Essential Accounting And Tax Terms
Every industry has its own language and terms. These words and phrases can be confusing to anyone who is not part of the daily operations of a specific sector, and the accounting industry is no exception.
To help you understand the terms, acronyms, and phrases regularly used when working with a tax preparer, Hunter Tax Resolution has created this handy reference guide. Here you’ll find valuable information to comprehend and communicate your tax preparation needs effectively.
Abatement: A reduction in the tax, penalty, or interest when it gets determined that the assessment is incorrect.
Accelerated depreciation: A method of depreciation under which taxpayers may allocate larger depreciation deductions to the first year or first few years of useful business assets, such as a plant and machinery.
Accounts payable: A list of the debts currently owed by a person or business, mainly for the purchase of services, inventory, and supplies.
Accounts receivable: A list of the money owed on the current account to a creditor, which is kept in the normal course of the creditor’s business and represents unsettled claims and transactions.
Accrual basis (accrual method): An accounting method whereby income and expense items are included in taxable income or expense as they are earned or incurred, rather than when they are received or paid.
Aggregation: A term used to denote the adding together of the taxpayer’s income from all sources to determine the applicable tax rate for income tax purposes.
Audit: An examination carried out by an outside agency (such as an accountancy firm or the tax authorities) of a taxpayer’s books and accountants. It checks the general accuracy of returns and declarations, either as a routine operation or where evasion is suspected.
Balance sheet: A statement of the financial position of a business as of a particular date. The statement will show the business’s assets in one column and its liabilities and owner’s equity in another column.
Beneficiary: The person who receives or is to receive the benefits resulting from certain acts. In a tax context, the beneficiary is the person entitled to the benefits from trust property or an insurance policy.
Capital assets: All property held for investment by a taxpayer.
Cash basis (cash method): The accounting method which recognizes income and deductions when money is received or paid.
Equity: The extent of a person’s beneficial ownership of a particular asset. It’s equivalent to the value of the asset minus the liability to which the asset is subject. It also refers to the paid-in capital plus retained earnings in a corporation and represents the ownership interest possessed by shareholders in a corporation (stock as opposed to bonds).
Expenses: Costs that are currently deductible, as opposed to capital expenditures, which may not be presently deductible. However, it must be depreciated or amortized over the useful life of the property.
Fair market value: The price a willing buyer would pay a willing seller in a transaction on the open market.
Fiscal year: Any twelve-month period set for the accounting purpose of an enterprise.
We hope these terms made you feel more confident about working with a tax professional.
If you’re looking for a tax preparer and IRS enrolled agent in Tacoma, WA, reach out to the experts at Hunter Tax Resolution. We offer full-service tax preparation and resolution services to clients across Tacoma, Puyallup, Renton, Olympia, Seattle, and the surrounding areas.
Our services include assistance with Tax liens, offers in compromise, wage garnishments, unfiled tax returns, IRS bank levies, and freedom of information requests. We also assist with payroll tax problems, IRS audits, penalty abatement, collection appeals, and the expiration of statutes.