Seattle, Bellevue & Redmond, WA Tax, Accounting, QuickBooks, CPA Consulting: Stephen L. Nelson, CPA

Accounting Terms-A

401(k) plan
A retirement plan, sponsored by an employer, that allows employees to set aside some of their wages or salary for retirement. The set-aside money is not taxed. Some employers match 401(k) contributions.

AAA
The highest rating that can be given to a municipal bond. Bonds with this rating are considered a safe investment by banks and other financial institutions.

ABA transit number
The number that identifies the bank against which a check is drawn. Every check has an ABA (American Bankers Association) transit number, usually in the upper-right corner. The number—actually two numbers separated by a hyphen—identifies the bank’s location and the bank’s name.

ABC management
An approach to cost accounting that tries to more accurately assign overhead costs and more precisely measure the profits of a firm’s products, services, and business units.

abusive tax shelter
A tax shelter is considered “abusive” when its organizers knowingly misrepresent its tax benefits or value. The IRS imposes special penalties on abusive tax shelters.

accountant’s opinion
The results of an audit of a company’s records and books.

accrual basis
An accounting method in which income gets recorded as it is earned (typically, when you prepare an invoice) and expenses are recorded as they occur (typically, when you receive an invoice). With the cash-basis method, transactions are recorded when money actually changes hands (in other words, when a customer makes a payment or when you make a payment.) Note, however, that for tax purposes, many exceptions to these basic rules exist. Also note that accrual basis accounting for tax purposes differs from accrual basis accounting for financial accounting purposes.

accrued interest
Interest earned on a bond or certificate of deposit, but paid at some future date—such as when the bond or certificate of deposit is sold.

adjusted gross income
Your annual income after you’ve subtracted retirement contributions, alimony, and other deductions allowed by the IRS.

aggregate demand
A measure of how well the economy is doing. The aggregate demand is the monthly total spent by consumers, governments, and investors for goods and services.

allonge
When there isn’t enough room to write endorsements, a piece of paper attached to a check, draft, bill, or promissory note for writing endorsements.

altered check
A check whose signature, date, payee name, or amount has been changed or erased. Banks can refuse to honor altered checks.

alternative minimum tax
A flat-rate tax that trusts, corporations, and individuals must pay, regardless of how much or how little regular income tax they owe. The alternative minimum tax ensures that individuals and companies pay at least some tax.

amortization
The gradual paying off of a debt or a loan. Also, the allocation of an intangible asset’s cost as expense over the life of the asset.

amortization schedule
A schedule for making payments on a mortgage. The schedule shows the number of payments, when payments are due, how much of each payment goes toward the principal and how much goes toward paying interest, and the declining amount of money owed on the loan as payments are made.

annual report
A report showing the financial status of a corporation. Public corporations are required to issue annual reports to their shareholders. Smaller firms typically don’t issue annual reports.

appraisal
An estimate of the current market value of an asset.

arbitrage
Buying items in one market and selling them in another in order to profit on the difference between the two market prices. For example, if the U.S. dollar cost 1.02 Euros in New York but only 1.0 Euros in London, a trader could simultaneously buy deutsche marks in London and sell them in New York, thereby earning a profit.

arm’s-length transaction
A transaction made between a buyer and seller who have no relationship to one another. Transactions made between subsidiary companies of the same parent company are not arm’s-length transactions because the companies may not be acting in their own self-interest but in the interest of a parent company.

arrears
Being behind in payments. You are in arrears if you have one or more unpaid debts.

assessed valuation
For tax purposes, the value of a property. Usually, property taxes are paid as a percentage of the assessed valuation of the property.

assessment
The amount charged, such as for property taxes.

asset
Any property that has value. Real estate, personal items, and even trademarks are examples of assets. The value of all your assets is called your total assets.

asset-based lending
A lending method in which a company’s accounts receivable and inventory are used as collateral for the loan and as the basis for determining whether the company is worthy of receiving a loan.

asset dividend
A dividend paid as property instead of cash. For example, in lieu of cash, a corporation might pay dividends in the form of stock certificates to its stockholders.

attorney-in-fact
A person hired to act in the name of another person. Also called power of attorney.

audit
A formal examination of the accounts, assets, liabilities, and transactions of a company or an individual.

auditor’s opinion
The results of an audit of a company’s records and books.

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