EBITDA: Earnings before interest, taxes, depreciation, and amortization.

EMPLOYEE: Works for an employer. Employers can control when, where, and how the employee performs the work. Significant for how and where the compensation is reported on the tax return.

EMPLOYER ID NUMBER (EIN): An identification number assigned to businesses for taxpaying purposes by the IRS or state taxing authorities. An Employer ID Number is required for partnerships, corporations, and trusts, and it may be required for sole proprietorships that have employees. Also called a Federal ID Number or Taxpayer ID Number.

ENDING INVENTORY: The items held for sale but still owned by the business at the end of the period.

ENROLLED AGENT: A tax professional who has passed an IRS test covering all aspects of taxation.

ENTITY: 1) A person or group of people who are subject to the tax laws. 2) The business unit for which we are accounting ...generally a corporation, partnership or sole proprietorship.

ENTREPRENEUR: One who assumes the financial risk of the initiation, operation, and management of a given business undertaking.

EQUITY: An ownership interest in a business. Owner's rights against the assets...the owner's share. For example, stock in a corporation represents equity in the corporation.

EQUITY FINANCING: The provision of funds for capital or operating expenses in exchange for capital stock, stock purchase warrants, and/or options in the business financed, without any guaranteed return, but with the opportunity to share in the company's profits.

ESOP (EMPLOYEE STOCK OWNERSHIP PLAN): A retirement-type plan in which a trust holds stock in the employees´ names. Employees receive cash from the stock only when they leave the company or perhaps when the company is sold.

ESTATES AND TRUSTS: Estates report income after an individual person has died. A trust is created by an individual person to protect or to preserve the person's assets, and to distribute income to beneficiaries.

EXCISE TAX: A tax on the sale or use of specific products or transactions.

EXEMPT (from withholding): Free from withholding of federal income tax. A person must meet certain income, tax liability, and dependency criteria. This does not exempt a person from other kinds of tax withholding, such as the Social Security tax.

EXEMPT EMPLOYEE: Employees who are not bound to overtime regulations and minimum wage laws. Who is exempt depends on level of responsibility or professional status.

EXEMPTION: Amount that taxpayers can claim for themselves, their spouses, and eligible dependents. There are two types of exemptions-personal and dependency. Each exemption reduces the income subject to tax. The exemption amount is a set amount that changes from year to year.

EXTRAORDINARY ITEMS: Items that are not part of usual operations of the business. They are reported after operating income so that operating income can be compared year-to-year and to other similar companies. Examples are gain/loss on sale of assets or business casualty losses.

FAIR MARKET VALUE: The price that would be negotiated between a willing buyer and willing seller, neither under compunction to buy or sell.

FEDERAL INCOME TAX: The federal government levies a tax on personal income. The federal income tax provides for national programs such as defense, foreign affairs, law enforcement, and interest on the national debt.

FICA (FEDERAL INSURANCE CONTRIBUTIONS ACT): Provides benefits for retired workers and their dependents as well as for disabled workers and their dependents. Also known as the Social Security tax.

FILING SYTATUS: Determines the rate at which income is taxed. The five filing statuses are: single, married filing a joint return, married filing a separate return, head of household, and qualifying widow(er) with dependent child.

FIRST – IN FIRST – OUT (FIFO): A method of counting inventory that assumes the first items purchased are the first items sold. If prices are increasing, FIFO will result in a higher balance in inventory and lower cost of goods sold (therefore higher net income) compared to LIFO.

FORM W – 4: Form W-4 is used to figure the right amount of federal income tax to have withheld from your paycheck.

FULL DISCLOSURE: The concept that financial statements and their notes should include all information reasonably expected to be relevant to the user's understanding.

GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (GAAP): The concepts and guidelines followed by Certified Public Accountants in preparing financial information and promulgated by such bodies as the Financial Accounting Standards Board. The purpose of GAAP is to provide meaningful information to end-users of financial statements and other financial information.

GOODWILL: An intangible asset that represents the excess of the purchase price of a business over the fair market value of its tangible assets (equipment and inventory). Goodwill arises at the point in time that the company is purchased and often represents the reputation of the company, value of the location and licenses or patents that might be held by the company.

GROSS INCOME: Money, goods, services, and property a person receives that must be reported on a tax return. Includes unemployment compensation and certain scholarships. It does not include welfare benefits and nontaxable Social Security benefits.

GROSS MARGIN: Sales minus cost of goods sold. (Also called gross profit)

GROSS PROFIT: Sales minus cost of goods sold. (Also called gross margin)

GROSS PROFIT METHOD: A method of estimating inventories for interim financial statements by using the percentage gross profit to sales from the last year-end statement. This allows an interim statement without taking a physical inventory.

HEAD OF HOUSEHOLD FILING STATUS: You must meet the following requirements: 1. You are unmarried or considered unmarried on the last day of the year. 2. You paid more than half the cost of keeping up a home for the year. 3. A qualifying person lived with you in the home for more than half the year (except temporary absences, such as school). However, your dependent parent does not have to live with you. A foster child must live with you all year.

HISTORICAL COST: Acquisition cost of assets as opposed to fair market value or liquidation value. We use historical cost for assets because it is verifiable, objective and timely.

HOME OFFICE: Employees who work out of their home or business owners who have a home office may be able to deduct part of their household expenses on their tax return.

INCOME FROM OPERATIONS: Net income from operating activities before other income and expenses, extraordinary items or income taxes. Helpful for comparing one year to another or one company to another.

INCOME STATEMENT: The statement that represents Sales - Expenses = Profits.

INDEPENDENT CONTRACTOR: Performs services for others. The recipients of the services do not control the means or methods the independent contractor uses to accomplish the work. The recipients do control the results of the work; they decide whether the work is acceptable. Independent contractors are self-employed.

INDIRECT TAX: A tax that can be shifted to others, such as business property taxes.

INVENTORY COSTS: These include the purchase price of the inventory as well as shipping, storage and other inventory related expenses.

INVENTORY TURNOVER: The number of times in a year that the inventory is sold or clears out. An inventory turnover of 4 times would mean that inventory is held for an average of about 90 days or three months. (Three months x 4 = one year.)

INVESTMENT INCOME: Includes taxable and tax-exempt interest, dividends, capital gains net income, certain rent and royalty income, and net passive activity income.

LAST – IN FIRST – OUT (LIFO): A method of inventory valuation in which the last item purchased is considered the first item sold. If inventory costs are increasing, this method results in a lower ending inventory, higher cost of good sold and lower net income compared to FIFO.

LEASEHOLD IMPROVEMENTS: Improvements to a building that the business leases rather than owns. Often leasehold improvements are amortized over the life of the lease.

LEVERAGE: The extent to which debt has been used by the company to finance growth or operations.

LIQUIDATION VALUE: The amount the business could get for the asset if they must sell it in a hurry.

LIQUIDITY: Having enough funds to pay bills when due plus a comfortable cushion.

LOWER-OF-COST-OR-MARKET: The amount at which inventory or marketable securities is listed on the balance sheet.

LUXURY TAX: A tax paid on expensive goods and services considered by the government to be nonessential.

MARGINAL TAX RATE: The marginal tax rate is the income tax rate paid on the last dollar of income earned.

MARRIED FILING JOINTLY FILING STATUS: You are married and both you and your spouse agree to file a joint return. (On a joint return, you report your combined income and deduct your combined allowable expenses.)

MARRIED FILING SEPARATE FILING STATUS: You must be married. This method may benefit you if you want to be responsible only for your own tax or if this method results in less tax than a joint return. If you and your spouse don't agree to file a joint return, you have to use this filing status.

MEDICARE TAX: Used to provide medical benefits for certain individuals when they reach age 65. Workers, retired workers, and the spouses of workers and retired workers are eligible to receive Medicare benefits upon reaching age 65. Significant for lenders as all wages are taxed for Medicare purposes. Therefore if the lender has the W-2 you can determine the full wages to which the borrower was entitled before 401-k etc.

MIXED COST: Useful for financial analysis, a cost that has both a fixed and a variable component. Example: Rent in a shopping mall that is a set amount plus a percentage of sales.

NET INCOME: Sales - costs.

OPERATING CYCLE: The time it takes to pay for inventory, sell it, and collect the receivable. In other words, to start with cash and end up with cash.

OPERATING EXPENSES: Expenses that relate to normal operations of the business. This does not include loss on disposal of assets, casualty losses or interest expense.

OPERATING INCOME: Net income from operating activities before other income and expenses, extraordinary items or income taxes. Helpful for comparing one year to another or one company to another.

OPERATING LEASE: A lease that allows temporary use of the asset for a fee, as opposed to a financing lease in which the business will own the item at the end of the lease for a nominal amount.

ORGANIZATION COSTS: The start-up costs of a business. Often can be added back as nonrecurring for projecting cash flow.

OTHER INCOME AND EXPENSES: Items that are not part of the normal operations of a business. These include gain/loss on disposal of assets, interest income and interest expense.

OWNER’S EQUITY: Assets - liabilities = owner's equity. The owner's share in the assets.

PAID IN CAPITAL: Capital paid in by the owners in addition to that paid for capital stock.

PARTNER”S EQUITY: The ownership position of a partner (owner) in a partnership.

PERSONAL EXEMPTION: Can be claimed for the taxpayer and spouse. Each personal exemption reduces the income subject to tax by the exemption amount.

PREPAID EXPENSES: Expenses that are paid in advance. They are recorded as an asset because they represent a right to something in the future. A good example is prepaid insurance. If a full year of insurance was recorded in the month paid, that month's statement would show too high of an expense, and in the rest of the statements for the year the expense would be understated. Prepaid expenses are only used when recording the full amount in the period paid would materially misstate income. These are often listed in current assets because they will be used up (expire) within twelve months. Analysts often subtract them from current assets prior to calculating liquidity ratios.

PRIOR PERIOD ADJUSTMENTS: Adjustments directly to retained earnings for items that should have been reported in prior periods. Thus retained earnings can be corrected without misstating the current period income and expenses.

PROFIT MARGIN: Net income divided by sales. The percentage of each sales dollar resulting in profit.

PROPERTY PLANT AND EQUIPMENT: Another term for Fixed or Long-term assets. It is not a literal description of what the company owns. For example, they may not own a plant.

PROPERTY TAXES: Taxes on property, especially real estate, but also can be on boats, automobiles (often paid along with license fees), recreational vehicles, and business inventories.

QUALIFYING PERSON: For the tax credit for child and dependent care expenses, a qualifying person is a child, dependent, or spouse who meets specific requirements. The taxpayer must furnish more than half the cost of maintaining a home that is also the home of the qualifying person. A qualifying child must be under age 13; the taxpayer must claim a dependency exemption for the child. (There is an exception for children of divorced or separated parents.) A qualifying dependent, or a person who could be claimed as a dependent if his or her gross income was less than the exemption amount, must be physically or mentally incapable of self-care. A qualifying spouse must be physically or mentally incapable of self-care.

QUALIFYING WIDOW(ER) FILING STATUS: If your spouse died in 2004, you can use married filing jointly as your filing status for 2004 if you otherwise qualify to use that status. The year of death is the last year for which you can file jointly with your described spouse. You may be eligible to use qualifying widow(er) with dependent child as your filing status for 2 years following the year of death of your spouse. For example, if your spouse died in 2004, and you have not remarried, you may be able to use this filing status for 2005 and 2006. This filing status entitles you to use joint return tax rates and the highest standard deduction amount (if you don't itemize deductions). This status does not entitle you to file a joint return.

REFUND: Amount government returns due to overpayment. State tax refunds are reported as taxable income only if the borrower took a deduction for the actual amount paid in the previous year.

RECEIVABLE TURNOVER: Number of times a year that receivables are collected. Twelve times would relate to 30 days in receivables. If you have a credit sales figure, you can calculate receivable turnover and days in receivables, then compare to their credit policy. If the policy is 2/10, net 30 and the days in receivables is 45, they are not collecting their receivables as agreed.

RELEVANT: The accounting concept that items that will make a difference to end users should be disclosed adequately.

RELEVANT RANGE: The reasonably expected range of activity. Used to determine if a cost is fixed or variable within the 'relevant range'.

RETAINED EARNINGS: The accumulated net profits of the business from the beginning, less capital returned to the shareholders in the form of dividends. If the company has been running a loss then retained 'earnings' will be negative. You can think of this as 'accumulated losses'. Remember that assets are shown at historical cost. A negative retained earnings on the books could actually be positive "equity" if the assets have appreciated in value (i.e. buildings or land).

REVENUES: Total dollars in the door.

REVERSING ENTRIES: An accounting term indicating journal entries necessary to back out beginning receivables and payables and enter the ending receivables and payables. These adjusting entries are used in accrual accounting.

SALARY: Compensation received by an employee for services performed. A salary is a fixed sum paid for a specific period of time worked, such as weekly or monthly.

SALES TAX: A tax on retail products based on a set percentage of retail cost.

SELF-EMPLOYMENT TAX: Similar to Social Security and Medicare taxes. The self-employment tax rate is 15.3 percent of self-employment profit including from a sole proprietorship, LLC or partnership. The self-employment tax is calculated on Schedule SE. The self-employment tax is reported on Form 1040.

SINGLE FILING STATUS: If on the last day of the year, you are unmarried or legally separated from your spouse under a divorce or separate maintenance decree and you do not qualify for another filing status.

SIN TAX: A tax on goods such as tobacco and alcohol.

SOCIAL SECURITY TAX: Provides benefits for retired workers and their dependents as well as for the disabled and their dependents. Also known as the "Federal Insurance Contributions Act" (FICA) tax.

SOLE PROPRIETORSHIP: A business owned by a single individual (sole proprietor). There is no legal distinction between the business and its owner, even though we account for them as separate entities.

SOLVENCY: Do assets exceed liabilities?

STANDARD DEDUCTION: Reduces the income subject to tax and varies depending on filing status, age, blindness, and dependency. This is a minimum adjustment. The taxpayer can itemize deductions if s/he can document more than the standard amount.

STATEMENT OF CASH FLOWS: The third financial statement required by Generally Accepted Accounting Principles (GAAP), it shows sources and uses of cash flow in three categories: Operations, Investing, and Financing.

STOCKHOLDER”S EQUITY: The corporate shareholder's rights against the assets of the company ...their share. This includes capital stock, paid in capital and retained earnings.

SUPPORT: For dependency test purposes, support includes food, clothing, shelter, education, medical and dental care, recreation, and transportation. It also includes welfare, food stamps, and housing provided by the state. Support includes all income, taxable and nontaxable.

TARIFF: A tax on products imported from foreign countries.

TAX CODE: The official body of tax laws and regulations.

TAX CREDIT: A dollar-for-dollar reduction in the tax. Can be deducted directly from taxes owed.

TAX EVASION: A failure to pay or a deliberate underpayment of taxes. This is to be distinguished from tax 'avoidance' which is the legitimate avoidance of taxes by taking legal deductions and credits in an aggressive manner.

TAX-EXEMPT INTEREST INCOME: Interest income that is not subject to income tax. Tax-exempt interest income is earned from bonds issued by states, cities, or counties and the District of Columbia.

TAXPAYER ID NUMBER: An identification number assigned to businesses for taxpaying purposes by the IRS or state taxing authorities. An Employer ID Number is required for partnerships, corporations, and trusts, and it may be required for sole proprietorships that have employees. Also called a Federal ID Number or Employer ID Number.

TIMELINESS: The accounting concept that accounting information should be provided within a time frame that allows users to act on it. One of the reasons for the historical cost basis for assets is that it would not be possible to provide fair market values of assets on a timely basis each month.

TIP INCOME: Money and goods received for services performed by food servers, baggage handlers, and others. Tips go beyond the stated amount of the bill and are given voluntarily. Taxpayers are required to report and pay taxes on their tips.

TRANSACTION: An event that affects the resources of a business.

TREASURY NOTES (T – NOTES): Negotiable debt obligations of the US government with maturities of 1 to 10 years.

TREASURY STOCK: Stock bought back by the corporation.

TRIAL BALANCE: An accounting step to determine that the asset and liability balances compare to other sources to ensure the integrity of the statements. Example: the cash balance would be compared to a reconciled bank statement. This used to be, literally, a step to be sure the total debits and total credits matched after manually entering transactions in the 'books'. Thus it was a trial balance.

TURNOVER: The number of times accounts receivable are collected or inventory sold in a year. Provides an indication of efficiency in the business.

UNCOLLECTIBLE ACCOUNTS: Accounts receivable balances that are not expected to be collected either because of their age or other information available about the customer.

WAGES: Compensation received by employees for services performed. Usually, wages are computed by multiplying an hourly pay rate by the number of hours worked.

WITHHOLDING: Funds that employers withhold from employees paychecks. This money is deposited for the government. (It will be credited against the employees' tax liability when they file their returns.) Employers withhold money for federal income taxes, Social Security taxes and state and local income taxes in some states and localities. Other entities may also withhold based on federal tax rules.

WORKING CAPITAL: Current assets (those assets expected to be turned into cash within a year) minus current liabilities (those debts that have to be paid within the year). If positive, this provides the cushion to handle unexpected events and to grow the company.

Date: 2016-01-03; view: 849