Quick Reference Study Notes for Financial Accounting (Advanced)

Financial Accounting

Terms Glossary


An individual trained and knowledgeable in the profession of accountancy.

Accounting (Accountancy)   

The function of compiling and providing financial information primarily by reports referred to as financial statements. Accounting includes bookkeeping, systems design, analysis and interpretation of accounting information.

Accounts Payable

Obligations to pay for goods or services that have been acquired on open accounts from suppliers. Accounts Payable is a current liability in the Balance Sheet.

Accounts Receivable

Amounts due the company on account from customers who have bought merchandise or received services. Accounts Receivable is a current asset in the Balance Sheet.

Accrual Basis

The method of keeping accounts which shows all expenses incurred and income earned for a given period of time, even though such expenses and income may not actually have been paid or received in cash during the same period of time.

Accrued Expense      

An expense incurred, but not yet paid.

Accrued Revenue

Revenue earned, but not yet collected.

Accumulated Depreciation

An account to which estimated depreciation is added.

Adjustable Rate Mortgage  or ARM.                 

A mortgage with an interest rate that may increase or decrease during the term of the loan, according to determined margins with limits on increases or decreases (called "caps").

Adjusted Entry

An entry made in the general journal at the end of an accounting period to bring certain accounts up to date.

Adjusted Gross Income (AGI)

A person's entire income reduced by adjustments including a deduction for an IRA (Individual Retirement Account), medical savings accounts, and alimony paid to an ex-spouse. Saving money now in an IRA for your retirement (yes, even though it seems like a million years away) could be one of your smartest moves yet.


A person authorized by another to act on their behalf. Thus, an agent can enter into contacts and other such legal binding functions on behalf of another. Usually, the corporation's officers act as corporate agents.


Accounting or financial process of reducing an amount by periodic payments or write-downs. Refers to liquidation, writing off or extinguishing of a debt over a period of time.

Annual Meeting of Shareholders

Nearly all states require a corporation to hold an annual meeting of shareholders at which time directors are elected and other corporate issues are voted on.


A sequence of equal payments, usually made at regular intervals of time.


Increase in value. Often used with reference to an asset, such as land, building, stocks or bonds.

Articles of Incorporation (Certificate of Incorporation or Charter)

The articles are the primary legal document of a corporation; they serve as a corporation's Constitution. The articles are filed with the state government to begin corporate existence. The articles contain basic information on the Corporation as required by state law.

Articles of Organization

LLCs must file the articles with the proper state authorities to begin existence. The articles of organization are very similar to a corporation's articles of incorporation.


Anything of value owned or controlled by a corporation or individual. An asset may be tangible or intangible.

Asset Allocation

The division of holdings among different types of assets, such as bonds, domestic stocks, international stocks, real estate, and cash.

Asset Class

Securities which have similar features, such as cash (money market), bonds large cap stocks, small cap stocks, and international stocks.

Assumed Name

A name under which a corporation conducts business that is not the legal name of the corporation as shown in its articles of incorporation. If a corporation does business under an assumed name, it may be required to file registration of the assumed name with the state. Also known as a Fictitious Business Name.

Authorized Shares or Stock

The total number of shares a corporation is authorized to sell. This number is specified in the articles of incorporation. All of the shares authorized need not be issued.

Bad Debts

Accounts receivable that are un-collectable Used in Accrual Method accounting.


Amount arrived at by adding all debits and subtracting all credits. To ensure total debits equal the total credits.

Balance Sheet

Statement, at a particular point In time, of the financial position of a business or organization-divided into three parts: assets, liabilities and ownership (equity). Also known as Statement of Financial Position.

Bank Overdraft

Balance of a bank account when funds withdrawn exceed funds deposited.

Bank Reconciliation

Analysis that accounts for the difference between the balance shown on the bank statement and the balance shown in the accounting records on a given date.


Legal status of a person/corporation who/which is unable to pay its debts as they become due and who/which has made a transfer of property or of a right or interest in property to a trustee for the benefit of creditors.


State of being bankrupt.


The recipient, typically a person, an organization, or a trust, of the proceeds of a life insurance policy when the insured person dies

Benefits Received

When people pay taxes according to the amount of government aid (benefits) they receive. Examples of benefits the American public receives include (to name only a few): welfare, child care, Medicare, Medicaid. Some people believe it's only fair that people pay taxes based on the amount of government aid they receive.

Bill of Lading

Written document issued by the carrier of goods. Also, a receipt for goods and a contract to deliver goods.


Essentially, a loan made to companies and government entitles who promise to pay interest at a specified rate over a specified period of time, and repay the total loan amount at the end of the specified period.

Book of Original Entry

A journal in which transactions are recorded for the first time before summarizing and/or posting to ledger accounts, for example, purchase journal, cash receipts journal, accounts payable journal, disbursements journal, general journal and payroll journal. See General Journal and Journal.

Book Value

(1) The current value of a fixed asset as shown by the records; the difference between the original cost of the asset and the accumulated depreciation. (2) The difference between the accounts receivable and the allowance for bad debts. (3) The value of a share of stock as shown by the corporate books.


The recording of financial transactions electronically or manually. The record-keeping part of the accounting process.


A person who handles the transfer of a security from a seller to a buyer.


An estimate of future income and expenditures.

Business Taxes

Are you a budding entrepreneur? Just remember that businesses pay taxes to federal, state and local governments. Businesses pay taxes on their profits. Businesses also pay unemployment insurance, worker's compensation, social security and Medicare insurance.


Bylaws are the rules and regulations adopted by a corporation for its internal governance. It usually contains provisions relating to shareholders, directors, officers and general corporate business. At the corporation's initial meeting the bylaws are adopted. Bylaws are a private document not filed with any state authority. Bylaws are more flexible than the articles of incorporation because they are easier to amend.

Canceled Check

A check that has cleared the bank and is returned to the depositor with his monthly statement.

Capital (or Equity)

Interest of the owner in the business that is the difference between Assets & Liabilities. Also called Equity or Networth. In a corporation, capital represents the stockholders' equity.

Capital Asset

Assets, of either a tangible or intangible nature, owned or held by a business which are expected to be used or held over several fiscal periods.

Capital Gain

Difference between an asset's purchase price and its selling price, when the selling price is greater.

Capital Loss

Difference between an asset's purchase price and its selling price, when the purchase price is greater.

Capital Stock

See Stock and Authorized stock


A limit on how much the interest rate can change either at each adjustment or during the life of the mortgage, e.g., "2/6" equates to 2% per year and 6% over life of loan.

Cash Basis

A method of accounting in which no transactions are entered for income until cash is actually received, and no entries are made for expenses until cash is actually paid.

Certificate of Authority

A document issued by the proper state authority to a foreign corporation granting the corporation the right to do business in that state.

Certificate of Deposit (CD)

Evidence that the holder has deposited at a financial institution a certain amount of money for a certain period of time. By issuing a CD, a financial institution pledges to redeem the certificate at maturity and pay a certain rate of interest for use of the deposited funds.

Certified Public Accountant (CPA)

A Certified Public Accountant (CPA) is an accounting professional who has passed the Uniform CPA examination and has also met additional state certification and experience requirements.

Check Register

A form of cash payments journal which is used to record deposits and expenditures in and out of a bank account.

Close Corporation or Closely Held Corporation

A close corporation is a corporation that possesses the following traits: a small number of shareholders; no ready market for the corporation’s stock; and substantial participation by the majority shareholders in the management of the corporation. Some states have close corporation statutes.

Common Stock

The primary stock of a corporation. This stock gives shareholders the right to participate in management of the corporation and give the shareholder a proportionate share of the dividends.

Compound Interest

Interest calculated on both the principal amount invested and the previously accumulated unpaid interest.


A person who receives goods that belong to someone else for future sale or other purpose. Although consignees are not the owners of the goods, they are accountable for them.


Goods that are in the hands of someone other than the owner for future sale or other purpose.


The owner of goods that are in someone else's hands for future sale or other purpose.

Consolidated Financial Statements

Financial statements that show the results of all operations under the parent company's control, including those of any subsidiaries.

Controlling Interest

Direct or indirect ownership of voting shares sufficient to elect the majority of the board of directors of a corporation.

Corporate Record Book

Maintaining the proper records is very important to assure limited liability to corporate shareholders. The corporation should have a record book that contains a copy of the articles of incorporation, bylaws, initial and subsequent minutes of directors and shareholders meetings and a stock register.


Legal entity formed under the authority of either provincial or federal statues usually formed to make a profit. Liabilities of shareholders (owners) are generally limited to the amount of their investment. The name of a corporation ends with Limited, Ltd., incorporated, Inc., Corporation or Corp.


Legal obligation to make repayment at a later date for goods, services or money obtained through the extension of credit i.e., a promise to pay in the future. The cost of credit is usually referred to as a finance charge, interest or time-price differential


Entry recording an increase to a liability or owner's equity or revenue, or a reduction to an asset or expense. Credits are recorded in the right hand column of an account or a two-column book. Opposite of debit.

Credit Bureau

Clearinghouse of consumer credit information used by businesses to determine the credit.

Credit Note

Issued by a seller to a purchaser to record the reduction of a bill because of an allowance, return or cancellation. Opposite of an invoice.


If you have a store credit, you can use the credit to purchase merchandise free of charge. If you have a tax credit, your taxes are reduced by the amount of your credit. You can get tax credits for purposes such as child care expenses and the earned income credit for low-income taxpayers.

Cumulative Voting

This method of voting is intended to create adequate representation of minority shareholders. Cumulative voting allows shareholders to aggregate their votes in favor of fewer candidates than there are slots available.

Current Asset

Unrestricted cash, or other asset that is expected to be converted into cash or consumed in the production of income within a year.

Current Liability

Liability expected to be liquidated in a year.


Entry recording an increase to an asset or expense or a reduction to a liability, revenue or owner's equity. Debits are recorded in the left-hand column of an account or a two-column book. Opposite of credit.


A negative amount (debit balance) of retained earnings caused by cumulative losses and dividend distributions exceeding cumulative net income.

Demand Loan

Loan repayable upon demand of creditor.


A person who relies on someone else for financial support. Sound like a mooch? Not really. Think about it- most "young adults" (under 21 years old) are supported by their parents. Is this you? If it is, your parents can claim an exemption for you-their adorable dependent-if dependency tests are met.


Gradual using up or consumption of a natural resource.


Accounting process of allocating in a systematic manner the cost or other basic value of a tangible, long-lived asset or group of assets over the useful life of the asset. See Amortization.

Direct Cost

Costs identified with a specific unit of product (for example, clay in the production of flowerpots or tubing in the production of bicycles).

Direct Deposit

When you give the IRS the go-ahead, they'll send your refund directly to your bank account. It's the fastest way to get your cash.

Direct Tax

A direct tax cannot be shifted to others (unlike an indirect tax). A good example of a direct tax is the Federal income tax. You just gotta pay it.


Directors are elected by the shareholders. They manage or direct the affairs of the corporation. Typically, the directors make only major business decisions and monitor the activities of the officers.

Disposable Income

An individual's income after taxes.


The termination of a corporation's legal existence. Dissolution may be caused many ways including: failure to file annual reports, failure to pay certain taxes, bankruptcy, or voluntary dissolution of the corporation by the shareholders and directors.


Amount paid to mutual fund investors for capital gains on sales of investments and for dividends received from investments.


A distribution of money or property paid by the corporation to a shareholder. These distributions are subject to a double tax; both the corporation and the dividend recipient must pay federal taxes on these earnings.

Domestic Corporation

A Corporation is a domestic corporation in the state where it has incorporated.

Double Taxation

Corporations are treated as a separate legal taxable entity for income tax purposes. Therefore, corporations pay tax on their earnings. If corporate earnings are distributed to shareholders in the form of dividends, the corporation does not receive the reasonable business expense deduction, and dividend income is taxed as regular income to the shareholders. Thus, to the extent that earnings are distributed to shareholders as dividends, there is a double tax on earnings at the corporate and shareholder level. S corporations and LLCs are pass-through entities that are not subject to the double tax.

Earned Income

In simple English: All the money you earn. This includes any wages, salaries, tips, net earnings (if you're self-employed), and any other income received for personal services. Add it all up, it's all earned income.

Earned Income Credit

Low-income workers can file a tax return to get an earned income credit, even if no income tax was withheld from the worker's pay.

Education IRA

A tax-deferred savings and investment account for education expenses of children and grandchildren under 18.

Electronic Filing (IRS e-file)

IRS e-file options allow you to file Federal income tax returns (and some state returns) through a tax professional, through your home computer or even through your telephone. It may also be available in many other places in your local community.

Employee Stock Option Plan (ESOP)

A qualified retirement plan which gives employees a stake in the company without investing employees' funds.

Employee Stock Purchase Plan (ESPP)

A plan which permits employees to purchase company stock, usually at a discount.

Engagement Letter

Written communication between an accountant and a client with respect to a professional engagement, outlining the scope of the accountant's responsibilities and arrangements agreed upon.

Enrolled Agent

An Enrolled Agent (EA) is a federally-authorized tax practitioner who has technical expertise in the field of taxation and who is empowered by the U.S. Department of the Treasury to represent taxpayers before all administrative levels of the Internal Revenue Service for audits, collections, and appeals.


Source: National Association of Enrolled Agents (NAEA)


Weblink to NAEA: www.naea.org


The ownership of a shareholder in a corporation. See Capital.


Real and personal property owned by a person at the time of death (real property is land and anything permanently attached to it).

Excise Tax

Excise taxes are taxes on the sale or use of certain products or transactions. So every time you make a telephone call, buy a plane ticket, or ride in a car (to name but a few) you'll be paying excise taxes.

Exempt (From Tax Liability)

Before a taxpayer pays taxes, he/she can claim a set amount of tax deductions for him/herself, a spouse and eligible dependents. The total amount is subtracted from the adjusted gross income. Then the tax on the remaining income is figured out.

Exempt (From Withholding)

Have you ever been exempt from taking an exam because your average was high enough? What a feeling! Well, taxpayers can be exempt from paying a certain amount of federal income tax if they meet certain income, tax liability, and dependency requirements. In fact, you could be exempt from having certain taxes taken out of your paycheck. If you have a job, be smart and check into this.


Consumption of an asset or payment for an expense. Incurrence of a liability.

External Auditor

An independent accountant engaged to determine if the financial statements of an entity represent the economic events that occurred during the period audited. The external audit is for the shareholders/owners (rather than for management).


Shipping term meaning "free on board" to inform the purchasers of the location at which they become responsible for the shipping charges (for example, F.O.B. Toronto means the vendor pays the charges to Toronto's freight yard and the purchaser is responsible from there).

Fair Market Value

The highest price available in an open and unrestricted market between informed, prudent parties, acting at arm's length and under no compulsion to transact expressed in terms of money or money's worth.

Family & Medical Leave Act (FMLA)

Federal law requiring businesses with 50 or more employees to offer at least 12 weeks of unpaid leave for personal health reasons, to provide medical care for immediate family members, or to care for a newborn or newly adopted child.

Federal Tax Identification Number

A number given to a corporation or other business entity by the federal government for tax purposes. Banks generally require a tax identification number to open bank accounts.

FICA (Federal Insurance Contributions Act)

The Federal Insurance Contributions Act (FICA) consists of both a Social Security (retirement) payroll tax and a Medicare (hospital insurance) tax. The tax is levied on employers, employees, and certain self-employed individuals.


A person who holds something in trust for another (often used to describe executors and administrators of estates and trusts).

File A Return

To file a return is to send in your completed tax forms, or return ("return" is the official term-use it, you'll sound smarter). All your tax information appears on the return, including income and tax liability.

Filing Status

Your filing status determines your tax bracket and amount of taxes you must pay. Factors such as marital status affect your filing status.

Financial Statements

Formal financial reports prepared from accounting records (for example, Profit & Loss Statement, Balance Sheet, Statement of Retained Earnings).

Fiscal Year

A period of one year for which financial statements are prepared that may or may not coincide with the calendar year. Any twelve-month period used by a business as its accounting period.

Fixed Assets

See Capital Assets

Fixed Rate

A mortgage with an interest rate which does not increase or decrease during the term of the loan.

Flexible Benefits Plan

A benefits plan which allows employees to choose from a range of taxable and non-taxable benefits, usually including 401(k), health insurance, and flexible spending accounts.

Flexible Spending Account (FSA)

A benefit program which allows money to be deducted from an employee's wages or salary on a pre-tax basis, to pay for qualifying health care and dependent care expenses.

Foreign Corporation

A Corporation is referred to as a foreign corporation in all states except for the state where it is incorporated. If a corporation conducts business in a state other than where it was incorporated, it must register for a certificate of authority to transact business in the other state or possibly lose access to that state's courts and face fines.

Form 1040EZ

This form is great if you're single or married, don't have any dependents. If your income is $50,000 or less and your interest income is $400 or less --- use this easy (get it, EZ) IRS form to file your return.

Form W-2

By January 31 of each year --- your employer (even if you don't work there anymore) will provide you with a statement of how much you earned in wages, tips and other compensation from the previous year. This form will reflect state and federal taxes, social security, Medicare wages, and tips withheld. It also includes a lot of other really important information you will need to file your return.

Form W-4 (Employee's Withholding Allowance Certificate)

If you have or had a part-time or summer job, you probably completed this form on your first day of work. This form determines how much of your paycheck is withheld for federal income taxes.

Formal Tax Legislation Process

There are strict steps (that involve the President and Congress) that a proposed tax must pass through before it becomes a law.

Franchise Tax

A tax imposed by the State for the privilege of carrying on business as a corporation or LLC. The value of the franchise tax may be measured by amount of earnings, total value of capital or stock, or by amount of business done.


Abbreviation for generally accepted accounting principles. Accounting principles that have been given formal recognition or authoritative support.


Abbreviation for generally accepted auditing standards. Auditing standards that have been given formal recognition or authoritative support.

General Journal

Journal in which transactions are recorded for which specific journals are not provided (for example, adjustments and corrections). In a small operation the general journal may be the only book of original entry.

General Ledger

Ledger in which all the assets, liabilities, equity, revenue and expenses are posted and from which financial statements are prepared.


The difference between going-concern value and tangible asset value (tangible assets include identifiable intangible assets having values that can be separately determined).

Gross Income

This deals with all the money, goods and property you receive that must be included as taxable income. Fact: people who use the barter system (exchanging non-monetary goods/services as payment) have to include whatever they've bartered for as part of their gross income.

Holding Company

A corporation that has no other function except owning other corporations.

Home Equity Loan

Loan in which the lender allows the borrower to use the equity in his or her home as collateral for a line of credit or revolving credit. The borrower may then obtain cash advances by using a credit card or checks up to some predetermined limit.

Horizontal Equity

Horizontal equity says that people in the same income groups should be taxed at the same rate. "Equals should be taxed equally."


Money or its equivalent, earned periodically by an individual, a corporation, etc., in return for goods or services provided. Opposite of loss.

Income Disability Benefits

Insurance which pays a monthly benefit to replace a percentage of earnings lost due to illness or injury resulting from a covered accident.

Income Statement

A financial statement summarizing revenues, expenses, gains and losses for a stated period of time. The Income Statement is also known as Profit & Loss Statement, Statement of Earnings, Statement of Income or Statement of Operations.

Income Tax

These are taxes on income, both earned income (salaries, wages, tips, commissions) and unearned income (interest from savings accounts, dividends if you hold stock). Individuals and businesses are subject to income taxes.

Incorporated (Inc.)

See Corporation


The person or entity that prepares and files the articles of incorporation. Total Tax Solutions acts as an Incorporator for many new companies.


To reimburse or compensate. Directors and officers of corporations are often reimbursed or indemnified for all the expenses they may have incurred during the incorporation process.

Indirect Tax

You might not think you're paying this tax, but you probably are. It's the type of tax that can be shifted to others: hence the name. For example: A company might have to pay a specific tax to the government, let's say a fuel tax. The company pays the tax but can increase the cost of their products so consumers are actually paying the tax indirectly by paying more for the company's products.

Individual Retirement Accounts (IRAs):

A tax-deferred product offered by banks, mutual funds and other companies. Under current law, a married couple can put $4,000 ($2,000 each) into their own IRA each year in a wide range of savings accounts and investments. Earnings are tax-deferred until you begin withdrawing the money (which you can start doing without penalty after age 59 ½). Under current tax law, some people (depending on their income, marital status or other factors) can deduct all or part of their IRA contributions, which reduces their taxes.

Informal Tax Legislation Process

Ever joined a book club? What about a study group? Well, if you're interested, there are also informal tax legislation meetings where individuals and interest groups get together to discuss tax issues. Once you become a steady wage earner, these are meetings you probably won't want to miss.


When liabilities exceed assets. Also, the inability to pay debts when due. See Bankruptcy.


A part of a sum of money or a debt to be paid at regular intervals, usually made up of principal and interest combined.

Intangible Asset

An asset without physical substance that has value due to rights resulting from its ownership and possession (for example, goodwill, patents, trademarks).

Interest (1)

"Interests" represent a member's ownership of an LLC just as a partner has an interest in a partnership and shareholders own stock in a corporation.

Interest (2)

The cost of using money over time usually expressed as an annual percentage.

Interest Income

You deposit your money into a savings account for a reason, right? So you can earn interest on your money. People also earn interest from lending money to people. We're not talking about you lending your buddy Dave a couple bucks to buy lunch; we're talking about lending lots of money so the interest really accumulates on the loan. Well, add up all that interest you accumulate and there's your interest income. Not to burst your bubble, but that interest income is all fully taxable.

Internal Auditor

An employee of an entity (for example, a corporation) who audits for management, providing valuable information for decision-making concerning the effective operation of its business.

Internal Control

A coordinated system of procedures and techniques designed to safeguard a company's assets, to ensure the accuracy of its accounting records, and to promote efficiency and adherence to prescribed policies.


Items of tangible property held for sale. An Inventory is a detailed list of items and their values owned at a specific point in time. Stock inventory would include raw materials for manufacture, materials partly processed and finished products including items in transit for which title is held, but would not include items physically held for which title belongs to others. Inventories may also be made of fixed assets, stationery and supplies, etc.


Funds committed to acquire something tangible or intangible in order to receive a return, either in revenue or use.


Document for goods purchased or services rendered showing details such as quantities, prices, dates, shipping details, order numbers, terms of sale, etc.

Joint Products

Two or more goods having approximately the same economic value that are manufactured simultaneously from the same raw material.


A book of original entry in which financial transactions are recorded (for example, a purchase journal is a record of purchase transactions).

Journal Entry

An entry in any journal.

Keogh Accounts:

Similar to a 401(k), but for the self-employed.


A legal contract conveying the use of property from the owner (lessor) to another (lessee) at a fixed rate, for a stated length of time.

Leasehold Improvements

Additions, improvements or alterations made to leased property by the lessee.


A book of final entry containing all the accounts of a business or all the accounts of a particular type (for example, general ledger, accounts receivable ledger).


The Liabilities of a business are the debts of a business. For example, if money is borrowed from a bank, there is a liability to repay the loan. In this case, the borrower would be known as the debtor and the bank to which the debt is owed would be called the creditor.

Limited (Ltd.)

See Corporation

Limited Liability Company

A business entity formed upon filing articles of organization with the proper state authorities and paying all fees. LLCs are a new entity in the United States, although the concept has long been used internationally. LLCs provide limited liability to their members, and are taxed like a partnership, preventing double taxation. LLCs can be formed in every state.

Limited Partnership

A partnership with two classes of partners: Limited partners and one or more General partner. Limited partners have no personal liability for debts of the limited partnership beyond the amounts invested.

Liquid Asset

An asset, such as cash, that can be readily converted into other types of assets or used to buy goods and services or satisfy obligations.


The winding-up of an organization by settling with debtors, creditors and shareholders. Usually done by selling or otherwise disposing of assets to pay off liabilities.

Liquidation Value

The net amount realized on assets in the event of a liquidation.

Local Tax

In addition to federal and state taxes, your local town or city may also need tax money to operate services such as garbage pick-up, water treatment, and street-cleaning.

Long-Term Health Care Insurance

Coverage intended for elderly to provide for expenses related to long-term home health care or extended stays in nursing homes.


The excess of expenditures over revenues. Opposite of income/profit.

Lump-sum distribution

A disbursement of the entire funds in an account, commonly paid when an employee retires or leaves a company, potentially with tax consequences if not rolled over into another retirement plan or an IRA when taken prior to retirement.

Management Accounting

Accounting concerned with providing information to managers; that is, to those who are inside an organization and who direct and control operations. Management Accounting includes cost accumulation for product costing, budgeting and financial statement analysis.


An LLC may be operated by a group of managers who act much like a board of directors. If an LLC is to be controlled by mangers this fact must be stated in the articles of organization.

Market Value

The highest price that an owner could realize in an open market transaction. See Fair Market Value.


A term used to describe the significance of financial statement information to decision makers. An item of information is material if it is probable that its omission or misstatement would influence or change a decision.


The Medicare program funds the federal health program for people over 65. It helps out people at a time in their lives when they may have health problems but may not have a lot of money.


A member is a person who is an owner of a Limited Liability Company. The members make the business decisions of an LLC unless the articles of organization provide that the LLC will controlled by a manager or managers.


Merger occurs when one corporation is taken over by another.

Minority Interest

The equity of all shareholders who do not hold a controlling interest in a company.


A written record which details the events of the corporation. These records should be kept in the corporation's record book.

Money Market

Financial markets in which short-term debt instruments such as Treasury bills, commercial paper and CD's are traded.

Name Reservation

The name of a corporation or LLC must be distinguishable on the records of the state government. If the name is not unique, the state will reject the articles of incorporation or articles of organization (for LLCs). A name can be reserved, usually for 120 days, by applying with the proper state authorities and paying a fee.

Net Income

Profit after all expenditures have been deducted from the revenue. See Profit.

Net Worth

Excess of total assets over total liabilities as reported in a company's balance sheet. See Capital (or Equity)

No-Par-Value Stock

Stock with no minimum value. Most states allow no-par stock. If the stock is no-par stock then the amount of stated capital is an arbitrary amount assigned by the board of directors. Further, the value of capital for franchise tax purposes is determined by the state and this may result in higher franchise taxes in comparison with low par-value stock.

Not-For-Profit Corporation

A Corporation organized for some charitable, civil or other social purpose that does not entail the generation of profits for shareholders. These corporations receive special tax treatment. Not-for-profit corporations must file not-for-profit articles of incorporation with the state.

Note Payable (Promissory Note)

Written promise made by one individual to another to pay a specific amount on demand or by a definite date.

Note Receivable

Written promise by another party to make payment to you at a specified date.


Officers are people who are appointed by the directors. They manage the daily affairs of the corporation. A Corporation's officers usually consist of a president, vice-president, treasurer, and secretary. In most states, one person can hold all of these positions.

Operating Agreement

An agreement among the LLC members which govern the LLC operations and the rights of its members. It is analogous to corporate bylaws.


Marketable securities that provide for future exchange of cash and common shares contingent upon the option owner's choice.

Organizational Meeting

The initial meeting where the formation of the corporation is completed. At the organizational meeting a number of initial tasks are completed such as: the articles of incorporation are ratified, the initial shares are issued, officers are elected, bylaws approved, and a resolution authorizing the opening of bank accounts is passed. If the initial directors are named in the articles of incorporation, they can hold the organizational meeting. If they are not named, then the Incorporator holds the organizational meeting.


Fixed costs not directly applicable to the production of a -product (for example, costs of lighting and heating a factory).

Owner’s Equity

What the business is worth to the owner. See Capital and Equity.

Paid in Capital Requirements

A few states require corporations to have a specified amount of paid in capital prior to starting business. These states include CT, DC, SD, and TX and require that the company have $1,000 in paid in capital before starting business.


The stated minimum value of a share stock. Stock must be sold for at least this value or the owner of the stock can face liability. With low par value stock or no par value stock this liability is minimized.

Parent Company

A corporation that directly or indirectly owns a controlling interest in another corporation. See Subsidiary.


Two or more persons carrying on a business for profit, each partner having unlimited liability for the debts of the partnership, except in a limited partnership in which some of the partners may have limited liability.

Pass-Through Taxation

Income to the entity is not taxed. Instead the income is "passed through" to the individual shareholders or interest holders. S corporations, Partnerships and LLCs are pass-through taxation entities.


An obligation to pay a sum at a future date.


A record of wages or salaries paid or payable. The actual wages and salaries paid during a given period.

Payroll Taxes

Your employer deducts a certain amount from your paycheck to pay for taxes. This tax money funds many finance

*NOTE : "This study material is collected from multiple sources to make a quick refresh course available to students." 

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