The result of an excess of expenses over revenue.

See Passive investment income.

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

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

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

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

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

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

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

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

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

The increase side of an account.

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

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

See Depreciation.

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

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

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

Current assets and current liabilities.

The costs associated with establishing a corporation.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

The person or firm to whom a check is payable.

The date that dividends are paid.

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

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

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

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

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

See Depletion.

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

Inventory based on a periodic count of goods on hand.

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

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

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

Inventory based on a running total of number of units.

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

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

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

See Exemption.

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

A form used to record transactions involving petty cash.

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

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

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

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

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

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

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

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

A check dated some time in the future.

Transferring data from a journal to a ledger.

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

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

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

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

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

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

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

The amount shown on the face of a note.

Those tasks employees must perform for the employer.

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

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

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

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

Members of firms that perform accounting services for other companies.

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

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

A price reduction from the amount originally billed.

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

A bill received for goods purchased.

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

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

Return of unsatisfactory goods.

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

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

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

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

Cash, receivables, and marketable securities.

Computing the relationship between various items in the financial statements.

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

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

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