The Financial & Accounting Glossary.
A continuously expanding, plain-English reference of the accounting, tax, payroll, advisory, audit, and legal terms business owners encounter most often. Searchable, filterable, and updated quarterly.
A
Accounts Payable (AP) Accounting
Money your business owes to vendors and suppliers for goods or services received but not yet paid for. Tracked on the balance sheet as a current liability.
Accounts Receivable (AR) Accounting
Money customers owe your business for goods or services already delivered but not yet collected. Tracked on the balance sheet as a current asset.
Accrual Accounting Accounting
A method of bookkeeping that records revenue when earned and expenses when incurred, regardless of when cash changes hands. Required for most businesses above $25M in revenue and preferred by lenders and investors at any size.
Accrued Expense Accounting
An expense incurred but not yet paid, recorded as a liability. Common examples: accrued salaries, accrued interest, accrued utilities.
Accumulated Depreciation Accounting
The total amount of depreciation expense recorded against a fixed asset since it was acquired. A contra-asset that reduces the asset's net book value on the balance sheet.
Adjusted Gross Income (AGI) Tax
Gross income reduced by specific adjustments (such as retirement contributions, student loan interest, and HSA contributions). Used as the basis for calculating many tax credits and deductions.
Amortization Accounting
The systematic write-down of an intangible asset's cost over its useful life, or the gradual paydown of a loan's principal over time. Conceptually parallel to depreciation for tangible assets.
Alternative Minimum Tax (AMT) Tax
A parallel federal tax system designed to ensure high-income taxpayers pay a minimum amount of tax regardless of deductions. Now mostly applicable to very high earners after 2017 reform.
Audit Audit
An independent examination of financial records and internal controls. May be conducted by a CPA firm (financial audit), the IRS (tax audit), or internal staff (operational audit). Required for many lenders and investors.
Audit Trail Audit
The chronological record of evidence supporting transactions in financial records. Includes source documents, approvals, journal entries, and ledger postings.
ASC 606 Audit
The accounting standard governing revenue recognition under US GAAP. Requires revenue to be recognized as performance obligations are satisfied. Particularly important for SaaS and contract-based businesses.
Asset Accounting
Anything of value owned by the business. Categorized as current (convertible to cash within 12 months) or long-term (fixed assets, intangibles).
B
Bad Debt Accounting
A receivable that is uncollectible and written off. May be recognized using the direct write-off method (cash basis) or the allowance method (accrual).
Balance Sheet Accounting
A financial statement showing what your business owns (assets), what it owes (liabilities), and the difference (equity) at a specific point in time. The fundamental equation: Assets = Liabilities + Equity.
Basis (Tax Basis) Tax
The amount you have invested in an asset for tax purposes. Used to calculate gain or loss when the asset is sold. Adjusts upward for additional investment and downward for depreciation taken.
Bonus Depreciation Tax
An accelerated tax depreciation provision allowing immediate expensing of a percentage of qualifying property cost in the year placed in service. Phasing down annually from 100% in earlier years.
Book Value Accounting
The value of an asset on the balance sheet, calculated as cost minus accumulated depreciation. May differ significantly from market value.
Bookkeeping Accounting
The day-to-day recording of financial transactions in a business. Distinguished from accounting, which uses the bookkeeping data to produce financial statements and tax filings.
Burn Rate Advisory
The rate at which a business consumes cash, typically expressed monthly. Critical metric for startups and any business operating at a loss. Inversely related to runway.
Break-Even Analysis Advisory
The calculation of the revenue level at which total revenue equals total costs. Below break-even, the business loses money; above, it profits.
Budget Variance Advisory
The difference between budgeted and actual figures. Favorable variance means actual is better than budgeted; unfavorable means worse.
C
C-Corporation Tax
A corporate entity taxed separately from its owners at a flat 21% federal rate. Profits distributed to shareholders are taxed again as dividends, creating double taxation. Preferred for venture-backed companies.
Capital Expenditure (CapEx) Accounting
Money spent on long-lived assets like equipment, buildings, or vehicles. Capitalized to the balance sheet and depreciated over time rather than expensed immediately.
Capital Gain Tax
The profit realized when an asset is sold for more than its tax basis. Short-term (held one year or less) is taxed at ordinary rates; long-term at preferential rates.
Cash Basis Accounting Accounting
A method of bookkeeping that records revenue when received and expenses when paid. Simpler than accrual but provides less accurate picture of business performance.
Cash Conversion Cycle (CCC) Advisory
The number of days between paying for inputs and collecting cash from customers. Calculated as DIO + DSO minus DPO. A negative cycle means your business is funded by its own working capital.
Chart of Accounts Accounting
The structured list of every account used to record transactions in your business. Organized by category: assets, liabilities, equity, revenue, expenses. Foundation of every financial report.
Charitable Contribution Tax
A donation to a qualifying tax-exempt organization. Deductible on Schedule A for individuals (subject to AGI limits) or against business income for C-corps (subject to 10% taxable income limit).
Closing The Books Accounting
The process of finalizing financial records for a period, including reconciliations, accruals, depreciation, and producing financial statements. Done monthly, quarterly, and annually.
Cost of Goods Sold (COGS) Accounting
The direct costs of producing the goods or services your business sells. Subtracted from revenue to calculate gross profit. Critical for understanding unit economics.
Cost Segregation Study Tax
An engineering-based analysis that reclassifies portions of real estate from 39-year depreciation to shorter recovery periods (5, 7, or 15 years), accelerating tax deductions.
CPA (Certified Public Accountant) Legal
A licensed accountant authorized by a state board to perform attest services (audits, reviews, compilations). Licensure requires passing the Uniform CPA Exam and meeting state experience requirements.
Credit Accounting
An accounting entry that increases liabilities, equity, or revenue accounts and decreases assets or expense accounts. The right side of a journal entry.
Current Asset Accounting
An asset expected to be converted to cash or used within 12 months. Includes cash, accounts receivable, inventory, and prepaid expenses.
Current Liability Accounting
An obligation due within 12 months. Includes accounts payable, accrued expenses, short-term debt, and current portion of long-term debt.
D
Days Payable Outstanding (DPO) Advisory
The average number of days a business takes to pay its vendors. Higher DPO improves cash flow but can damage vendor relationships if extended too far.
Days Sales Outstanding (DSO) Advisory
The average number of days customers take to pay you after invoicing. Lower DSO means stronger cash flow. The single most common cash flow lever for service businesses.
Debit Accounting
An accounting entry that increases assets or expenses and decreases liabilities, equity, or revenue. The left side of a journal entry. Total debits must equal total credits.
Deferred Revenue Accounting
Cash received before goods or services are delivered. Recorded as a liability until the performance obligation is satisfied, then recognized as revenue.
Depreciation Accounting
The systematic allocation of a tangible asset's cost over its useful life. A non-cash expense that reduces taxable income without reducing actual cash flow.
Direct Cost Accounting
A cost that can be specifically traced to a product, service, or department. Materials and direct labor are typical examples. Distinguished from indirect (overhead) costs.
Disregarded Entity Tax
A business entity (typically a single-member LLC) that is ignored for federal tax purposes, with income flowing directly onto the owner's personal return.
Dividend Tax
A distribution of corporate profits to shareholders. Qualified dividends from US corporations receive preferential tax rates; non-qualified dividends are taxed as ordinary income.
Double-Entry Bookkeeping Accounting
The accounting principle requiring every transaction to be recorded in at least two accounts, with debits equaling credits. The mathematical guarantee behind reliable financial statements.
Due Diligence Advisory
The investigation a buyer, investor, or lender performs before completing a transaction. Includes financial, legal, tax, and operational examination.
E
EBITDA Advisory
Earnings Before Interest, Taxes, Depreciation, and Amortization. A measure of operating performance that strips out financing and non-cash items. The most common valuation metric used in M&A transactions.
Employer Identification Number (EIN) Tax
A nine-digit number issued by the IRS to identify a business for tax purposes. Required to hire employees, open business bank accounts, and file business returns.
Equity Accounting
The owners' residual interest in the business after subtracting liabilities from assets. Includes contributed capital, retained earnings, and any other capital accounts.
ERISA Payroll
Employee Retirement Income Security Act. Federal law governing employer-sponsored retirement plans. Requires Form 5500 filings and specific fiduciary standards.
Estimated Tax Tax
Quarterly tax payments required of pass-through entity owners and self-employed individuals. Due April 15, June 15, September 15, and January 15.
Expense Recognition Accounting
The matching principle: expenses are recorded in the period in which they help generate revenue, not necessarily when cash changes hands.
F
FICA Payroll
Federal Insurance Contributions Act. The federal payroll tax that funds Social Security (6.2% up to wage base) and Medicare (1.45% with no cap). Split between employer and employee.
Fiscal Year Accounting
A 12-month accounting period chosen by the business. May or may not align with the calendar year. Required to be calendar year for most small businesses and pass-through entities.
Fixed Asset Accounting
A long-lived tangible asset used in operations (equipment, buildings, vehicles) rather than sold to customers. Capitalized and depreciated over useful life.
Fixed Cost Accounting
A cost that does not vary with production volume in the short term. Rent, salaries, and insurance are typical examples. Contrast with variable costs.
Form 941 Payroll
The quarterly federal tax return employers file to report wages paid, federal income tax withheld, and Social Security and Medicare taxes. Due the last day of the month following each quarter.
Form 1099-NEC Tax
An IRS form used to report non-employee compensation (contractor payments) of $600 or more in a calendar year. Due to recipients and the IRS by January 31.
Form 1120 Tax
The U.S. corporate income tax return filed by C-corporations. Due by the 15th day of the fourth month after fiscal year-end (April 15 for calendar-year filers).
Form 1120-S Tax
The U.S. income tax return for S-corporations. Information return that passes income through to shareholder K-1s. Due March 15 for calendar-year filers.
Form 2553 Tax
The IRS form used to elect S-corporation tax treatment. Must be filed within 75 days of the desired effective date.
Fractional CFO Advisory
A senior financial executive engaged part-time or on a project basis. Provides strategic financial leadership without the cost of a full-time CFO hire.
Franchise Tax Tax
A state-level tax imposed on businesses for the privilege of operating in that state. Varies widely by state. Texas, California, and Delaware franchise taxes are commonly encountered.
FUTA (Federal Unemployment Tax) Payroll
A federal tax paid by employers on the first $7,000 of each employee's wages annually. Funds the federal portion of unemployment benefits. Reported on annual Form 940.
G
GAAP Audit
Generally Accepted Accounting Principles. The set of standards governing financial reporting in the United States. Required for audited financial statements and most lender or investor reporting.
General Ledger Accounting
The master record of every transaction in a business, organized by account. The source from which all financial statements are derived.
Goodwill Accounting
An intangible asset recorded when one company acquires another for more than the fair value of identifiable net assets. Tested annually for impairment.
Gross Margin Advisory
Revenue minus cost of goods sold, expressed as a percentage of revenue. Measures the profitability of each sale before operating expenses.
Gross Profit Accounting
Revenue minus cost of goods sold in absolute dollars. The first profitability line on a typical income statement.
H
HSA (Health Savings Account) Tax
A tax-advantaged account for medical expenses paired with a high-deductible health plan. Contributions are deductible, growth is tax-free, and qualified withdrawals are tax-free.
Holding Company Advisory
A parent entity that owns interest in one or more operating subsidiaries. Common structure for asset protection, tax planning, and managing multiple businesses.
I
Income Statement (P&L) Accounting
A financial statement showing revenue, expenses, and resulting profit or loss over a period of time. Also called Profit and Loss Statement.
Intangible Asset Accounting
A non-physical asset of long-term value, such as patents, trademarks, customer lists, or goodwill. Typically amortized over useful life.
Inventory Accounting
Goods held for sale in the ordinary course of business, plus raw materials and work-in-progress. Recorded as a current asset until sold, at which point cost moves to COGS.
Internal Controls Audit
The policies and procedures designed to ensure reliable financial reporting, asset safeguarding, and compliance with laws. Examples: segregation of duties, approval thresholds, reconciliations.
IRS Notice Tax
A formal letter from the Internal Revenue Service regarding a tax matter. Most notices are routine (CP14, CP504) but require timely response to avoid escalating consequences.
IRS Pub 4557 Audit
IRS Publication 4557, "Safeguarding Taxpayer Data." The federal guidance defining minimum security standards for tax preparers and accounting firms handling client data.
J
Journal Entry Accounting
The atomic unit of recording a transaction in accounting. Each entry includes a date, accounts debited and credited, amounts, and a description. Must balance (debits = credits).
K
K-1 (Schedule K-1) Tax
A tax form issued by partnerships, S-corporations, and certain trusts to report each owner's share of income, deductions, and credits. Used to prepare the owner's personal tax return.
KPI (Key Performance Indicator) Advisory
A measurable value indicating how effectively a business is achieving objectives. Financial KPIs typically include gross margin, customer acquisition cost, and cash conversion cycle.
L
Lease (Operating vs Finance) Accounting
Under ASC 842, all leases over 12 months are recognized on the balance sheet as right-of-use assets and lease liabilities. Classification affects expense pattern over the lease term.
Liability Accounting
An obligation owed by the business to others. Includes accounts payable, loans, accrued expenses, and deferred revenue. Categorized as current (due within 12 months) or long-term.
LLC (Limited Liability Company) Legal
A flexible business structure providing personal liability protection with pass-through taxation by default. Can elect to be taxed as a C-corp or S-corp.
Liquidity Advisory
The ease with which an asset can be converted to cash. Cash and marketable securities are highly liquid; real estate and equipment are less so.
M
Margin Advisory
The difference between revenue and a category of costs, often expressed as a percentage. Gross margin, operating margin, contribution margin, and net margin each measure different things.
MRR / ARR Advisory
Monthly Recurring Revenue / Annual Recurring Revenue. Core metrics for subscription businesses, measuring the predictable revenue base.
N
Nexus Tax
A sufficient connection between a business and a state that triggers tax filing and collection obligations. Established by physical presence, employees, inventory, or economic thresholds.
Net Income Accounting
Revenue minus all expenses, taxes, and other costs. The bottom line of the income statement. Distinguished from cash because of non-cash items like depreciation.
Net Operating Loss (NOL) Tax
A taxable loss that exceeds taxable income for a given year. May be carried forward to offset future taxable income, subject to limitations.
Non-Profit (501(c)(3)) Legal
A tax-exempt organization recognized under IRC Section 501(c)(3) for charitable, religious, educational, or scientific purposes. Files Form 990 annually.
O
Operating Expenses (OpEx) Accounting
Costs of running the business that are not directly tied to producing goods or services. Includes rent, payroll, software, professional fees, and marketing.
Operating Margin Accounting
Operating income (revenue minus COGS minus operating expenses) divided by revenue. Measures profitability of core operations before interest and taxes.
Operating Agreement Legal
The internal governance document for an LLC. Defines ownership, management, distributions, and member rights. Required by most states for multi-member LLCs.
P
Partnership Tax
A business owned by two or more persons that has not elected to be taxed as a corporation. Income passes through to partners via K-1s and is reported on personal returns.
Pass-Through Entity Tax
A business structure where income is taxed at the owner level rather than the entity level. Includes sole proprietorships, partnerships, S-corps, and most LLCs.
Payroll Tax Payroll
Taxes withheld from employee wages plus the employer's matching contribution. Includes federal income tax, Social Security, Medicare, federal unemployment, and state-level taxes.
PEO (Professional Employer Organization) Payroll
A firm that becomes the co-employer of record for a client's employees, handling payroll, benefits, and HR compliance. Useful for small businesses needing access to better benefits.
Prepaid Expense Accounting
A payment made for goods or services to be received in the future. Recorded as an asset and expensed over the period benefited (insurance, rent, software subscriptions).
PCAOB Audit
Public Company Accounting Oversight Board. The body that regulates audits of US public companies. Sets auditing standards and inspects CPA firms that audit public clients.
Q
QuickBooks Accounting
The most widely used small-business accounting software in the United States, developed by Intuit. Available as QuickBooks Online (cloud) and QuickBooks Desktop.
Quarterly Estimated Tax Tax
Tax payments required four times per year by self-employed individuals and pass-through entity owners. Underpayment penalties apply if cumulative payments fall below safe harbor thresholds.
QBI Deduction Tax
Qualified Business Income deduction under IRC 199A. Allows up to 20% deduction on qualified pass-through business income, subject to limitations based on income and business type.
R
Reasonable Compensation Payroll
The W-2 salary an S-corporation owner must pay themselves before taking remaining profits as distributions. Standard is what an unrelated party would earn for the same role.
Reconciliation Accounting
The process of confirming that two sets of records (your books and a bank statement, for example) agree. Required monthly for every balance sheet account.
R&D Tax Credit Tax
A federal tax credit for qualified research expenditures. Often missed by small to mid-sized businesses despite being available across many industries beyond just tech.
Retained Earnings Accounting
Cumulative net income retained in the business rather than distributed to owners. Tracked in the equity section of the balance sheet.
Revenue Recognition Accounting
The accounting rules governing when revenue is recorded. Under ASC 606, revenue is recognized as performance obligations are satisfied. Particularly important for SaaS and subscription businesses.
ROI (Return on Investment) Advisory
The gain or loss generated relative to the amount invested, typically expressed as a percentage. Used to evaluate the efficiency of investments.
S
S-Corporation Tax
A corporation that has elected pass-through tax treatment under Subchapter S of the Internal Revenue Code. Limited to 100 US shareholders and one class of stock.
Safe Harbor (Tax) Tax
An IRS rule that protects taxpayers from underpayment penalties if certain conditions are met (typically paying 100%-110% of prior year tax, or 90% of current year).
Sales Tax Nexus Tax
The connection that triggers an obligation to collect and remit sales tax in a state. Post-Wayfair, economic nexus thresholds (typically $100K in revenue or 200 transactions) apply.
Section 179 Tax
A federal tax provision allowing immediate expensing of qualifying equipment, software, and improvements in the year placed in service. Subject to annual limits.
Self-Employment Tax Tax
A 15.3% tax on net self-employment earnings, covering Social Security and Medicare. Paid by sole proprietors, partners, and single-member LLC owners.
SOC 2 Audit
Service Organization Controls 2. An AICPA framework for evaluating a service provider's controls over security, availability, processing integrity, confidentiality, and privacy.
Sole Proprietorship Legal
An unincorporated business owned by a single individual. Simplest structure but provides no liability protection. Income reported on Schedule C of the owner's 1040.
Statement of Cash Flows Accounting
A financial statement showing how cash moves through operating, investing, and financing activities over a period. Reconciles beginning cash to ending cash.
Sub-Chapter S Election Tax
The IRS election (made via Form 2553) to be taxed as an S-corporation rather than a C-corporation. Subject to ownership and stock class restrictions.
T
Tax Bracket Tax
The marginal tax rate applied to the next dollar of taxable income. The US uses a progressive system with multiple brackets that increase as income rises.
Tax Credit vs Deduction Tax
A deduction reduces taxable income (saving you tax at your marginal rate). A credit reduces tax owed dollar-for-dollar, making credits typically more valuable per dollar than deductions.
Trial Balance Accounting
A report listing every account in the general ledger with its debit or credit balance. Used as a starting point for preparing financial statements and verifying that debits equal credits.
Trust Fund Recovery Penalty Payroll
A personal IRS penalty of 100% of unpaid payroll taxes that can be assessed against responsible parties (officers, owners) when a business fails to remit withheld taxes.
Turnover Ratio Advisory
Measures how efficiently a business uses its assets. Inventory turnover = COGS / average inventory. Receivables turnover = revenue / average AR. Higher generally means more efficient.
U
UCC Filing Legal
A public notice under the Uniform Commercial Code that a lender has secured rights in collateral provided by a borrower. Searched in due diligence and credit decisions.
Unit Economics Advisory
The revenue and cost associated with a single unit of business (one customer, one product, one transaction). The foundation of understanding whether a business model works at scale.
Unemployment Insurance Payroll
State and federal programs funded by employer taxes that provide temporary income to workers who lose their jobs. Includes FUTA (federal) and SUTA (state).
V
Variable Cost Accounting
A cost that changes in proportion to production or sales volume. Materials, sales commissions, and shipping are typical examples. Contrast with fixed costs.
Variance Analysis Advisory
The investigation of differences between expected (budget or forecast) and actual results. A core management tool for understanding where assumptions broke down.
W
W-2 Payroll
The annual statement of wages paid and taxes withheld for each employee. Due to employees and the Social Security Administration by January 31.
W-4 Payroll
The federal form used by employees to indicate withholding allowances and additional withholding to their employer. Updated when life events change tax situation.
W-9 Payroll
The form used to collect a contractor's taxpayer identification number and certification. Required from every contractor before issuing payment to support year-end 1099 filings.
Wayfair Decision Tax
The 2018 Supreme Court decision (South Dakota v. Wayfair) that established economic nexus for sales tax. Allows states to require out-of-state sellers to collect sales tax based on revenue or transaction thresholds.
WISP (Written Information Security Plan) Audit
A documented information security program required by IRS Pub 4557 and FTC Safeguards Rule for tax preparers and other financial firms.
Working Capital Advisory
Current assets minus current liabilities. Measures short-term liquidity and the cash the business has to fund day-to-day operations.
Write-Off Accounting
The accounting recognition that an asset has no remaining value. Bad debt write-off removes an uncollectible receivable. Inventory write-off removes obsolete stock.
Y
Year-End Close Accounting
The full close of the books for the fiscal year, including adjusting entries, accruals, depreciation, and year-end reconciliations. Foundation for the tax return and annual financial statements.
Yield Advisory
The income generated by an investment, expressed as a percentage. Distinguished from total return, which also includes capital appreciation.
Z
Zero-Based Budgeting Advisory
A budgeting approach where every expense must be justified from zero each period, rather than starting from prior-year baseline. Forces discipline but is labor-intensive.