Glossary
Accounting document glossary
Plain definitions of the forms, records and terms that come up when a firm collects documents from clients. Each term links to the checklist where it belongs.
1
A
Bookkeeping
Accounts payable
Accounts payable is the total a business owes to vendors for goods or services it has received but not yet paid. Each unpaid bill is recorded as a liability, and the total is reported on the balance sheet.
DefinitionBookkeeping
Accounts receivable
Accounts receivable is the total customers owe a business for goods or services it has delivered but not yet been paid for. Each unpaid invoice is recorded as an asset, and the total is reported on the balance sheet.
DefinitionAccounting method
Accrual accounting
Accrual accounting records revenue when the work is done or the sale is made, and expenses when they are incurred, even if the cash has not moved yet. It uses receivables, payables and accruals to match income and expenses to the period they belong to.
DefinitionBookkeeping
Accrued expense
An accrued expense is a cost the business has incurred during a period but has not paid by the end of that period. The bookkeeper records the expense and a matching liability so the period's profit includes the cost.
DefinitionBookkeeping
Adjusting entry
An adjusting entry is a journal entry made at the end of an accounting period to record revenue or an expense that belongs to the period but is not yet in the books. Common adjustments cover accruals, prepaid expenses, depreciation and deferred revenue.
Definition
B
Tax compliance
Backup withholding
Backup withholding is federal income tax that a payer must take out of a reportable payment at a flat 24% when the payee has not given a correct taxpayer identification number (TIN) or the IRS has told the payer to start. The payer sends the money to the IRS, and the payee claims it as tax withheld on their own return.
DefinitionBookkeeping
Bank reconciliation
A bank reconciliation is the process of matching the transactions on a bank statement to the transactions recorded in the books, then explaining any difference between the statement balance and the book balance.
DefinitionTax
Bonus depreciation
Bonus depreciation is an additional first-year deduction for qualifying business property. It is claimed on top of the regular depreciation, and the percentage depends on the tax year the property is placed in service.
DefinitionFinancial analysis
Break-even point
A break-even point is the amount of sales a business needs to cover its total costs. At that level, revenue equals fixed costs plus variable costs, so the business makes neither a profit nor a loss.
Definition
C
Business tax
C corp tax rate
The C corp tax rate is the flat 21% federal rate a C corporation applies to taxable income on Form 1120 (Schedule J, line 1a). The IRS shows no graduated brackets and no separate personal service corporation rate. It excludes state income tax and the tax shareholders may owe on distributions.
DefinitionAccounting method
Cash basis accounting
Cash basis accounting records revenue when the business receives the cash and records expenses when it pays them. It does not use receivables, payables or accruals to match income and expenses to the period they belong to.
DefinitionBookkeeping
Cash flow
Cash flow is the cash a business receives and pays during a period. It includes customer payments, vendor payments, payroll, loans, taxes and owner draws.
DefinitionPayroll
Certified payroll
Certified payroll is a weekly payroll report that a contractor or subcontractor on a federal construction contract over $2,000 submits to the contracting agency. A signed Statement of Compliance certifies that each worker was paid at least the prevailing wage and fringe benefits. Optional Form WH-347 is the common format.
DefinitionBookkeeping
Chart of accounts
A chart of accounts is the numbered list of accounts a business uses to record its transactions. It is usually grouped into assets, liabilities, equity, income, cost of goods sold and expenses.
DefinitionPractice
Client accounting services
Client accounting services, often shortened to CAS, are the ongoing accounting services a firm provides to a business client. They usually include bookkeeping, the monthly close, management reporting, payroll support and advisory work.
DefinitionFirm operations
Client intake form
A client intake form is the questionnaire a firm has a new client complete before work starts. It records who the client is, which entities and returns are in scope, who prepared the last return, and which authorizations the firm needs. It is not an organizer or a document request, and it is not the engagement letter.
DefinitionTax filings
Composite return
A composite return is a single state income tax return that a partnership or S corporation files and pays for several nonresident owners, in place of each owner filing a separate return in that state. It is a state tax device, not a federal one. Whether it is optional or mandatory depends on the state.
DefinitionBookkeeping
Cost of goods sold
Cost of goods sold is the direct cost of the products a business sold during the period. It includes beginning inventory, purchases, freight and direct labor, less ending inventory.
DefinitionFinancial analysis
Current ratio
The current ratio is current assets divided by current liabilities. It estimates whether a business has enough short-term resources, such as cash, receivables and inventory, to pay the bills due within a year.
Definition
D
Financial analysis
Days sales outstanding
Days sales outstanding, or DSO, is the average number of days a business takes to collect payment after a sale. It is calculated from accounts receivable and revenue for the same period.
DefinitionBookkeeping
Deferred revenue
Deferred revenue is a payment a business has received for a good or service it has not yet delivered. It is recorded as a liability, sometimes called unearned revenue, and recognized as revenue as the service is delivered.
DefinitionTax and bookkeeping
Depreciation
Depreciation is the method a business uses to spread the cost of a fixed asset over the years it is used. Instead of deducting the full purchase price in one year, the business deducts a portion each year.
DefinitionTax
Distribution
A distribution is a payment of cash or property from an entity to its owners or beneficiaries. For a partnership or S corporation, the tax treatment depends on the owner's basis and the entity's earnings.
DefinitionPractice
Document collection
Document collection is the process an accounting firm uses to ask clients for records and answers, follow up until they arrive, review what the client sends and file the accepted documents in the client's records.
Definition
E
Financial analysis
EBITDA
EBITDA is a measure of a company's operating profit before interest, taxes, depreciation and amortization. It starts with net income and adds those four items back, so the result shows earnings from operations before financing, tax and accounting choices.
DefinitionTax
Effective tax rate
An effective tax rate is the total tax divided by taxable income or total income. It shows the average rate across the whole return, while the marginal rate applies only to the next dollar of income.
DefinitionTax practice
EFIN
An EFIN, or Electronic Filing Identification Number, is the number the IRS assigns to a firm that completed the IRS e-file application and passed a suitability check. The firm, not any one preparer, owns it, and providers need it to e-file returns.
DefinitionTax practice
Electronic Return Originator (ERO)
An electronic return originator (ERO) is the authorized IRS e-file provider that originates the electronic submission of a return after the taxpayer authorizes it. The ERO is usually the client's first contact for e-file, holds the firm's EFIN, and signs Part III of Form 8879.
DefinitionPractice management
Engagement letter
An engagement letter is the written agreement between an accounting firm and a client. It sets the services the firm will provide, the fee, the client's responsibilities, the records the client will provide and the limits of the engagement.
DefinitionTax
Estimated tax
Estimated tax is the method a taxpayer uses to pay tax on income that is not subject to withholding. It covers self-employment income, business income, investment income and other payments that do not have enough tax withheld.
Definition
F
Payroll
FICA
FICA is the Federal Insurance Contributions Act, the law that requires Social Security and Medicare taxes on wages. The employee's share is withheld from pay, and the employer pays a matching share.
DefinitionBookkeeping
Fixed asset
A fixed asset is property a business uses in its operations for more than one year, such as equipment, vehicles, furniture, computers or leasehold improvements. It is recorded on the balance sheet and usually depreciated over its useful life.
DefinitionTax forms
Form 1040
Form 1040 is the U.S. individual income tax return. It reports the taxpayer's income, deductions, credits and payments, and calculates the federal tax owed or the refund due.
DefinitionTax forms
Form 1040-ES
Form 1040-ES is the estimated tax package for individuals. It includes a worksheet for calculating the payment and a voucher the taxpayer can use to pay by check, along with the due dates for the year.
DefinitionTax forms
Form 1040-X
Form 1040-X is the amended U.S. individual income tax return. A taxpayer uses it to correct an error or add information on a Form 1040 that was already filed, and it shows the original amount, the corrected amount and the difference.
DefinitionTax forms
Form 1041
Form 1041 is the U.S. income tax return for estates and trusts. It reports the entity's income, deductions, credits and tax, and it reports the distributions to beneficiaries on Schedule K-1.
DefinitionTax forms
Form 1065
Form 1065 is the U.S. Return of Partnership Income. A partnership files it to report its income, deductions, gains and losses, and to issue each partner a Schedule K-1 with the partner's share of those items.
DefinitionTax forms
Form 1095-A
Form 1095-A is the Health Insurance Marketplace statement. It reports the policy, the monthly premiums, the second lowest cost silver plan premium and the advance premium tax credit paid to the insurer.
DefinitionTax forms
Form 1096
Form 1096, Annual Summary and Transmittal of U.S. Information Returns, is the summary form filed with paper copies of Forms 1099, 1098 and other information returns. It reports the type of form, the number of forms and the total amount.
DefinitionTax forms
Form 1098
Form 1098 is an information return that reports mortgage interest and certain other payments, such as mortgage insurance premiums or points, paid during the year. A lender or other payer sends it to the taxpayer and the IRS.
DefinitionTax forms
Form 1098-E
Form 1098-E is an information return that reports student loan interest paid during the year. A lender sends it when the interest reaches the reporting threshold, and the taxpayer may be able to deduct some or all of it.
DefinitionTax forms
Form 1098-T
Form 1098-T is an information return that reports qualified tuition and related expenses paid to an eligible educational institution. It also shows scholarships or grants the school administered.
DefinitionTax forms
Form 1099-B
Form 1099-B is an information return that reports proceeds from sales of stocks, bonds, mutual funds and other securities through a broker, and from barter exchanges. It often includes the cost basis and the holding period.
DefinitionTax forms
Form 1099-C
Form 1099-C is an information return that reports a cancelled or forgiven debt of $600 or more. The lender sends it to the borrower and the IRS, and the cancelled amount can be taxable income.
DefinitionTax forms
Form 1099-DA
Form 1099-DA, Digital Asset Proceeds From Broker Transactions, is the information return a broker sends a customer and the IRS for each digital asset sale. Gross proceeds are reported for transactions on or after January 1, 2025. Basis is reported for covered securities, meaning assets acquired after 2025 and held in the broker's custody, so tax year 2026 is the first year it can appear.
DefinitionTax forms
Form 1099-DIV
Form 1099-DIV is an information return that reports dividends and other distributions paid to a taxpayer during the year. It separates ordinary dividends, qualified dividends, capital gain distributions and other categories.
DefinitionTax forms
Form 1099-INT
Form 1099-INT is an information return that reports interest income paid to a taxpayer during the year. A bank, broker or other payer sends it when the interest reaches the reporting threshold, generally $10.
DefinitionTax forms
Form 1099-K
Form 1099-K is the information return a payment settlement entity, such as a payment app, marketplace or card processor, files to report the gross payments it handled for a seller during the year.
DefinitionTax forms
Form 1099-MISC
Form 1099-MISC is the information return a business files to report certain payments that are not nonemployee compensation, such as rent, royalties, prizes and awards, medical and health care payments, and gross proceeds paid to attorneys.
DefinitionTax forms
Form 1099-NEC
Form 1099-NEC is the information return a business files to report nonemployee compensation paid to a contractor, freelancer or other payee. It reports the amount paid for services during the year.
DefinitionTax forms
Form 1099-Q
Form 1099-Q reports distributions from a qualified tuition program, such as a 529 plan, or a Coverdell education savings account. It shows the gross distribution, the earnings portion and the basis.
DefinitionTax forms
Form 1099-R
Form 1099-R is an information return that reports distributions from pensions, annuities, retirement plans, individual retirement accounts and insurance contracts. It shows the gross distribution, the taxable amount and a distribution code.
DefinitionTax forms
Form 1099-S
Form 1099-S is an information return that reports the sale or exchange of real estate. It shows the gross proceeds, the closing date and the property address, and it is generally prepared by the closing agent or the buyer's representative.
DefinitionTax forms
Form 1120
Form 1120 is the U.S. income tax return for C corporations. It reports the corporation's income, deductions, credits, tax and payments, and it is due by the 15th day of the fourth month after the tax year ends for a calendar-year corporation.
DefinitionTax forms
Form 1120-S
Form 1120-S is the U.S. Income Tax Return for an S Corporation. The corporation reports its income, deductions, gains and losses, and issues each shareholder a Schedule K-1 with the shareholder's share.
DefinitionTax forms
Form 2553
Form 2553, Election by a Small Business Corporation, is the form a corporation or eligible LLC files to elect S corporation status. Each shareholder signs the election.
DefinitionTax forms
Form 2848
Form 2848, Power of Attorney and Declaration of Representative, authorizes an individual to represent the taxpayer before the IRS. The representative can receive notices, respond to the IRS and sign certain documents.
DefinitionTax forms
Form 4506
Form 4506, Request for Copy of Tax Return, is the form a taxpayer files with the IRS to receive a copy of a previously filed return. The IRS charges a fee for each return requested.
DefinitionTax forms
Form 4562
Form 4562 is the form used to claim depreciation and amortization and to elect the Section 179 deduction. It lists the property, the placed-in-service date, the basis and the deduction for the year.
DefinitionTax forms
Form 4797
Form 4797 is the form used to report the sale or exchange of property used in a trade or business, including equipment, vehicles and certain real estate. It separates the ordinary income portion from the capital gain portion.
DefinitionTax forms
Form 4868
Form 4868 is the application for an automatic extension of time to file a U.S. individual income tax return. It moves the filing date to the extended date, usually October 15, but it does not move the date the tax is due.
DefinitionTax forms
Form 7004
Form 7004 is the application for an automatic extension of time to file certain business income tax, information and other returns. It covers returns such as Form 1065, Form 1120, Form 1120-S and Form 1041.
DefinitionTax forms
Form 8821
Form 8821, Tax Information Authorization, authorizes the person named on the form to inspect and receive the taxpayer's confidential tax information. It does not authorize the person to represent the taxpayer before the IRS.
DefinitionTax forms
Form 8829
Form 8829 is the form a self-employed taxpayer uses to calculate the home office deduction. It figures the business percentage of the home, the allowable expenses and any carryover.
DefinitionTax forms
Form 8867
Form 8867, Paid Preparer's Due Diligence Checklist, is the IRS form a paid preparer completes and submits with any return or refund claim that includes the earned income credit, child tax credit, additional child tax credit, credit for other dependents, American opportunity tax credit or head of household filing status. It records the client interview, the documents relied on and the eligibility checks.
DefinitionTax forms
Form 8879
Form 8879, IRS e-file Signature Authorization, is the form an individual taxpayer signs to authorize an electronic return originator to file the Form 1040 electronically. The preparer keeps the signed form.
DefinitionTax forms
Form 8949
Form 8949 is the form a taxpayer uses to report sales and other dispositions of capital assets. It lists each transaction with the proceeds, the basis and the gain or loss, and it feeds Schedule D.
DefinitionTax forms
Form 8962
Form 8962 is the Premium Tax Credit form. It calculates the credit a taxpayer is allowed for Marketplace health coverage and reconciles it with the advance credit paid to the insurer during the year.
DefinitionTax forms
Form 940
Form 940, Employer's Annual Federal Unemployment (FUTA) Tax Return, reports the federal unemployment tax an employer owes for the year. The tax is based on the first $7,000 of wages paid to each employee, subject to credits.
DefinitionTax forms
Form 941
Form 941, Employer's Quarterly Federal Tax Return, reports the federal income tax withheld from employees and the employer's and employee's Social Security and Medicare taxes for the quarter.
DefinitionTax forms
Form 941-X
Form 941-X is the adjusted employer's quarterly federal tax return or claim for refund. An employer uses it to correct wages, tips, federal income tax withheld or Social Security and Medicare tax on a Form 941 that was already filed.
DefinitionTax forms
Form 990
Form 990 is the annual information return most tax-exempt organizations file with the IRS. It reports the organization's governance, revenue, expenses, balance sheet and program accomplishments, and much of it is public.
DefinitionPayroll
Form I-9
Form I-9 is the Employment Eligibility Verification form. The employee completes one section, the employer reviews the employee's documents and completes another, and the form is kept as a record of the verification.
DefinitionTax forms
Form W-2
Form W-2 is the wage and tax statement an employer sends each employee. It reports the employee's wages, tips and other compensation, the Social Security and Medicare wages, and the federal, state and local income tax withheld.
DefinitionPayroll
Form W-4
Form W-4 is the employee's withholding certificate. The employee gives it to the employer so the payroll system can calculate the federal income tax to withhold from each paycheck.
DefinitionTax forms
Form W-9
Form W-9, Request for Taxpayer Identification Number and Certification, is the form a payee completes to give a business its legal name, tax classification and taxpayer identification number. The business uses it to prepare Form 1099 and to keep its payer records correct.
DefinitionPayroll
FUTA
FUTA is the Federal Unemployment Tax Act, which requires employers to pay a federal unemployment tax on wages. It is separate from FICA and from the state unemployment tax, and it is reported on Form 940.
Definition
G
Bookkeeping
General ledger
The general ledger is the complete record of every transaction a business records, organized by account. Each account shows its beginning balance, every debit and credit during the period, and its ending balance.
DefinitionFinancial analysis
Gross margin
Gross margin is the percentage of revenue left after subtracting cost of goods sold. It shows how much a business keeps from each sale before paying overhead, payroll, marketing and other operating costs.
DefinitionBookkeeping
Gross profit
Gross profit is revenue minus the cost of goods sold. It shows how much the business keeps from each sale before paying operating expenses such as rent, payroll and marketing.
DefinitionTax
Guaranteed payment
A guaranteed payment is a payment a partnership makes to a partner for services or for the use of capital, determined without regard to the partnership's income. It is reported on the partner's K-1 and is generally subject to self-employment tax.
Definition
H
I
Tax compliance
Identity Protection PIN
An Identity Protection PIN (IP PIN) is a six-digit number the IRS assigns to a taxpayer with an SSN or ITIN so no one else can file a return under that number. It changes every year and goes on Forms 1040, 1040-NR, 1040-PR, 1040-SR and 1040-SS.
DefinitionTax
Itemized deduction
An itemized deduction is a qualifying expense a taxpayer lists on Schedule A instead of claiming the standard deduction. Common examples include mortgage interest, state and local taxes, charitable contributions and certain medical expenses.
Definition
J
M
Tax
Marginal tax rate
A marginal tax rate is the percentage of tax applied to the next dollar of taxable income. The rate rises as income moves through the brackets, so different portions of the same return can be taxed at different rates.
DefinitionBookkeeping
Month-end close
The month-end close is the work a firm does to finish a client's books for a month: reconciling every bank, card and loan account, recording the missing expenses and income, making the adjusting entries, and reviewing the financial statements before the period is closed.
Definition
N
O
P
Tax concepts
Pass-through entity tax
Pass-through entity tax (PTET) is a state-level income tax that a partnership or S corporation elects to pay on its own income, instead of its owners paying it on their personal returns. The entity deducts the payment on Form 1065 or Form 1120-S, which lowers the income on each Schedule K-1.
DefinitionPayroll
Payroll source documents
Payroll source documents are the original records that justify a payroll entry before any report is built from it: the signed Form W-4, hours or time records, tip statements, rate-change approvals and bonus authorizations. The IRS does not define the term, but its recordkeeping rules require these facts.
DefinitionFirm operations
Practice management software
Practice management software is the system a bookkeeping, tax or CPA firm uses to run its own work: a client list, one job per client, service and tax year, due dates, assignments, time, billing and a log of who did what. It tracks the firm's workload, not the returns or the clients' books, and it may be cloud-hosted or installed on the firm's own servers.
DefinitionBookkeeping
Prepaid expense
A prepaid expense is a payment made for a good or service the business will use in a future period. It is recorded as an asset, such as prepaid insurance or prepaid rent, and moved to expense as the benefit is used.
DefinitionTax preparers
PTIN
A PTIN, or Preparer Tax Identification Number, is the number the IRS issues to anyone who prepares or assists in preparing federal tax returns for compensation. It identifies the individual, not the firm. Tax professionals must include a PTIN on any return or claim for refund they file with the IRS, and enrolled agents must hold a valid one too.
Definition
Q
R
Tax
Reasonable compensation
Reasonable compensation is the amount an S corporation pays an owner-employee for the work the owner performs. It should reflect the owner's role, hours, experience and the market rate for similar work.
DefinitionSales tax
Resale certificate
A resale certificate is a form a customer signs to buy goods without paying sales tax because the customer will resell them. The customer provides its sales tax permit or registration number, and the seller keeps the certificate with the sale records.
DefinitionBookkeeping
Retained earnings
Retained earnings are the cumulative net income a corporation has kept in the business after paying dividends and making other equity adjustments. They are reported in the equity section of the balance sheet.
Definition
S
Tax
Safe harbor
A safe harbor is a rule that protects a taxpayer from an underpayment penalty when the payments reach a minimum level. For estimated tax, the safe harbor is generally based on the current year's tax or the prior year's tax, and a higher prior-year percentage can apply at higher income.
DefinitionSales tax
Sales tax filing frequency
Sales tax filing frequency is how often a state requires a seller to file a sales tax return and remit the tax: monthly, quarterly, annually, or in some states quarterly with prepayments between returns. The state assigns it to each account, usually from tax reported or expected at registration, so a client registered in three states can have three schedules and three sets of due dates.
DefinitionSales tax
Sales tax nexus
Sales tax nexus is the connection between a business and a state that gives the state the right to require the business to collect and remit sales tax. It can come from a physical presence, such as an office or employee, or from the state's economic nexus threshold.
DefinitionTax forms
Schedule A
Schedule A, Itemized Deductions, is the form a taxpayer files with Form 1040 to claim deductions for mortgage interest, state and local taxes, charitable contributions, medical expenses and other eligible items.
DefinitionTax forms
Schedule B
Schedule B, Interest and Ordinary Dividends, is the form a taxpayer files with Form 1040 when interest or dividend income exceeds the threshold or when certain foreign account questions apply.
DefinitionTax forms
Schedule C
Schedule C, Profit or Loss from Business, is the form a sole proprietor or a single-member LLC files with Form 1040 to report the business's income, expenses and cost of goods sold.
DefinitionTax forms
Schedule E
Schedule E, Supplemental Income and Loss, is the form a taxpayer files with Form 1040 to report rental income and expenses, royalties, and the taxpayer's share of income from partnerships and S corporations.
DefinitionTax forms
Schedule K-1
Schedule K-1 is the form an entity uses to report each owner's share of its income, deductions, credits and other items. Partnerships, S corporations, estates and trusts issue their own versions of the K-1.
DefinitionFirm management
Scope creep in accounting
Scope creep in accounting is work a firm performs that the signed engagement letter does not list and the fee does not cover. In practice it often looks like a notice response, a prior-year cleanup, a payroll question or a Form 1099-NEC run nobody quoted. Catch it with one standing rule: before starting any request, check it against the letter's services list.
DefinitionTax
Section 179
Section 179 is a tax rule that lets a business deduct the full cost of qualifying property in the year it is placed in service, instead of depreciating it over several years. The deduction is subject to an annual limit and to taxable income.
DefinitionTax
Self-employment tax
Self-employment tax is the Social Security and Medicare tax a self-employed person pays on net self-employment income. It is calculated on Schedule SE and included in the individual tax return, separate from income tax.
DefinitionSecurity
SOC 2
SOC 2 is an attestation report issued by an independent CPA firm about a service organization's controls. It covers one or more trust services criteria: security, availability, processing integrity, confidentiality and privacy.
DefinitionTax
Standard deduction
The standard deduction is a fixed amount that reduces a taxpayer's taxable income. A taxpayer can claim it instead of itemizing specific deductions, and the amount depends on filing status, age and other factors.
Definition
T
Tax
Tax basis
Tax basis is the amount a taxpayer has invested in an asset or business interest for tax purposes. It is used to measure gain or loss on a sale, depreciation and the taxability of a distribution.
DefinitionTax preparation
Tax organizer
A tax organizer is the questionnaire and document checklist a preparer sends a client before return preparation starts. It is normally pre-filled from the prior-year return, and the client confirms, corrects or adds income, deduction, dependent and account details and supplies the source documents. It is a firm work product, not an IRS form.
DefinitionBookkeeping
Trial balance
A trial balance is a list of every account in the general ledger with its debit or credit balance at a specific date. The total debits should equal the total credits, which shows that the books are mathematically in balance.
Definition
W
Security
WISP
A WISP, or written information security plan, is a document that describes how a firm protects client information: who is responsible, what data it holds, how access is controlled, how incidents are handled and how the plan is reviewed.
DefinitionBookkeeping
Working capital
Working capital is current assets minus current liabilities. It measures the cash and near-cash resources a business has to fund its day-to-day operations.
Definition