Bookkeeping, Basic Accounting, and Tax Terms and Definitions:
401 (k) plan: It is an employers retirement savings plan where employees divert part of there salary or pay checks into a tax-deferred investment account. An amount that is put into the plan is not taxed until it is later withdrawn.
Accounting: It is the process of sorting and entering financial date into a system. The accounting process includes summarizing, analyzing, and reporting transactions to oversight agencies, regulators, and tax collection entities.
Adjusted Gross Income: This is your income from all taxable sources, minus certain adjustments, and is the key to determine your eligibility for certain tax benefits. Adjusted gross income is also the amount from which deductions and personal and dependent exemptions are deducted that arrive at the amount of taxable income that will be taxed.
Assets: They are Items of value that are owned by a business. They are also found on the balance sheets and include current assets like cash in the bank accounts, receivable and non-current assets like equipment, land buildings, and vehicles.
Audit: This is a review of your tax return by the IRS, during which you are asked to prove that you correctly report your income and deductions.
Backup: A backup is an electronic copy of financial data. They are vital to preventing the loss of data if a computer crashes. It can be a drive, or type of online storage that hold all your data and prevents re-entering data in again.
Balance Sheets: It a report that shows a business owner and managers how much equity is in the business, and how many assets the business owns. Balance sheets falls into line with the accounting equations.
Bookkeeping: It is a recording on a day-to-day basis, of financial transactions that are made by a business.
Budget: A financial Plan where a business decides what to estimate that the business will earn the year ahead and what those estimated earning will be spent on. And it also requires comparing and monitoring actual figures against the business budget plans.
Burden of Proof: The responsibility of the taxpayer to prove that his or her tax return is accurate, rather than the IRS having to provide convincing evidence that it is inaccurate. This change will have no effect on most taxpayers.
Capital: It is personal funds that a business owner brings into the business so that they can operate.
Capital Gain: The profit from a sale of such as property as stocks, mutual funds shares, and real estate. Gains from the sale of assets owned for 12 months or less are shirt-term capital gains and are taxed in your top tax bracket.
Capital Loss: Is the loss from a sale of assets such as stocks, bonds, mutual funds, and real estate. Such losses are first used to offset capital gains and then up to $3,000 of excess losses can be deducted against other income.
Cash Flow: It is the movement of cash through the business. It reports the flow of cash into the business and what the money is spent on for the business.
Closing Balance: It is the balance on a bank statement at the end of any given day.
College Credit: Is credit that can be worth up to $2,500 for each qualified student and the availability to students for the first four years of college.
Commission: It is a portion of sales that is earned to an individual who is selling products for a business or even individually. Owners set an amount or percentage of a sale.
Cost of Goods Sold: It is a known cost of sale. This can be the cost of parts, stocks that are sold to customers. This also includes manufacturing cost to create products for customers.
Deductible: A deductible is a purchase someone make that can be claimed as business expense because it can affect the business profit. With a deductible it reduces the amount of income tax that can be owed to the government.
Dependent: Someone you support and who you can claim a dependent on your tax return. For each dependent you claim, you are eligible for a dependent credit that directly reduces your tax.
Earned Income: A compensation, such as salary, commissions, and tips you receive for your personal services.
End of Month: There are many steps that bookkeepers must take to close off the month for businesses such as: Making sure all sale have been issued, Invoices are to customers, making sure sales tax or payroll tax has been calculated to report and paid to the government. Each must be done for each business for the end of the month.
Expense: Most purchases that are made by businesses are called expenses. They are found on the profit and loss report that help reduce the amount of taxes owed.
Filing Status: Your status determines the size of your standard deductions and the tax rate that apply to your income. For tax purpose you are considered single, married filling jointly, married filing separately, head of household or qualifying widow or widower.
Fiscal Year: It is a financial year made up of 12 consecutive months that can begin any month. During the time period a business will need to update their bookkeeping records and then at the end they will have to be calculated on the result of those 12 months.
Gross Profit: This is calculated by taking business income and deducting the cost of sales in the business. If the cot of sales is more than the income it is considered a gross loss.
Income: It is money that is earned by a business through the sales of products or service.
Head of Household: A filing status with lower tax rates for unmarried or some married who pay more than half the cost of maintaining a home, generally for themselves and qualify person, for more than half the tax year.
Liability: They are made up of debts that the company owes to other businesses and includes accounts payable, loans, and credit card balances. Which they are found on a balance sheet.
Loss: A loss occurs when the gross profit of a business is less than the expenses the business has to pay to keep business running.
Net Profit: It is the result after taking expenses away from the gross profit or loss.
Opening Balance: Are values found on the first day of the financial period. Opening balances are usually always exactly the same as the closing balances.
Payroll: People who are employed is paid a wage or salary that will have their name on the payroll of the business that they work for. Bookkeepers are in charge of payroll that will ensure that all the employee’s details are entered into the payroll program.
Profit: The differences between income and expenses paid. The greater the profit the profit the better the business.
Salary: it is a fixed amount paid to an employee for their work. People that are on salaries do not earn overtime. They earn their wages working more than standard hours.
Year-End: Financial year end is always busy for a bookkeeper because this is when the accounts for the year need to be finalized and handed over to an accountant to calculate how much business taxes needs to pay. Bookkeepers need to ensure all transactions entries are correct, that paperwork is available and that payroll taxes have been processed.