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GLOSSARY OF TERMS
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GLOSSARY OF TERMS
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Debit
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.
Loan repayable upon demand of creditor.
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.
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.
Costs identified with a specific unit of product (for example, clay in the production of flowerpots or tubing in the production of bicycles).
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.
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.
A Corporation is a domestic corporation in the state where it has incorporated.
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.
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