses
  • Unearned or Deferred Revenues
  • Installment Loans Payable
  • Mortgage Loans Payable

Descriptions of liability accounts

The following are brief descriptions of some common liability accounts.

Short-term Loans Payable
This account will report the amount of loans which will be due within one year of the date of the balance sheet.

Current Portion of Long-term Debt
This account or line description reports the principal portion of a long-term debt that will have to be paid within one year of the date of the balance sheet. (The portion of the debt that is not due within one year is reported as a noncurrent liability.)

Accounts Payable
Accounts Payable is the account containing the amounts owed to suppliers for invoices that have been approved and entered for payment. The balance in this account reports the amount of those invoices which are unpaid.

Accrued Expenses/Liabilities
Under the accrual method, the amounts in this account are owed but have not yet been recorded in Accounts Payable. This account could include the vendor invoices awaiting processing, employee wages and benefits earned but not yet recorded, and other expenses incurred but not yet recorded.

Unearned or Deferred Revenues
Unearned revenues reports the amounts received in advance of having been earned. For example, if a law firm requires that a client pay $4,000 in advance for future legal work, the law firm will record the cash of $4,000 and also the liability to deliver $4,000 of legal services. The law firm cannot report the $4,000 as revenue until it is earned. This liability account could have the title Unearned Revenues or Deferred Legal Fees. As the legal services are performed and therefore are earned, the law firm will reduce the liability account and will report the amount as revenues.

Installment Loans Payable
Installment loans are loans that require a series of payments. A common example is a three-year automobile loan that requires monthly payments. The principal due within one year of the balance sheet date will be reported as a current liability and the remainder of the principal owed will be reported as a noncurrent liability. (The future interest is not recorded as a liability, since it is not due or payable as of the date of the balance sheet.)

Mortgage Loans Payable
Mortgage loans are usually long-term loans with real estate pledged as collateral. The principal due within one year of the balance sheet will be reported as a current liability and the remainder of the principal owed is reported as a noncurrent liability. (The future interest is not recorded as a liability, since it is not due or payable as of the date of the balance sheet.)

 

Stockholders' Equity Accounts

The stockholders' equity accounts of a corporation will appear in the chart of accounts, general ledger, and balance sheet immediately following the liability accounts. In the general ledger most of the stockholders' equity accounts will have credit balances. The following are brief descriptions of typical stockholders' equity accounts.

Paid-in Capital
Paid-in capital is a subheading within stockholders' equity which indicates the amount paid to the corporation at the time that shares of stock were issued. Paid-in capital is also referred to as permanent capital. Every corporation will have common stock and a small percentage of corporations will have preferred stock in addition to common stock.

The paid-in capital accounts report the amounts received when the corporation's stock was issued. Often there are two accounts for the common stock:

  • Par value of the common stock, and
  • Paid-in capital in excess of the par value of the common stock

If a corporation also issued preferred stock, there will also be two additional accounts.

Common Stock
If a corporation's common stock has a par value or a stated value, only the par or stated value of the shares issued will be recorded in this account. However, if a corporation's common stock has neither a par value nor a stated value, the entire amount received by the corporation at the time that the shares were issued will be recorded in this account.

Paid-in Capital in Excess of Par Value - Common Stock
When a corporation issues common stock, the amount received minus the par value or stated value is recorded in this account. (The par value of common stock is recorded in the account Common Stock.)

Retained Earnings
Generally, the amount of a corporation's retained earnings is the cumulative amount of earnings (net income) since the corporation was formed minus the cumulative amount of dividends that have been declared since the corporation was formed.

The current accounting period's earnings (or net income) will be added to this account and the current period's dividends will be deducted.

Note: Revenues will cause retained earnings to increase, while expenses will cause retained earnings to decrease.

Retained earnings is a component of stockholders' equity, but it is separate from paid-in capital. Hence, the amounts reported under retained earnings are not considered to be permanent capital.

Income Statement Accounts

The income statement accounts are categorized in a variety of ways. Here are the classifications we will be using:

  • Operating revenues
  • Operating expenses
  • Other revenues and gains
  • Other expenses and losses

The amounts in these accounts at the end of an accounting year will not be carried forward to the subsequent year. Rather, the balances in the income statement accounts will be transferred to Retained Earnings (for a corporation) or to the owner's capital account (for a sole proprietorship). This will allow for all of the income statement accounts to begin each accounting year with zero balances. This explains why the income statement accounts are referred to as temporary accounts.

Operating Revenues

Operating revenues are the amounts earned from carrying out the company's main activities. For example, the sales of merchandise are a retailer's operating revenues.

A few examples of accounts for recording operating revenues include:

  • Sales
  • Sales Revenues
  • Service Revenues
  • Fees Earned
  • Sales - Product Line #1
  • Sales - Product Line #2

The revenue accounts are expected to have credit balances (since revenues cause the stockholders' or owner's equity to increase). Contra revenue accounts such as Sales Returns and Allowances and Sales Discounts will have debit balances.

Under the accrual method of accounting, revenues are reported as of the date the goods are sold or the services have been performed. If a service is provided on December 27, but the customer is allowed to pay in February, the revenues are reported on the income statement that includes December 27.

At the end of the accounting year, the balance in each of the accounts for recording operating revenues will be closed in order to start the next accounting year with a zero balance.

Operating Expenses

Operating expenses are the expenses incurred in earning operating revenues. For example, advertising expense is one of the operating expenses of a retailer.

A few of the many accounts used to record operating expenses include:

  • Cost of Goods Sold
  • Cost of Goods Sold - Product Line #1
  • Salaries Expense
  • Fringe Benefit Expense
  • Rent Expense
  • Utilities Expense
  • Utilities Expense - Store #45
  • Depreciation Expense - Buildings
  • Depreciation Expense - Equipment
  • Repairs Expense

The accounts for operating expenses should have debit balances.

Under the accrual method of accounting, the expenses should be reported in the same accounting period as the related revenues. If that is not certain, then an expense should be reported in the accounting period in which its cost expires or is used up.

Expenses are often organized by function such as manufacturing, selling, and general administrative. At other times expenses will be organized by responsibility such as Department #1, Sales Region #5, Warehouse #2, Legal Department, etc.

At the end of the accounting year, the balance in each of the accounts used for recording operating expenses will be closed in order to start the next accounting year with a zero balance.

Non-Operating Revenues and Gains

Revenues earned outside of a company's main business activities are referred to as non-operating revenues or as other revenues. For example, the interest earned by a retailer on its idle cash balances is part of non-operating or other revenues.

Gains often occur when a company sells an asset that was used in the business, and the cash received was greater than the asset's carrying amount on the company's books. For example, if a company car is sold for $10,000 and its book value is $9,000, there will be a gain of $1,000.

The accounts that report non-operating revenues, other revenues, and gains are expected to have credit balances since they cause stockholders' equity to increase.

Non-Operating Expenses and Losses

The expenses incurred in order to earn non-operating revenues are reported as non-operating expenses or other expenses. In addition, interest expense for a retailer is a non-operating expense or other expense. (On the other hand, the interest expense paid by a bank for the use of depositors' money is one of the bank's operating expenses.)

Losses are reported when a company disposes of a long-term asset for the cash, and the amount of cash received is less than the book value of the asset. For example, if a company car is sold for $7,500 and its book value is $9,000, a loss of $1,500 will be reported. Another example of a loss is the loss from a lawsuit.

The accounts for non-operating expenses and losses will have debit balances since they cause stockholders' equity to decrease.

Recording Transactions

With sophisticated accounting software and inexpensive computers, it is no longer practical for most businesses to manually enter transactions into journals and then to post to the general ledger accounts and subsidiary ledger accounts. Today, software such as QuickBooks* will update the relevant accounts and provide more information with a minimum of data entry.

*QuickBooks is a registered tradeNY of Intuit Inc. AccountingCoach LLC is not affiliated with Intuit Inc. and does not receive any affiliate NYeting commissions from Intuit.

In this section we will highlight how the accounting software will capture financial transactions and then automatically update the general ledger and store the information for management's future use.

Accounts payable
When accounting software is used to enter the invoices received from suppliers (vendor invoices), the software will update Accounts Payable and will require that the account or accounts that should be debited be entered as well. The accounting software's vendor files also allow a company to prepare purchase orders, receiving tickets and to pay the vendors' invoices.

A company should have internal controls so that only legitimate invoices are recorded and paid.

Check writing
When the accounting software is used to write checks, the software will automatically credit the Cash account and will require that another account be designated for the debit. An additional benefit is that the amounts will move electronically and the account balances will be automatically calculated with speed and accuracy.

Again, a company should have internal controls to ensure that only legitimate payments are processed.

Sales on credit
When the accounting software is used to prepare a sales invoice for a customer who purchased on credit, the customer's detail will be updated, the general ledger account Sales will be credited and the general ledger account Accounts Receivable will be debited. Statements for each customer and an aging of all of the accounts receivable can be printed with the click of a button.

Payroll
Another source of financial transactions is the company's payroll. While many companies process payroll on their accounting software, others opt to outsource payroll to companies such as ADP, Paychex, Intuit, or local firms.

(AccountingCoach is not affiliated with any of these companies and it does not receive affiliate NYeting commissions from any of them.)

To learn more about payroll use any of the following links:

  • Explanation
  • Quiz
  • Questions and Answers (Q&A)
  • Crossword Puzzles

Bank Reconciliation

The purpose of the bank reconciliation is to be certain that the financial statements are reporting the correct amount of cash and the proper amounts for any related accounts (since every transaction affects a minimum of two accounts).

The bank reconciliation process involves:

  1. Comparing the following amounts
    • The balance on the bank statement
    • The balance in the company's general ledger account. (The account title might be Cash - checking.)
  2. Determining the reasons for the difference in the amounts shown in 1.

 

The common reasons for a difference between the bank balance and the the general ledger book balance are:

  • Outstanding checks (checks written but not yet clearing the bank)
  • Deposits in transit (company receipts that are not yet deposited in the bank)
  • Bank service charges and other bank fees
  • Check printing charges
  • Errors in entering amounts in the company's general ledger

The outstanding checks and deposits in transit do not involve errors by either the company or the bank. Since these items are already recorded in the company's accounts, no additional entries to the company's general ledger accounts will be needed.

Bank charges, check printing fees and errors in the company's accounts do require the company to make accounting entries. The company should make the entries before the financial statements are prepared since a minimum of two accounts have the incorrect balances (due to double-entry accounting). Here is an entry for a bank service charge that was listed on the bank statement:

Bank fees expense 36 USD

           CASH – CHECKING ACCOUNT 36 USD

 

If the reconciliation reveals that an incorrect amount has been recorded in the company's Cash account, perhaps the easiest way to correct the error is to remove the incorrect amount and then enter the correct amount.

Accounting software is likely to include a feature for reconciling the bank statement.

Adjusting Entries

Why adjusting entries are needed

In order for a company's financial statements to be complete and to reflect the accrual method of accounting, adjusting entries must be processed before the financial statements are issued. Here are three situations that describe why adjusting entries are needed:

Situation 1
Not all of a company's financial transactions that pertain to an accounting period will have been processed by the accounting software as of the end of the accounting period. For example, the bill for the electricity used during December might not arrive until January 10. (The reason for the 10-day lag is that the electric utility reads the meters on January 1 in order to compute the electricity actually used in December. Next the utility has to prepare the bill and mail it to the company.)

Situation 2
Sometimes a bill is processed during the accounting period, but the amount represents the expense for one or more future accounting periods. For example, the bill for the insurance on the company's vehicles might be $6,000 and covers the six-month period of January 1 through June 30. If the company is required to pay the $6,000 in advance at the end of December, the expense needs to be deferred so that $1,000 will appear on each of the monthly income statements for January through June.

Situation 3
Something similar to Situation 2 occurs when a company purchases equipment to be used in the business. Let's assume that the equipment is acquired, paid for, and put into service on May 1. However, the equipment is expected to be used for ten years. If the cost of the equipment is $120,000 and will have no salvage value, then each month's income statement needs to report $1,000 for 120 months in order to report depreciation expense under the straight-line method.

These three situations illustrate why adjusting entries need to be entered in the accounting software in order to have accurate financial statements. Unfortunately the accounting software cannot compute the amounts needed for the adjusting entries. A bookkeeper or accountant must review the situations and then determine the amounts needed in each adjusting entry.

Steps for Recording Adjusting Entries

Some of the necessary steps for recording adjusting entries are

  • You must identify the two or more accounts involved
    • One of the accounts will be a balance sheet account
    • The other account will be an income statement account
  • You must calculate the amounts for the adjusting entries
  • You will enter both of the accounts and the adjustment in the general journal
  • You must designate which account will be debited and which will be credited.

Types of Adjusting Entries

We will sort the adjusting entries into five categories.

 

Types of Adjusting Journal Entries

Accrual accounting requires a business to record revenues and expenses in the period in which they are earned or incurred, regardless of when payment occurs. When payment occurs on a date that is different from the date on which a company actually earns or incurs a revenue or expense, the company creates an adjusting journal entry to record the revenue or expense in the appropriate period. There are four types of adjusting journal entries used in a small business.

Accrued Revenues

Accrued revenue occurs when you make a sale and collect payment at a later date. An adjusting entry to record accrued revenue increases the revenue account and the accounts receivable account by the amount of the sale. Accounts receivable shows the amount customers owe you. For example, assume your small business sold a $100 product in the current period and will collect payment in the next period. You create an adjusting journal entry in the current period that adds $100 to your revenue account and adds $100 to accounts receivable.

Accrued revenues
Under the accrual method of accounting, a business is to report all of the revenues (and related receivables) that it has earned during an accounting period. A business may have earned fees from having provided services to clients, but the accounting records do not yet contain the revenues or the receivables. If that is the case, an accrual-type adjusting entry must be made in order for the financial statements to report the revenues and the related receivables.

If a business has earned $5,000 of revenues, but they are not recorded as of the end of the accounting period, the accrual-type adjusting entry will be as follows:

 

Accrued Expenses

An accrued expense is one that you incur but have not yet paid. An adjusting entry to record an accrued expense increases the expense account that corresponds to the expense incurred and increases the appropriate payable account. A payable account shows the amount you owe other parties. For example, if your small business accrues a $5,000 expense for salaries in the current period and will pay your employees in the next period. You add $5,000 to the salaries expense account and to the salaries payable account in an adjusting journal entry.

Accrued expenses
Under the accrual method of accounting, the financial statements of a business must report all of the expenses (and related payables) that it has incurred during an accounting period. For example, a business needs to report an expense that has occurred even if a supplier's invoice has not yet been received.

To illustrate, let's assume that a company utilized a worker from a temporary personnel agency on December 27. The company expects to receive an invoice on January 2 and remit payment on January 9. Since the expense and the payable occurred in December, the company needs to accrue the expense and liability as of December 31 with the following adjusting entry:

 

Deferred Revenues

Deferred, or unearned, revenue occurs when you receive cash up front for services you will provide in the future. As you provide the services to earn the revenue, you create an adjusting entry that increases the revenue account and reduces the unearned revenue account by the amount earned. For example, assume your small business collected $100 at the beginning of the month to provide a monthly service. At the end of the month, you create an adjusting entry that adds $100 to the revenue account and reduces unearned revenue by $100.

Deferred revenues
Under the accrual method of accounting, the amounts received in advance of being earned must be deferred to a liability account until they are earned.

Let's assume that Servco Company receives $4,000 on December 10 for services it will provide at a later date. Prior to issuing its December financial statements, Servco must determine how much of the $4,000 has been earned as of December 31. The reason is that only the amount that has been earned can be included in December's revenues. The amount that is not earned as of December 31 must be reported as a liability on the December 31 balance sheet.

If $3,000 has been earned, the Service Revenues account must include $3,000. The remaining $1,000 that has not been earned will be deferred to the following accounting period. The deferral will be evidenced by a credit of $1,000 in a liability account such as Deferred Revenues or Unearned Revenues.

The adjusting entry for this deferral depends on how the receipt of $4,000 was recorded on December 10. If the receipt of $4,000 was recorded with a credit to Service Revenues (and a debit to Cash), the December 31 adjusting entry will be:

 

Deferred Expenses

A deferred, or prepaid, expense is one for which you paid cash up front at an earlier date but which you have not yet incurred. As you incur the expense, you create an adjusting entry that increases the appropriate expense account and reduces the prepaid expense account. For example, if your small business prepaid $1,000 for rent at the beginning of the month. You create an adjusting entry at the end of the month that adds $1,000 to the rent expense account and reduces the prepaid rent account by $1,000.

. Deferred expenses
Under the accrual method of accounting, any payments for future expenses must be deferred to an asset account until the expenses are used up or have expired.

To illustrate, let's assume that a new company pays $6,000 on December 27 for the insurance on its vehicles for the six-month period beginning January 1. For December 27 through 31, the company should have an asset Prepaid Insurance or Prepaid Expenses of $6,000.

In each of the months January through June, the company must reduce the asset account by recording the following adjusting entry:

Depreciation expense
Depreciation is associated with fixed assets (or plant assets) that are used in the business. Examples of fixed assets are buildings, machinery, equipment, vehicles, furniture, and other constructed assets used in a business and having a useful life of more than one year. (However, land is not depreciated.)

Depreciation allocates the asset's cost (minus any expected salvage value) to expense in the accounting periods in which the asset is used. Hence, office equipment with a useful life of 5 years and no salvage value will mean monthly depreciation expense of 1/60 of the equipment's cost. A building with a useful life of 25 years and no salvage value will result in a monthly depreciation expense of 1/300 of the building's cost.

Reversing Entries

The first two categories of adjusting entries that we had discussed above were:

  1. Accrued revenues
  2. Accrued expenses

These categories are also referred to as accrual-type adjusting entries or simply accruals. Accrual-type adjusting entries are needed because some transactions had occurred but the company had not entered them into the accounts as of the end of the accounting period. In order for a company's financial statements to include these transactions, accrual-type adjusting entries are needed.

In all likelihood, an actual transaction (that required an accrual-type adjusting entry) will get routinely processed and recorded in the next accounting period. This presents a potential problem in that the transaction could get entered into the accounting records twice: once through the adjusting entry and also when it is routinely processed in the subsequent accounting period. The purpose of reversing entries is to remove the accrual-type adjusting entries.

Reversing entries will be dated as of the first day of the accounting period immediately following the period of the accrual-type adjusting entries. In other words, for a company with accounting periods which are calendar months, an accrual-type adjusting entry dated December 31 will be reversed on January 2.

To illustrate, let's assume that the company had accrued repairs expenses with the following adjusting entry on December 31:

Repair Expense = 5000

Accrued Liabilities = 5000

This accrual-type adjusting entry was needed so that the December repairs would be reported as 1) part of the expenses on the December income statement, and 2) a liability on the December 31 balance sheet.

On January 2, the following reversing entry is recorded in order to remove the accrual-type adjusting entry of December 31:

Accrued Liabilities = 5000

Repair Expense = 5000

The reversing entry removes the liability established on December 31 and also puts a credit balance in the Repairs Expense account on January 2. When the vendor's invoice is processed in January, it can be debited to Repairs Expenses (as would normally happen). If the vendor's invoice is $6,000 the balance in the account Repairs Expenses will show a $0 balance after the invoice is entered. (The $6,000 credit from the reversing entry on January 2, plus the $6,000 debit from the vendor's invoice equals $0.) Zero is the correct amount because the expense of $6,000 belonged in December and was reported in December as the result of the December 31 adjusting entry.

Some accounting software will allow you to indicate the adjusting entries you would like to have reversed automatically in the next accounting period.

Balance Sheet

The balance sheet is one of the four main financial statements of a business:

  • Balance Sheet
  • Income Statement
  • Cash Flow Statement
  • Statement of Stockholders' Equity

The balance sheet reports a company's assets, liabilities, and stockholders' equity as of a moment in time. (The other three financial statements report amounts for a period of time such as a year, quarter, month, etc.) The balance sheet is also known as the statement of financial position and it reflects the accounting equation:

Assets = Liabilities + Stockholders' Equity.

Bankers will look at the balance sheet to determine the amount of a company's working capital, which is the amount of current assets minus the amount of current liabilities. They will also review the assets and the liabilities and compare these amounts to the amount of stockholders' equity.

When a balance sheet reports at least one additional column of amounts from an earlier balance sheet date, it is referred to as a comparative balance sheet.

Balance Sheet Classifications

Typically, companies issue a classified balance sheet. This means that the amounts are presented according to the following classifications:

Descriptions of the balance sheet classifications

The following are brief descriptions of the classifications usually found on a company's balance sheet.

Current assets
Generally, current assets include cash and other assets that are expected to turn to cash within one year of the date of the balance sheet. Examples of current assets are cash and cash equivalents, short-term investments, accounts receivable, inventory and prepaid expenses.

Investments
This classification is the first of the noncurrent or long-term assets. Included are long-term investments in other companies, the cash surrender value of life insurance, bond sinking funds, real estate held for sale, and cash that is restricted for construction of plant and equipment.

Property, plant and equipment
This category of noncurrent assets includes the cost of land, buildings, machinery, equipment, furniture, fixtures, and vehicles used in the operations of a business. Except for land, these assets will be depreciated over their useful lives.

Intangible assets
Intangible assets include goodwill, tradeNYs, patents, copyrights and other non-physical assets that were acquired at a cost. The amount reported is their cost to acquire minus any amortization or write-down due to impairment. Valuable tradeNYs and logos that were developed by a company through years of advertising are not reported because they were not purchased from another person or company.

Other assets
This category often includes costs that have been paid but are being expensed over a period greater than one year. Examples include bond issue costs and certain deferred income taxes.

Current liabilities
Current liabilities are obligations of a company that are payable within one year of the date of the balance sheet (and will require the use of a current asset or will be replaced with another current liability).

Current liabilities include loans payable that will be due within one year of the balance sheet date, the current portion of long-term debt, accounts payable, income taxes payable and liabilities for accrued expenses.

Noncurrent liabilities
These are also referred to as long-term liabilities. In other words, these obligations will not be due within one year of the balance sheet date. Examples include portions of automobile loans, portions of mortgage loans, bonds payable, and deferred income taxes.

Stockholders' equity
This section of the balance sheet consists of the following major sections:

  • Paid-in capital (the amounts paid by investors when the original shares of a corporation were issued)
  • Retained earnings (the earnings of the corporation since it began minus the amounts that were distributed in the form of dividends to the stockholders)
  • Treasury stock (a subtraction that represents the amount paid to repurchase the corporation's own stock)

Additional information on the balance sheet

To learn more about the balance sheet use any of the following links:

  • Explanation
  • Quiz
  • Questions and Answers (Q&A)
  • Crossword Puzzles

Income Statement

The income statement is also known as the statement of operations, the profit and loss statement, or P&L. It presents a company's revenues, expenses, gains, losses and net income for a specified period of time such as a year, quarter, month, 13 weeks, etc.

Income Statement Formats

There are two formats for presenting a company's income statement:

  • Multiple-step
  • Single-step

The difference in formats has to do with the number of subtractions and subtotals that appear on the income statement before getting to the company's bottom line net income.

Multiple-step income statement
Note that in the following multi-step income statement, there are three subtractions:

  1. The first subtraction results in the subtotal gross profit.
  2. The second subtraction results in the subtotal operating income.
  3. The third subtraction provides the bottom line net income.

Single-step income statement
In the single-step format, the income statement will have only one subtraction—all of the expenses (both operating and non-operating) are subtracted from all of the revenues (both operating and non-operating). In this format, there is no subtotal for gross profit or operating income. The bottom line, net income, results from a single subtraction (a single step) as shown here:

Balance Sheet and Income Statement are Linked

As we had discussed earlier, revenues cause stockholders' equity to increase while expenses cause stockholders' equity to decrease. Therefore, a positive net income reported on the income statement (which is the result of revenues being greater than expenses) will cause stockholders' equity to increase. A negative net income will cause stockholders' equity to decrease.

The income statement accounts are temporary accounts because their balances will be closed at the end of each accounting year to the stockholders' equity account Retained Earnings. (The balances in a sole proprietorship's income statement accounts will be closed to the owner's capital account.)

The link between the balance sheet and income statement is helpful for bookkeepers and accountants who want some assurance that the amount of net income appearing on the income statement is correct. If you verify the ending balances in the relatively few balance sheet accounts, you can have confidence that the income statement has the proper net income. Hence, you are wise to establish a routine to verify all of the balance sheet amounts.

Note: This technique does not guarantee that the details within the income statement are perfect.

Here is our suggestion for reviewing the balance sheet amounts.

Additional review

Another review that should be done routinely is to compare each item on the income statement to the same item on an earlier income statement. For example, the amounts for the 5-month period of the current year should be compared to the 5-month period of the previous year. If budgets are prepared, also compare this year's 5-month period to the budgeted amounts for the 5-month period.

The same holds for the balance sheet: compare the recent amounts to the amounts on the balance sheets from a year earlier and from a month earlier.

Cash Flow Statement

While the balance sheet and the income statement are the most frequently referenced financial statements, the statement of cash flows or cash flow statement is a very important financial statement.

The cash flow statement is important because the income statement and balance sheet are normally prepared using the accrual method of accounting. Hence the revenues reported on the income statement were earned but the company may not have received the money from its customers. (Many times companies allow customers to pay in 30 days or 60 days and often customers pay later than the agreed upon terms.) Similarly the expenses that are reported on the income statement have occurred, but the company may not have paid for the expense in the same period. In order to understand how cash has changed, and because many believe that "cash is king" the cash flow statement should be distributed and read at the same time as the income statement and balance sheet.

Format of the Cash Flow Statement

Within the cash flow statement, the cash receipts or cash inflows are reported as positive amounts. The cash paid out or cash outflows are reported as negative amounts.

The following table provides various ways for you to think of the positive and negative amounts that are shown on the cash flow statement:

The net total of all of the positive and negative amounts reported on the cash flow statement should equal the change in the amount of the company's cash and cash equivalents. (The company's cash and cash equivalents are reported on its balance sheets.)

The cash inflows and cash outflows which explain the change in a company's cash and cash equivalents are reported in three main sections of the cash flow statement:

  1. Operating activities
  2. Investing activities
  3. Financing activities

In addition to the three main sections, the cash flow statement requires the following disclosures:

  • the amount of interest paid
  • the amount of income taxes paid
  • exchanges of major items that did not involve cash (such as exchanging land for common stock, converting bonds into common stock, etc.).
  1. Operating activities
    The cash flows reported in the operating activities section of the cash flow statement can be presented using one of two methods:
  • Direct method
  • Indirect method

The direct method is recommended by the FASB. However, a survey of 500 annual reports of large U.S. corporations revealed that only about 1% had used the recommended direct method. Nearly all of the U.S. corporations in the survey used the indirect method. Hence, we will limit our discussion to the indirect method.

Indirect method, Cash Flows from Operating Activities
When the indirect method is used, the first section of the cash flow statement, Cash Flows from Operating Activities, begins with the company's net income (which is the bottom line of the income statement). Since the net income was computed using the accrual method of accounting, it needs to be adjusted in order to reflect the cash received and paid.

The very first adjustment involves depreciation. The amount of Depreciation Expense reported on the income statement had reduced the company's net income, but the depreciation entry did not involve cash. (The journal entry for the current period's depreciation was a debit to Depreciation Expense and a credit to Accumulated Depreciation. Cash was not used.) Since the depreciation expense reduced net income, but did not use any cash, the amount of depreciation expense is added back to the net income amount.

Net income $19000

Add back – depreciation expense $ 9000

So far, the Cash Flows from Operating Activities is $28,000

Any amortization or depletion expense is also added back.

Next, the operating activities will adjust the net income to reflect the changes in the amounts of current assets and current liabilities during the accounting period. For example, if accounts receivable increased from $9,500 to $9,800 during the period, we conclude that the company did not collect cash for all of the sales revenues shown on the income statement. Not collecting all of the sales amounts (or seeing accounts receivable increase) is viewed as negative for the company's cash. Hence the $300 increase in accounts receivable is shown as a negative adjustment of $300:

So far, the Cash Flows from Operating Activities is $27,700

If accounts payable increased from $3,100 to $3,350 during the period, that indicates that the company did not pay all of its expenses. Not paying the bills is good for the company's cash. Hence, the $250 increase in accounts payable will be shown as a positive amount:

So far, the Cash Flows from Operating Activities is $27,950

The changes in the current asset and the current liability accounts are reported as adjustments to the company's net income in the operating activities section—except that the change in short-term notes payable will be reported in the financing activities section.

  1. Investing activities
    The purchasing and selling of long-term assets are reported in the second section of the cash flow statement, investing activities.

The cash flows that involve long-term assets include:

  • The cash received from selling long-term assets. These are reported as positive amounts.
  • The cash used to purchase long-term assets. These are reported as negative amounts.
  1. Financing activities
    The changes in the noncurrent liabilities, stockholders' (or owner's) equity, and short-term loans are reported in the financing activities section of the cash flow statement.

The positive amounts in the financing activities section could indicate that cash was received from:

  • Issuing bonds payable
  • Borrowing through other long-term loans
  • Issuing shares of stock
  • Borrowing through short-term loans

The negative amounts indicate that cash was used for:

  • Retiring (paying off) long-term debt
  • Purchasing shares of the company's stock (treasury stock)
  • Paying dividends to stockholders
  • Repaying short-term loans

Other
At the bottom of the cash flow statement, the net totals of the three sections are reconciled with the change in the cash and cash equivalents that are reported on the company's balance sheet.

The reporting requirements for the cash flow statement also include disclosing the amounts paid for interest and income taxes and significant noncash investing and financing activities. (Two examples of noncash investing and financing activities are converting bonds to common stock and exchanging bonds payable for land.)

Statement of Stockholders' Equity

The fourth financial statement is the statement of stockholders' equity. This statement lists the changes to the stockholders' equity section of the balance sheet during the current accounting period. A comparative statement of stockholders' equity will also report the amounts for the previous period.

To see examples of the statement of stockholders' equity we recommend that you identify a few U.S. corporations with stock that is publicly traded. On each corporation's website, select Investor Relations and then select each corporation's Form 10-K (the annual report to the Securities and Exchange Commission). Go to the section of the 10-K which presents the corporation's financial statements and view the statement of stockholders' equity.

Closing Cut-Off

At a minimum of once per year, companies must prepare financial statements. In addition companies often prepare quarterly and monthly financial statements which are referred to as interim financial statements.

For any of the financial statements to be accurate it is necessary to have a proper cut-off. This means including all of a company's business transactions in the proper accounting period. For example, the electricity bill arriving on January 10 might be the cost of the electricity that was actually used in December. (The time lag resulted from the utility company reading the electric meters and preparing and mailing the bill.) Hence under the accrual method of accounting, the bill received on January 10 needs to be included in December's expenses and must also be reported by the company as a liability as of December 31. Similarly, the hourly payroll processed during the first few days in January and paid on January 6 is likely to include the cost of employees working during the last few days in December. The cost of the hours worked through December 31 must be included in the company's December expenses and in the liabilities as of December 31.

As you read the previous paragraph, you may have been reminded of our discussion of adjusting entries. That's because the adjusting entries are part of each period's closing process. The adjusting entries are prepared in order to report a company's revenues and expenses in the proper accounting period.

The closing process

To achieve a proper cut-off and to distribute the financial statements in a timely manner, it is helpful to have a timeline (or PERT chart) that indicates the necessary steps in the closing process. The timeline will indicate what needs to be done and the sequence in which things need to occur. It will also reveal what is preventing the financial statements from being distributed sooner.

In addition, a checklist of the closing tasks should be prepared and distributed to the appropriate employees as to what is required, who is responsible, and the day it is due.

If some journal entries must be written every month, it is helpful to assign journal entry numbers to these standard journal entries or recurring journal entries. For example, a company may designate JE33 (Journal Entry #33) to be the recurring accrual of expenses that have occurred but have not yet been recorded in Accounts Payable as of the end of a month. Perhaps the timeline/checklist will indicate that JE33 must be submitted by the accounts payable clerk six days after each month ends. The company may also have its computer automatically prepare JE34 which is the entry that automatically reverses the previous month's accrual entry JE33.

Some recurring journal entries will have the same amount each month. For example, a company's JE10 might be $10,800 every month of the year for the company's depreciation expense. (Some companies will refer to the entries that have the same amounts and accounts every month as standard entries.)

Another recurring entry may involve the same accounts each month, but the amounts will vary from month to month. For example, a company's JE03 might be the recurring monthly entry for bad debts expense. The company has determined in advance that the amount of JE03 will be 0.002 of the company's monthly credit sales. Since the amount of sales is different every month, the amounts on JE03 will be different each month.

Having entry numbers and standard entries should help to make the monthly closings more routine and efficient.

Importance of Controls

The use of accounting software has eliminated some of the tedious tasks previously associated with bookkeeping. This could result in fewer people involved in the bookkeeping, accounting and administrative tasks. A side effect of fewer people handling more tasks is the potential for concealing some dishonest activity. For example, if the person who processes the cash receipts is also the person that records the amounts in customers' accounts, stealing some cash will be easier than if the tasks were separated. Having a third person mailing statements to customers with instructions to report any discrepancies to a fourth person will further safeguard the company's assets.

Accountants refer to the practices and policies for safeguarding assets as internal controls. Very large corporations may have a staff of internal auditors that ensure there are controls in place (including the separation of duties) so that fraud and misappropriation will not occur. Small companies or organizations with a small staff are therefore at a disadvantage. Nonetheless owners and managers of even the smallest companies and organizations must be aware of the need for internal controls. Here is a partial list of some internal controls that smaller organizations can implement:

  • Separate the handling of cash from the person processing accounts receivable.
  • Have the bank statement reconciled by someone who does not process the receipts or record the amounts in the general ledger cash account.
  • Have the owner of a small company approve all purchase orders.
  • Have the owner of a small company review all payments and sign all checks.
  • Have all credit memos to customers be approved by the owner.

We are not experts in internal controls, but we realize their importance. We strongly recommend that you seek assistance from your professional accountant regarding internal controls that are appropriate for your business or organization.

Please Note...

You should consider our materials to be an introduction to selected accounting and bookkeeping topics, and realize that some complexities (including differences between financial statement reporting and income tax reporting) are not presented. Therefore, always consult with accounting and tax professionals for assistance with your specific circumstances.

 

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