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Home/Resources/Glossary
100+ terms · Plain language · US accounting & tax focus

US Accounting & Tax Glossary for CPA Firms.

Plain-language definitions of the terms that come up most in offshore accounting engagements, tax season conversations, and CPA firm operations. Search, filter by category, or jump A–Z. Core terms link to full deep-dive guides.

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    1040 Tax Return
    The IRS form individuals use to file their annual federal income tax return.
    1099 Form
    A family of IRS forms reporting income paid to non-employees and other parties outside regular payroll.
    A
    Accounts Payable(AP)
    Money a business owes its suppliers for goods or services received but not yet paid for, recorded as a current liability.
    Accounts Payable Aging
    A report grouping unpaid supplier bills by how long they have been outstanding, used to manage payment timing and cash.
    Accounts Payable vs Accounts Receivable
    The distinction between money a business owes to others (payable) and money others owe to the business (receivable).
    Accounts Receivable(AR)
    Money owed to a business by its customers for goods or services already delivered, recorded as a current asset.
    Accounts Receivable Aging
    A report grouping unpaid customer invoices by how long they have been outstanding, used to manage collections.
    Accrual Accounting
    An accounting method that records revenue when earned and expenses when incurred, regardless of when cash actually moves.
    Accrual vs Cash Basis
    The contrast between recording transactions when they are earned or incurred (accrual) versus when cash actually changes hands (cash basis).
    Accrued Expenses
    Expenses a business has incurred but not yet paid or been billed for, recorded as a liability to match the period they belong to.
    Accrued Revenue
    Revenue earned but not yet billed or received, recorded as an asset; the mirror of accrued expenses.
    Amortization
    The gradual writing-off of an intangible asset's cost, or a loan's principal, across time; the intangible-asset counterpart to depreciation.
    Assets
    Everything a business owns or controls that has economic value, from cash and receivables to equipment and property.
    Audit
    An independent examination of a business's financial statements to express an opinion on whether they are fairly presented.
    Audit Trail
    The complete, sequential record of every financial transaction and modification, enabling any entry to be traced to its source.
    B
    Balance Sheet
    A financial statement showing what a business owns, owes, and the owner's residual stake at a single point in time, built on Assets = Liabilities + Equity.
    Bank Reconciliation
    The process of matching a business's internal cash records against its bank statement to confirm both agree and surface any discrepancies.
    Benefits Administration
    The operational management of employee benefits such as health insurance, retirement plans, and FSAs, including the payroll deductions, employer contributions, and compliance filings they require.
    Bookkeeping
    The day-to-day recording and organizing of a business's financial transactions, the foundation every financial statement is built on.
    Break-Even Analysis
    The calculation of the sales volume at which total revenue equals total costs and the business makes neither profit nor loss.
    Budget
    A forward-looking financial plan of expected revenues, expenses, and cash over a period, used to allocate resources and to measure actual performance against.
    Burn Rate
    The rate at which a business spends its cash reserves, typically used for pre-revenue or early-stage companies to measure runway.
    Business Valuation
    The process of estimating the economic worth of a business using the income, market, or asset approach, with the result resting on judgment-heavy assumptions made by a credentialed valuator.
    C
    C Corporation
    A standard corporation taxed separately from its owners at the corporate income tax rate; subject to potential double taxation on dividends.
    CAPEX and OPEX
    Capital expenditure (spending on long-term assets, capitalized and depreciated) versus operating expenditure (day-to-day expenses, deducted immediately).
    Capital Gains
    The profit from selling a capital asset for more than its cost basis; taxed differently from ordinary income depending on the holding period.
    Cash Conversion Cycle
    The number of days it takes a business to convert its investments in inventory and resources into cash from sales, calculated as days inventory outstanding plus days sales outstanding minus days payable outstanding.
    Cash Flow
    The movement of money into and out of a business over a period, across operating, investing, and financing activities.
    Cash Flow Statement
    A financial statement tracking how cash moved through a business over a period, across operating, investing, and financing activities.
    Chart of Accounts
    The organized list of every account a business uses to record transactions, grouped into assets, liabilities, equity, income, and expenses.
    Contra Account
    An account that reduces the balance of a related account such as accumulated depreciation reducing fixed assets, or allowance for doubtful accounts reducing AR.
    Contribution Margin
    The amount left from each sale after variable costs, available to cover fixed costs and then profit, calculated as sales price minus variable cost.
    Cost Basis
    The original value of an asset for tax purposes, adjusted over time for items like improvements and depreciation, used to compute gain or loss on sale.
    Cost of Goods Sold(COGS)
    The direct costs of producing the goods or services a business sold during a period, subtracted from revenue to get gross profit.
    Current Assets
    Assets expected to be converted to cash or used up within one year, including cash, receivables, and inventory.
    Current Ratio
    Current assets divided by current liabilities; a measure of whether a business can cover its short-term obligations with its short-term assets.
    D
    Debt-to-Equity Ratio
    Total liabilities divided by total equity; a measure of how much a business relies on debt versus owner financing.
    Deferred Revenue
    Money a business has received for goods or services it has not yet delivered, recorded as a liability until earned.
    Depreciation
    The accounting method that spreads the cost of a tangible fixed asset across its useful life rather than expensing it all at once.
    Double Entry Accounting
    The bookkeeping system where every transaction is recorded in at least two accounts as equal debits and credits, keeping the books in balance.
    E
    EBITDA
    Earnings before interest, taxes, depreciation, and amortization; a measure of operating performance that strips out financing and accounting decisions.
    Equity
    The owner's residual claim on a business after liabilities are subtracted from assets; what would remain if everything were settled.
    Estimated Quarterly Taxes
    Quarterly IRS payments required for self-employed individuals and pass-through entity owners who expect to owe at least $1,000 in tax for the year.
    Exempt vs Non-Exempt
    A distinction under the FLSA between employees who must receive overtime pay (non-exempt) and those who do not (exempt), determined by both a salary threshold and a duties test, not by job title.
    F
    Financial Statements
    The formal reports summarizing a business's financial position and performance: the balance sheet, income statement, and cash flow statement.
    Fiscal Year
    The twelve-month period a business uses for accounting and tax reporting, which may or may not match the calendar year.
    Fixed Assets
    Long-term tangible assets a business uses in operations rather than sells, such as buildings, equipment, and vehicles.
    Free Cash Flow
    Operating cash flow minus capital expenditures; the cash a business generates after maintaining and growing its asset base.
    G
    GAAP
    Generally Accepted Accounting Principles, the standard framework of US accounting rules issued through the FASB Accounting Standards Codification.
    Garnishment
    A court- or agency-ordered deduction from an employee paycheck to satisfy a debt such as child support, a tax levy, or a creditor judgment, calculated under strict legal limits.
    General Ledger
    The master record holding every financial transaction across all accounts, from which the trial balance and financial statements are produced.
    Going Concern
    The assumption that a business will continue operating into the foreseeable future, underpinning how its financial statements are prepared.
    Gross Margin
    Gross profit expressed as a percentage of revenue, showing how much of each revenue dollar remains after direct production costs.
    Gross Profit
    Revenue minus the cost of goods sold, showing how much a business earns before operating expenses, interest, and taxes.
    I
    IFRS
    International Financial Reporting Standards, the accounting framework used in 140+ countries, the global counterpart to US GAAP.
    Income Statement
    A financial statement showing revenue, expenses, and profit or loss over a period of time; also called the profit and loss statement.
    Internal Audit
    An independent, objective evaluation of internal controls, risk management, and governance within an organization, performed to assess effectiveness and recommend improvements.
    Internal Controls
    Policies, procedures, and systems designed to prevent errors, detect fraud, and ensure reliable financial reporting.
    Inventory
    The goods a business holds for sale or the materials it will use to produce them, recorded as a current asset until sold.
    J
    Job Costing
    A cost-accounting method that accumulates direct materials, direct labor, and allocated overhead for each individual job, project, or batch.
    Journal Entry
    The basic record of a single financial transaction, showing which accounts are debited and credited and by how much.
    L
    Liabilities
    Everything a business owes to others, from supplier bills and loans to taxes and accrued obligations.
    Liquidity
    How quickly and easily a business can convert assets to cash to meet short-term obligations.
    LLC
    A limited liability company that combines liability protection with flexible tax treatment, taxed as a sole proprietor, partnership, S-corp, or C-corp depending on election.
    M
    Materiality
    The threshold at which an error or omission in financial statements is large enough to influence the decisions of those relying on them.
    Month-End Close
    The recurring process of finalizing and reconciling all accounts at the end of each month to produce accurate financial statements.
    N
    Net Income
    What remains after all expenses, interest, and taxes are subtracted from revenue; the bottom line of the income statement.
    Net Operating Loss
    The amount by which a business deductible expenses exceed its taxable income in a given year, which can typically be carried forward to offset future taxable income.
    Net Profit Margin
    Net income expressed as a percentage of revenue; the bottom-line measure of how much profit remains from every dollar of revenue after all costs.
    Notes Payable
    A formal written obligation to repay borrowed money at a specified date and interest rate, recorded as a liability.
    O
    Operating Cash Flow
    Cash generated by a business core operations, before investing and financing activities; the most closely watched cash flow metric.
    Operating Margin
    Operating income expressed as a percentage of revenue, measuring profitability from core operations before interest and tax.
    Overhead
    Indirect costs that support operations but cannot be directly tied to a specific product or job, such as rent, utilities, and administrative salaries.
    Overhead Allocation
    The process of assigning indirect costs to jobs, products, or departments using an allocation base or cost driver, since overhead cannot be traced directly.
    Owner's Draw
    Money a business owner withdraws from a sole proprietorship or partnership for personal use, reducing owner's equity.
    P
    Paid Time Off (PTO)
    Paid leave that employees earn and accumulate, covering vacation, personal, and sometimes sick time, which accrues as a liability and may have to be paid out at termination depending on state law.
    Pass-Through Entity
    A business structure whose income passes through to owners personal tax returns, avoiding entity-level income tax.
    Payroll
    The process of calculating and paying employee wages, withholding taxes, and remitting them to the appropriate authorities.
    Payroll Tax
    Taxes tied to employee wages, including Social Security, Medicare, and unemployment, split between employer and employee.
    Petty Cash
    A small cash fund used to pay for minor business expenses, managed through an imprest system and periodically replenished.
    Prepaid Expenses
    Amounts paid in advance for goods or services not yet received, recorded as a current asset until the benefit is used.
    Profit and Loss Statement
    A financial statement summarizing revenue and expenses over a period to show whether a business made a profit or loss; also called the income statement.
    Purchase Order
    A formal document a buyer sends to a vendor authorizing a purchase, establishing the terms before an invoice is issued.
    Q
    Quick Ratio
    Current assets excluding inventory and prepaid expenses, divided by current liabilities; a stricter liquidity test than the current ratio that uses only the most liquid assets.
    R
    Reconciliation
    The process of comparing two sets of records to confirm they agree and to identify and resolve any differences.
    Retained Earnings
    The cumulative net income a business has kept rather than distributed to owners; appears in the equity section of the balance sheet.
    Return on Equity
    Net income divided by shareholders equity; measures how effectively a business generates profit from its owners investment.
    Revenue
    The income a business earns from its primary operations before any expenses; the top line of the income statement, recognized when earned under ASC 606.
    S
    S Corporation
    A corporation that elects pass-through taxation, with income and losses flowing to shareholders personal returns; subject to limits on shareholders and share classes.
    Sales Tax
    A tax on retail sales collected by the seller and remitted to the state, owed wherever the business has nexus through physical presence or by crossing a state economic-sales threshold.
    Section 199A (QBI Deduction)
    A deduction of up to 20% of qualified business income for owners of pass-through businesses, computed on the personal return and limited at higher incomes by business type and wages paid.
    Segregation of Duties
    The internal control principle that divides key financial tasks among different people to prevent a single person from committing and concealing fraud.
    Self-Employment Tax
    The self-employed equivalent of FICA, covering both the employer and employee shares of Social Security and Medicare, calculated on net self-employment income.
    T
    Tax Deduction
    An expense the IRS allows a business or individual to subtract from taxable income, lowering the amount of tax owed.
    Three-Way Match
    The AP control that verifies a vendor invoice against the purchase order and the goods-receipt document before authorizing payment.
    Trial Balance
    An internal report listing the ending balance of every account to check that total debits equal total credits before preparing statements.
    V
    Variance Analysis
    The practice of comparing actual financial results to budgeted or standard amounts and breaking the difference down into its drivers to understand performance.
    W
    W-2 Form
    The IRS form an employer issues each employee reporting annual wages paid and taxes withheld.
    Worker Classification
    The determination of whether a worker is an employee or an independent contractor, based on the substance of the working relationship rather than the label, with significant tax and legal consequences.
    Working Capital
    The difference between a business's current assets and current liabilities, a measure of short-term liquidity and operating cushion.
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