BASIC ACCOUNTING TERMS FOR BUSINESS OWNERS

BASIC ACCOUNTING TERMS FOR BUSINESS OWNERS

Business owners or startup enthusiasts must know these basic accounting terms for business owners especially. We made each term so simple to understand

In each and every field there are some basic terms which can only be understood by the persons related to those particular fields. Accounting is not an exception; it also has basic terms. Without understanding those terms, one cannot work in that field. So before stepping into a business one should be aware of the basic terms of accounting.

Asset: Assets are everything a company owns. The term asset is quite familiar to people other than businessmen. So business owners have to understand the word more clearly. Assets can be tangible or intangible. Tangible assets include land, cash, etc. while intangible includes stock, trademark, etc.

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

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

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

Capital: Without capital, there is no business. Capital is defined as the amount of money received or spent by the company for its functioning. The capital amount varies from task to task.

Fiscal year: the Fiscal year is the period of time that is used for accounting purposes. The fiscal year is not similar to that of a year in the calendar since it is designed by a company for there business.

Forecasting: The process of predicting the future of a business by analyzing the history of that same business is called forecasting. It is very important because it will help one to improve their business and can eliminate the chances of deterioration of the business.

 Liabilities: Liability is the debt of a company and the company is responsible to pay it in a fixed period of time.

Accruals: It is the list of sales that have been completed but not yet billed. Accruals can be positive or negative.

 Equity: Equity is the amount of money deposited by it it’s owners to their business. Equity is different for different companies. The equity for the small-scale industry is different than that of large-scale industry.

Balance sheet: It is an overview of the company’s financial status. A balance sheet comprises of equity, assets, and liabilities.

Depreciation: It is defined as the reduction in the value of an item over time. Depreciation has a high role when it comes to tax purposes.

Dividends: It is the earnings of a company that is given to the shareholders on a regular basis. It can be in the form of cash, stock or other means.

Journal: The transactions are recorded here prior to the official accounting record. Hence it can also be referred to as accounts.

Revenue: it is the total amount of money collected for goods excluding the expenses.

Profit and Loss Statement: It is a report generated by the company that lists earnings, expenses, and profits for a given period of time.

Expenses: There are four types of expenses. They are fixed, Variable, accrued and operational. They are different but it defines the existence of a business.

: 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 plan.

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.

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

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 affected 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.

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.

Materiality: Magnitude of 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.

Promissory Note: Evidence of a DEBT with the 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 MORTGAGE providing security for the payment thereof.

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.

Venture Capital: Investment company whose primary objective is capital growth. New ASSETS invested largely in companies that are developing new ideas, products, or processes.

Vendor: Supplier of goods or services of a commercial nature; maybe a manufacturer, importer, or wholesale distributor.

Zero-Coupon Convertible Security: ZERO-COUPON BOND convertible into the COMMON stock of the issuing COMPANY when the stock reaches a predetermined price.

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.

Worksheet: A type of working paper used as a preliminary step in the preparation of FINANCIAL STATEMENTS.

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.

Title: The written evidence, such as a deed, that proves the legal right of possession or control.

Total Capitalization: Capital structure of a COMPANY, including LONG-TERM DEBT and all forms of EQUITY.

Stock Exchange: the 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.