The process of ensuring that the beginning balance plus the sum of all entries on an account statement equals the ending balance. After deposits, interest received, and credits are added and automatic withdrawals, outstanding checks, negotiated checks, and account charges are subtracted, if the resulting balance equals the ending balance on the statement, the account is reconciled.
Obligations to pay for goods or services that have been acquired on open accounts from suppliers. A current liability in the Balance Sheet, often referred to as "payables".
Amounts due the company on account from customers who have bought merchandise or received services. Accounts Receivable is a current asset in the Balance Sheet.
The method of keeping accounts, which shows all expenses incurred and income earned for a given period of time, even though such expenses and income may not actually have been paid or received in cash during the same period of time.
A person authorized by another to act on their behalf. Thus, an agent can enter into contracts and other such legal binding functions on behalf of another. Usually, the corporation's officers act as corporate agents.
A way of measuring the consumption of the value of long-term assets such as equipment or buildings. This process gradually eliminates a debt, loan, or mortgage over a period of time. It can also be used to deduct capital expenses over a period of time.
Nearly all states require a corporation to hold an annual meeting of shareholders at which time directors are elected and other corporate issues are voted on.
A yearly statement that describes company management, operations, and financial information. The Securities and Exchange Commission (SEC) requires all corporations issuing registered stock to publish annual reports, which are sent to shareholders and also made available for public review.
The articles are the primary legal document of a corporation; they serve as a corporation's constitution. The articles are filed with the state government to begin corporate existence. The articles contain basic information on the corporation as required by state law.
LLCs must file the articles with the proper state authorities to begin existence. The articles of organization are very similar to a corporation's articles of incorporation.
Statement, at a particular point in time, of the financial position of a business or organization. This is generally divided into three parts: assets, liabilities and ownership, or equity. Also known as Statement of Financial Position.
Analysis that accounts for the difference between the balance shown on the bank statement and the balance shown in the accounting records on a given date.
The total original cost (including any additional outlays) of an equity investment or a piece of property. This is used by the Internal Revenue Service to compute taxable gain, profit, or appreciation.
A measurement of variation in financial instruments, equal to .01%. For example, a yield that has increased from 8.97% to 9% has increased by 3 basis points.
A contract that provides for the purchase of all outstanding shares from a business owner. Generally, such contracts allow for a different ownership structure in the future.
Bylaws are the rules and regulations adopted by a corporation for its internal governance. It usually contains provisions relating to shareholders, directors, officers and general corporate business. At the corporation's initial meeting the bylaws are adopted. Bylaws are a private document not filed with any state authority. Bylaws are more flexible than the articles of incorporation because they are easier to amend.
Interest of the owner in the business that is the difference between Assets & Liabilities. Also called Equity or Net worth. In a corporation, capital represents the stockholders' equity.
A professional accountant who has received certification to practice accounting from a state board of examination and may also be a member of the American Institute of Certified Public Accountants or other various state CPA organizations.
A security that represents partial ownership or equity in a corporation. Holders of common stock are entitled to participate in the company's stockholder meetings and vote for the board of directors.
A debt security issued by a corporation that obligates the issuer to pay interest periodically and repay the principal at maturity. Corporate bonds often have higher interest rates than government bonds due to possible default risk.
Maintaining the proper records is very important to assure limited liability to corporate shareholders. The corporation should have a record book that contains a copy of the articles of incorporation, bylaws, initial and subsequent minutes of directors and shareholders meetings and a stock register.
A group of people acting jointly for business and tax purposes who are able to incur debt and realize profit without immediate legal or taxable liabilities. A corporate entity allows its owners to attract outside capital by selling shares of ownership, protects the owners from liability beyond their investment outlay, provides for continuity of operations beyond the lives of the current owners and allows changes in ownership through the transfer of shares.
Entry recording an increase to a liability or owner's equity or revenue, or a reduction to an asset or expense. Credits are recorded in the right hand column of an account or a two-column book. Opposite of debit.
A revolving agreement that allows a person to borrow any amount up to a preapproved limit for purchases or cash advances. When the outstanding balance is paid off, credit again becomes available to fund new purchases or cash advances.
A formal assessment of an individual's or a corporation's ability to handle credit, based on the history of borrowing and repayment, as well as the availability of assets and the extent of liabilities.
An entry recording an increase to an asset or expense or a reduction to a liability, revenue or owner's equity. Debits are recorded in the left-hand column of an account or a two-column book. Opposite of credit.
The ratio that indicates a company's ability to repay outstanding creditors. This also indicates the degree of leveraged money to improve the rate of return for shareholders.
The opposite of inflation. A reduction in the price of goods and services. Possible causes of deflation are a decrease in the supply of money or credit or reduced individual or government spending.
Funds used as collateral for the delivery of a good, such as a security deposit. It can also refer to the transfer of funds to another party for safekeeping, such as a deposit into a bank account.
Costs identified with a specific unit of product. For example, clay in the production of flowerpots or tubing in the production of bicycles are direct costs.
Earnings Before Interest Taxes, Depreciation and Amortization. A measure of performance which takes out the effects of accounting and finance decisions that might be specific to the entity.
Electronic Funds Transfer System (EFTS)
A process by which funds are electronically transferred between accounts. EFTS allows for direct deposits or withdrawals without processing written checks.
Anything that represents ownership interests, such as stock in a company. Equity can also refer to the difference between an asset's current market value and the debt against it.
A number given to a corporation or other business entity by the federal government for tax purposes. Banks generally require a tax identification number to open bank accounts.
Formal financial reports prepared from accounting records. For example, Profit & Loss Statement, Balance Sheet or Statement of Retained Earnings are all types of financial statements.
A period of one year for which financial statements are prepared that may, or may not, coincide with the calendar year. Any twelve-month period used by a business as its accounting period.
Journal in which transactions are recorded for which specific journals are not provided. For example: adjustments and corrections. In a small operation the general journal may be the only book of original entry.
Gross income is the total of all receipts and gains minus the inventory cost of the business in a given time period. For example, people who use the barter system are required to include whatever they've bartered for as part of their gross income. top
Gross Monthly Income
Total monthly income from all sources before taxes and other expenses.
A financial statement summarizing revenues, expenses, gains and losses for a stated period of time. The income statement is also known as a profit & loss statement, statement of earnings, statement of income or statement of operations.
An asset without physical substance that has value due to rights resulting from its ownership and possession. For example, goodwill, patents or trademarks are all intangible assets.
"Interests" represent a member's ownership of an LLC just as a partner has an interest in a partnership and shareholders own stock in a corporation. Also the cost of using money over time usually expressed as an annual percentage.
An employee of an entity, such as a corporation, who audits for management, providing valuable information for decision-making concerning the effective operation of its business.
A coordinated system of procedures and techniques designed to safeguard a company's assets, to ensure the accuracy of its accounting records and to promote efficiency and adherence to prescribed policies.
The theorem of compounding interest in reverse, or discounting. IRR is important in planning capital outlays and evaluating rental real estate investments.
Items of tangible property held for sale. An inventory is a detailed list of items and their values owned at a specific point in time. Stock inventory would include raw materials for manufacture, materials partly processed and finished products including items in transit for which title is held, but would not include items physically held for which title belongs to others. Inventories may also be made of fixed assets, stationery and supplies, etc.
Document for goods purchased or services rendered showing details such as quantities, prices, dates, shipping details, order numbers, terms of sale, etc.
An employee whose skills, knowledge or abilities are crucial to the ongoing operation of the company. This term is used in applying top-heavy tests for qualified referral plans under the Internal Revenue Code Section 416.
An agreement where a portion of each lease payment applies to a future purchase of the leased property. Also, applies where the leaseholder has the right to buy the property during or at the conclusion of the lease term.
A book of final entry containing all the accounts of a business or all the accounts of a particular type. Some examples are general ledgers and accounts receivable ledgers.
Something for which one is held liable, such as an obligation or debt. Financial liabilities can include loans, mortgages, accounts payable, deferred revenues and accrued expenses, among others.
Also Limited Liability Corporation. A business entity formed upon filing articles of organization with the proper state authorities and paying all fees. LLCs provide limited liability to their members, and are taxed like a partnership, preventing double taxation. LLCs can be formed in every state.
An investment affiliation consisting of a general partner and limited partners. The general partner, in return for fees and a percentage of ownership, manages business operations and is ultimately liable for any debt. Limited partners may receive income, capital gains, and tax benefits in return for their investment, but have little involvement in management.
Accounting concerned with providing information to managers who are inside an organization and also direct and control operations. Management Accounting includes cost accumulation for product costing, budgeting and financial statement analysis.
When managers or executives of a company buy a controlling interest in their company from existing shareholders. If they pay a premium over the existing fair market value of the outstanding shares, the company then becomes a private corporation without a majority of shares trading on the market.
An LLC may be operated by a group of managers who act much like a board of directors. If an LLC is to be controlled by mangers this fact must be stated in the articles of organization.
A member is a person who is an owner of a Limited Liability Company. The members make the business decisions of an LLC unless the articles of organization provide that the LLC will be controlled by a manager, or managers.
A public officer who can authenticate signatories on documents and take depositions or oaths, authorized by a particular state or jurisdiction. Banks, insurance agencies, legal offices and government buildings often have notaries public on staff.
Officers are people who are appointed by the directors. They manage the daily affairs of the corporation. A corporation's officers usually consist of a president, vice-president, treasurer and secretary. In most states, one person can hold all of these positions.
The right to buy or sell a security at a set price on or before a given date. "Call" options are bets that the security will be worth more than the price set by the option, the strike price, plus the price of the option. "Put" options are bets that the security's price will fall below the price set by the option.
The initial meeting where the formation of the corporation is completed. At the organizational meeting a number of initial tasks are completed, such as the articles of incorporation are ratified, the initial shares are issued, officers are elected, bylaws approved and a resolution authorizing the opening of bank accounts is passed. If the initial directors are named in the articles of incorporation, they can hold the organizational meeting. If they are not named, then the incorporator holds the organizational meeting.
A payment that has not been received by the end of the lender's grace period. Creditors may assess late fees for past due payments or report the account holder to a credit reporting agency.
An official license granted by the Patent Office that gives an individual or business the rights to the production or sale of a specific invention, process, or design for a specified period of time.
There are two main forms of payroll taxes. One is in the form of withholding and the other is paid directly by the employer. In the first case employers deduct a certain amount from employee paychecks to pay for taxes. In the second, employers pay a tax based on the number of employees and how much they are paid. This tax money funds many finance specific programs, including social security, health care and worker's disability.
The original amount of money invested in a security, the face value of a bond, or the remaining amount owed on a loan, separate from interest. "Principal" can also refer to the owner of a private company or the main party in a financial transaction.
If a shareholder cannot attend a meeting, the shareholder is allowed to vote by proxy. A proxy grants another individual the power to vote on their behalf.
The minimum attendance required to conduct business at a meeting. Usually, a quorum is achieved if a majority of directors are present, for directors meetings, or outstanding shares are represented, for shareholder meetings. The percentage needed for a quorum may be modified in the bylaws.
A small corporation which elects sub-chapter S tax treatment. This tax treatment allows the corporation to avoid federal level taxation. Corporate Profits and Losses are passed through to the shareholders.
Any holder of one or more shares in a corporation. A shareholder usually has evidence that they are a shareholder. This evidence is represented by a stock certificate.
A business carried on by the owner as an individual. The owner of a sole proprietorship is personally liable for all business debts; thus, personal property could be taken to pay business debts. A sole proprietorship is an unincorporated business wholly owned by one individual.
There are all kinds of taxes which are used to pay for all sorts of things. Some of our money goes to the federal government, which pays for services like interstate highways, the armed forces, the FBI and a lot more. Your state also needs money for schools, roads and state troopers, to name just a few. At the end of the tax year you will need to send one form to the federal government and another to your state government.
A financial statement showing the impact of operating, financing and investing activities effecting the cash position of the company. Also known as Cash Flow Statement, Statement of Cash Flow, Statement of Operating, Financing and Investing Activities or Statement of Changes in Cash Resources.
A financial statement summarizing the changes in retained earnings for a stated period. Also known as Statement of Changes in Capital Accounts or Statement of Changes in Retained Earnings and Reserves.
Capital of a corporation that is divided into portions or shares. Stock refers to an equity or ownership interest in a corporation. There may be several classes of stock in a corporation, each class divided into equal portions or shares. Ownership of shares is demonstrated by stock certificates. See Share.
A distribution of additional shares to each holder of a certain stock in proportion to the shares the individual already owns, with each share's par value reduced to maintain the same total equity. For example, if a stock splits 2-for-1 and you own one share with a $100 par value before the split, you would own two shares with a $50 par value after the split.
A corporation controlled by another corporation that owns, directly or indirectly, an interest sufficient to elect a majority of the board of directors. See Parent Company.
Difference between standard cost and actual cost. Also, the difference between an actual revenue or expense item and the budget for that item, or budget variance.
