---
title: "Lexicon"
description: "One word per concept, used the same way in code, UI copy, and docs. Call one thing by two names and the accountants using your product notice first, then stop trusting the numbers."
canonical: "https://lopifi.com/docs/domain/lexicon"
---

# Lexicon

> One word per concept, used the same way in code, UI copy, and docs. Call one thing by two names and the accountants using your product notice first, then stop trusting the numbers.

Source: https://lopifi.com/docs/domain/lexicon
Part of: Lopifi — Planned: US GAAP books on autopilot, checked by a CPA (https://lopifi.com)

---

# Lexicon

One word per concept, used the same way in code, UI copy, and docs. Call one thing by two names and the accountants using your product notice first, then stop trusting the numbers.

---

## Foundations

The words a first month of bookkeeping is made of. They're the most-used terms in the system and the most loosely used everywhere else. The rest of this page assumes them.

| Term | Definition | Not | Authority |
|---|---|---|---|
| **Double-entry** | Recording every transaction as equal debits and credits, so the ledger proves itself | "two-sided", "balanced accounting" | [Convention; the Codification governs recognition](https://storage.fasb.org/fas168.pdf) |
| **Accounting equation** | Assets = liabilities + equity. True after every entry, not only at period end. | "balance sheet formula" | [CON 8, Ch. 4, ¶E61](https://www.fasb.org/concepts-statements) |
| **Debit** | The left column. It increases assets and expenses, and decreases liabilities, equity and revenue. | "positive", "plus", "money in" | Bookkeeping convention — not codified |
| **Credit** | The right column. It increases liabilities, equity and revenue, and decreases assets and expenses. | "negative", "minus", "money out" | Bookkeeping convention — not codified |
| **Asset** | A present right of the entity to an economic benefit (FASB CON 8 ¶E16) | "what we own" (a leased asset is controlled, not owned) | [CON 8, Ch. 4, ¶E16](https://www.fasb.org/concepts-statements) |
| **Liability** | A present obligation of the entity to transfer an economic benefit (FASB CON 8 ¶E37) | "debt" (debt is one kind of liability) | [CON 8, Ch. 4, ¶E37](https://www.fasb.org/concepts-statements) |
| **Equity** | The residual interest in the assets that remains after deducting liabilities (FASB CON 8 ¶E61) | "net worth", "capital" alone | [CON 8, Ch. 4, ¶E61](https://www.fasb.org/concepts-statements) |
| **Revenue** | Inflows or other enhancements of assets, or settlements of liabilities, from delivering or producing goods, rendering services or carrying out other activities — recognized when control transfers, not when cash arrives | "income" (income is after costs), "turnover" | [CON 8 ¶E80; ASC 606](https://asc.fasb.org/606/tableOfContent) |
| **Expense** | Outflows or other using up of assets, or incurrences of liabilities, from delivering or producing goods, rendering services or carrying out other activities — recognized when incurred, not when paid | "cost" unqualified, "spend" | [CON 8, Ch. 4, ¶E81](https://www.fasb.org/concepts-statements) |
| **General ledger** / **GL** | The complete set of accounts, holding every posted entry | "the database", "the books" in UI copy | Bookkeeping convention — not codified |
| **Journal** | The chronological record of entries, before they are summarized by account | "log", "history" | Bookkeeping convention — not codified |
| **T-account** | The two-column sketch of one account — debits left, credits right | "ledger card" | Bookkeeping convention — not codified |
| **Trial balance** | Every account's balance in two columns, proving that total debits equal total credits | "account list", "TB" in UI copy | Bookkeeping convention — not codified |
| **Accounts receivable** / **AR** | What customers owe us for invoices already issued | "debtors", "receivables" unqualified in mixed context | [ASC 310](https://asc.fasb.org/310/tableOfContent) |
| **Accounts payable** / **AP** | What we owe vendors for bills already received | "creditors", "payables" unqualified in mixed context | [ASC 405](https://asc.fasb.org/405/tableOfContent) |
| **Accrual basis** | Recognizing revenue when earned and expense when incurred, regardless of when cash moves | "the accrual method" | [CON 8, Ch. 4, App. A](https://www.fasb.org/concepts-statements) |
| **Cash basis** | Recognizing revenue and expense only when cash moves. Not GAAP for any entity — it is a special purpose framework (AICPA AU-C 800), and for tax a method IRS Pub. 538 and IRC §448 limit by entity type and gross receipts | "simple accounting" | [Not GAAP — special purpose framework; tax rules in IRS Pub. 538](https://www.irs.gov/publications/p538) |
| **Matching principle** | Recognizing an expense in the same period as the revenue it helped produce | "matching" alone (that is reconciliation) | [CON 8, Ch. 4, App. A — expense recognition](https://www.fasb.org/concepts-statements) |
| **Prepaid expense** / **Prepayment** | Cash paid before the benefit is consumed — an asset until it is. "Prepayment" is the UK and IFRS word for the same asset; a customer paying *us* early is a customer advance or deposit, a liability | "customer prepayment" for a customer advance or deposit | [ASC 340-10](https://asc.fasb.org/340/tableOfContent) |
| **Deferred revenue** / **Contract liability** | Consideration received, or unconditionally due, before the goods or services are transferred — a liability until the performance obligation is satisfied. ASC 606 calls it a contract liability | "unearned income", "revenue" | [ASC 606-10-45 — contract liability](https://asc.fasb.org/606/tableOfContent) |
| **Depreciation** | Spreading the cost of a fixed asset over the periods it serves | "write-down", "amortization" | [ASC 360-10-35-4](https://asc.fasb.org/360/tableOfContent) |
| **Amortization** | Spreading the cost of a finite-lived intangible, a prepaid or a debt discount over the periods it serves | "depreciation" | [ASC 350-30-35](https://asc.fasb.org/350/tableOfContent) (intangibles), [ASC 340-10](https://asc.fasb.org/340/tableOfContent) (prepaids) |
| **Gross profit** | Net revenue less cost of revenue, as an amount | "margin" (margin is the ratio, not the amount) | [ASC 220](https://asc.fasb.org/220/tableOfContent) |
| **Net income** | Revenues and gains less expenses and losses, including income tax, for the period — the bottom line of the P&L, before any allocation to non-controlling interests | "profit" in a statement, "earnings" unqualified | [ASC 220](https://asc.fasb.org/220/tableOfContent) |
| **Retained earnings** | Accumulated net income not distributed to owners — where the P&L lands on the balance sheet | "reserves", "profit" | [ASC 505](https://asc.fasb.org/505/tableOfContent) |
| **Cash flow statement** | Where the cash went in a period — receipts and payments classified as operating, investing or financing, reconciling opening to closing cash, with operating cash also reconciled to net income | "cash statement", "cash report" | [ASC 230](https://asc.fasb.org/230/tableOfContent) |
| **US GAAP** | Generally accepted accounting principles in the United States — for nongovernmental entities, the FASB Accounting Standards Codification; for SEC registrants, also the SEC's rules and interpretive releases | "GAAP" alone where IFRS is meant, "GAAP rules" | [FASB Statement No. 168, ¶6; ASC 105-10](https://asc.fasb.org/105/tableOfContent) |
| **Ledger** | A book of accounts, each holding the entries posted to it. The general ledger holds every account; a subledger — AR, AP, fixed assets — holds the detail behind one control account and must agree to it | "database", "spreadsheet" | Bookkeeping convention — not codified |
| **Opening balance** | An account's balance at the start of a period — exactly the prior period's closing balance. A P&L account opens a new fiscal year at zero, because its balance closed to retained earnings | "starting balance", "brought forward" in UI copy | Bookkeeping convention — not codified |
| **Single-entry bookkeeping** | Recording each transaction once, as a line in a running list — usually of cash — with no second side to check it against. It says what happened to cash, not what happened to the business, and an error in it does not show | "simple bookkeeping", "cash book" for a double-entry ledger | Bookkeeping convention — not codified |
| **Accounting cycle** | The loop a period of books runs through: record transactions as entries, post them, prove the trial balance, adjust, prepare the statements, close | "month end" alone, "the close" (the last stage, not the loop) | Bookkeeping convention — not codified |

## Core ledger

| Term | Definition | Not | Authority |
|---|---|---|---|
| **Journal entry** | A balanced set of debit and credit lines posted to the GL | "transaction" (which is a business event) | Bookkeeping convention — not codified |
| **Transaction** | A business event — a payment, a sale, a purchase | "activity", "item" | Bookkeeping convention — not codified |
| **Posting** | Committing an entry to the ledger, making it immutable | "saving", "submitting" | Bookkeeping convention — not codified |
| **Account** | A GL account in the chart of accounts. Always qualify when a bank account is meant. | bare "account" in mixed context | Bookkeeping convention — not codified |
| **Chart of accounts** | The account structure | "categories" | [Not prescribed by GAAP; presentation per Reg S-X 5-02](https://www.ecfr.gov/current/title-17/part-210) |
| **Dimension** | A non-account axis: entity, department, project | "tag", "label" | Bookkeeping convention — not codified |
| **Normal balance** | The side that increases an account — debit for assets and expenses, credit for liabilities, equity and revenue, inverted for a contra account | "positive balance" | Bookkeeping convention — not codified |
| **Contra account** | An account with the opposite normal balance to its type, presented as a deduction from its parent — accumulated depreciation against PP&E, the allowance against AR | "negative account" | Bookkeeping convention — not codified |
| **Control account** | A GL account whose balance is the total of a subledger — AR, AP, fixed assets — and is posted only from it | "summary account" | Bookkeeping convention — not codified |
| **Subledger** | The detail, by customer, vendor or asset, whose total must equal its control account in the GL | "sub-account" (a child account in the chart) | Bookkeeping convention — not codified |
| **Period** | A fiscal reporting window | "date range", "timeframe" | [ASC 270](https://asc.fasb.org/270/tableOfContent) |
| **Basis** | Cash or accrual | "method" | [CON 8, Ch. 4, App. A](https://www.fasb.org/concepts-statements) |
| **Reversal** | An offsetting entry that undoes a posted entry | "delete", "undo" | Bookkeeping mechanic and internal control — not codified |
| **Suspense account** | A temporary holding account for an amount that must be posted before its correct account is known — cleared to zero before close, never reported | "miscellaneous", "ask my accountant" | Bookkeeping convention — not codified |
| **Clearing account** | An account that should net to zero once both sides of a flow have posted — payroll clearing, GR/IR, a payment processor clearing account; a residual balance is the exception | "suspense account" (unknown destination, not a known flow) | Bookkeeping convention — not codified |
| **Fiscal year** | The twelve-month (or 52–53 week) reporting year an entity has chosen, which need not start in January | "year" unqualified, "calendar year" | [IRS Pub. 538 — accounting periods](https://www.irs.gov/publications/p538) |
| **Transposition error** | Two digits swapped when an amount is keyed — 54 entered as 45. The trial balance goes out by a difference that is always divisible by nine; for two adjacent digits, the difference ÷ 9 is the gap between them times the place value (54 − 45 = 9 → a gap of 1 in the units), which is how it is found | "typo", "rounding difference" | Bookkeeping convention — not codified |
| **Error of commission** | The right amount posted to the wrong account of the right type — a payment applied to the wrong customer, an expense coded to the wrong department. Debits still equal credits, so the trial balance will not find it | "error of principle" (wrong type of account) | Bookkeeping convention — not codified |
| **Error of principle** | An entry posted to the wrong type of account in breach of an accounting rule — a repair capitalized as an asset, a loan receipt booked as revenue. The trial balance still balances; only review finds it | "error of commission" (right type, wrong account) | Bookkeeping convention — not codified |
| **Error of omission** | A transaction never recorded at all — an unbilled delivery, a bill left in a drawer. Nothing was posted to either side, so the trial balance still balances; a cut-off test or a reconciliation finds it | "missing entry" in UI copy | Bookkeeping convention — not codified |
| **Error of original entry** | The wrong amount entered on both sides of an entry — the source document misread, so debits and credits agree and both are wrong | "transposition error" (one cause of it) | Bookkeeping convention — not codified |
| **Compensating error** | Two unrelated errors of equal size on opposite sides that cancel, so the trial balance agrees and both survive | "offsetting entry" (which is deliberate) | Bookkeeping convention — not codified |
| **Reversal of entries** | An entry posted with its debit and credit swapped — the right accounts and amount, each on the wrong side. Debits still equal credits | "reversal" (a deliberate offsetting entry), "reversing entry" | Bookkeeping convention — not codified |
| **Idempotency key** | A unique value sent with a write request so a retried request is applied once — the API returns the original result instead of posting a second invoice, payment or journal | "transaction ID", "dedupe" | Engineering convention — not codified (Stripe, Xero Idempotency-Key, QBO requestid) |

## Close

| Term | Definition | Not | Authority |
|---|---|---|---|
| **Close** | The process of finalizing a period | "month end" as a verb | Bookkeeping convention — not codified |
| **Cutoff** | Recording each transaction in the period in which it occurred — the boundary tested at every period end | "period end" | Audit assertion (AICPA AU-C 315) — not codified in GAAP |
| **Reconciliation** | Comparing our record to an external party's | "matching" alone | [Internal control — SOX §404](https://www.sec.gov/rule-release/33-8238) |
| **Tie-out** | Proving a GL balance against supporting evidence | "reconciliation" (different control) | [Internal control — SOX §404](https://www.sec.gov/rule-release/33-8238) |
| **Roll-forward** | Opening → movements → closing, proven | "rollup" | Bookkeeping convention — not codified |
| **Adjusting entry** | A close entry to apply accrual accounting | "correction" | Bookkeeping convention — not codified |
| **Accrual** | An expense incurred, or revenue earned, before it is invoiced — recorded at period end so it lands in the right period | "estimate" | Accrual basis; [ASC 405](https://asc.fasb.org/405/tableOfContent) |
| **Deferral** | Cash paid or received ahead of the expense or revenue it relates to, held on the balance sheet — as a prepaid or deferred revenue — until consumed or earned | "accrual" (the opposite timing) | [ASC 340-10](https://asc.fasb.org/340/tableOfContent) |
| **Flux analysis** | Explaining period-over-period variances | "variance report" | Bookkeeping convention — not codified |
| **Materiality** | Whether a misstatement or omission would likely change the judgment of a reasonable user of the statements — judged on size and nature together, never a fixed percentage | "significance", "the 5% rule" | [SEC SAB No. 99](https://www.sec.gov/interps/account/sab99.htm) |
| **Sign-off** | Formal approval that a section is complete | "done", "complete" | [Internal control — SOX §404](https://www.sec.gov/rule-release/33-8238) |
| **Restatement** | Revising previously issued statements to correct an error material to them ("Big R") — comparatives are relabeled Restated and the error disclosed | "fixing", "revision" (immaterial errors) | [ASC 250-10-45-23](https://asc.fasb.org/250/tableOfContent) |
| **Revision** | Correcting an immaterial prior-period error that would be material if corrected in the current period by adjusting the comparatives ("little r") — labeled As revised, no reissuance | "restatement" (material errors) | [SEC SAB No. 108](https://www.sec.gov/interps/account/sab108.htm) |
| **Out-of-period adjustment** | Correcting a prior-period error in the current period, permitted only when the error is immaterial to both periods | "catch-up", "plug" | [ASC 250-10-45](https://asc.fasb.org/250/tableOfContent) |
| **Subsequent event** | An event after the balance sheet date but before the statements are issued — recognized if the condition existed at the balance sheet date, disclosed only if it arose after | "post-close event" | [ASC 855-10-25](https://asc.fasb.org/855/tableOfContent) |
| **Accrued liability** / **Accrued expense** | An obligation for goods or services received but not yet invoiced or paid — wages, interest, professional fees — recorded by an accrual | "accrued AP", "provision" (a provision is an uncertain estimate) | [ASC 405](https://asc.fasb.org/405/tableOfContent) |
| **Reversing entry** | An entry dated the first day of the next period that exactly offsets a period-end accrual, so the real invoice can be coded normally without double-counting | "undo", "auto-delete" | Bookkeeping mechanic — not codified |
| **True-up** | The adjustment that replaces an estimate with the actual amount once it is known | "correction" (an estimate change is not an error) | [ASC 250-10-45-17 — change in estimate](https://asc.fasb.org/250/tableOfContent) |
| **Reclassification** | Moving an amount from one account or line to another without changing net income or total equity — current portion of debt, a miscoded bill | "adjustment" unqualified | Bookkeeping convention — not codified |
| **Lead schedule** | The working paper that lists each GL account in a balance sheet or P&L caption with its balance and the schedule or reconciliation that supports it | "summary", "TB extract" | Audit working-paper convention — not codified |
| **Closing entry** | The year-end entry that zeroes every temporary account — revenue, expense, gains, losses, dividends or drawings — into retained earnings, so the new year's P&L starts at nil. Most ledger software performs it virtually | "adjusting entry", "reversing entry" | Bookkeeping mechanic — not codified |
| **Temporary account** / **Nominal account** | An account that measures one period only — revenue, expense, gain, loss, dividends declared — and is closed to retained earnings at year end | "P&L category" | Bookkeeping convention — not codified |
| **Permanent account** / **Real account** | A balance sheet account — asset, liability or equity — whose closing balance carries forward as the next period's opening balance | "balance account" | Bookkeeping convention — not codified |
| **Soft close** | A period state in which routine posting has stopped and only adjusting entries by a controller are accepted. In common usage also an abbreviated month-end that estimates rather than fully reconciles — directional numbers, never the basis for external reporting | "closed", "draft close" | Bookkeeping convention — not codified |
| **Hard close** | A close in which every step is done — reconciliations, accruals, review, sign-off — and the period is locked against posting, so its statements can go to lenders, investors and auditors | "final" unqualified, "year-end" | Bookkeeping convention — not codified |

## Receivables

| Term | Definition | Not | Authority |
|---|---|---|---|
| **Invoice** | A claim on a customer | "bill" (that's what we owe) | Bookkeeping convention — not codified |
| **Credit note** | A reduction of what a customer owes | "refund", "credit memo" (pick one — we use credit note) | [ASC 606-10-32 — variable consideration](https://asc.fasb.org/606/tableOfContent) |
| **Refund** | Returning cash already received | "credit" | [ASC 606-10-32-10 — refund liability](https://asc.fasb.org/606/tableOfContent) |
| **Write-off** | Removing an uncollectible receivable against the allowance for credit losses — under the allowance method it has no P&L effect; the expense was taken in the provision | "credit note", "bad debt expense" | [ASC 326](https://asc.fasb.org/326/tableOfContent) |
| **Application** | Assigning received cash to specific invoices | "matching", "allocation" | Bookkeeping convention — not codified |
| **Unapplied cash** | Customer cash received but not yet assigned to an invoice. It reduces that customer's AR; only a net credit balance is reclassified to a liability at period end | "overpayment", "credit balance" | [ASC 405](https://asc.fasb.org/405/tableOfContent) |
| **Aging** | Grouping open receivables or payables into buckets by days past due date — current, 1–30, 31–60, 61–90, 90+ | "outstanding" | [ASC 326](https://asc.fasb.org/326/tableOfContent) |
| **Dunning** | The sequence of collection communications | "chasing", "reminders" | Bookkeeping convention — not codified |
| **Promise to pay** | A customer commitment to a date and amount | "PTP" in UI copy | Bookkeeping convention — not codified |
| **Payer** | The party paying us | "customer" when specifically about payment | Bookkeeping convention — not codified |
| **Payment terms** | The agreed timing of payment and any early-payment discount — Net 30, Net 30 EOM, 2/10 net 30, due on receipt; the due date that aging is measured from | "terms" unqualified in UI copy | Commercial practice — not codified |
| **Allowance for credit losses** | The contra-asset holding the expected credit losses on receivables, so AR is presented at the amount expected to be collected | "bad debt reserve", "allowance for doubtful accounts" (pre-CECL) | [ASC 326-20](https://asc.fasb.org/326/tableOfContent) |
| **CECL** | Current expected credit losses — the ASC 326 model that books lifetime expected losses from day one using history, current conditions and reasonable forecasts. ASU 2025-05 adds a practical expedient for current AR and contract assets | "incurred loss" (the model it replaced) | [ASC 326-20; ASU 2025-05](https://asc.fasb.org/326/tableOfContent) |
| **Bad debt expense** | The P&L charge that builds the allowance for credit losses — the provision, not the write-off | "write-off" | [ASC 326-20](https://asc.fasb.org/326/tableOfContent) |
| **Short pay** / **Short payment** | A customer payment for less than the invoices it settles, the customer having deducted the difference — a dispute, a credit not yet recorded, or an amount to write off. It needs a reason and a disposition; it never just disappears | "partial payment" (a payment of part, with the rest still owed and not disputed) | Bookkeeping convention — not codified |
| **Remittance advice** | The payer's note of which invoices a payment covers and of any deduction taken — the first thing cash application reads | "receipt", "payment confirmation" | Commercial practice — not codified |
| **Statement of account** / **Customer statement** | One customer's open invoices, payments and credits, with the balance due, sent to prompt payment and to surface disputes before they age | "statement" alone (a financial statement), "invoice" | Commercial practice — not codified |
| **Payout** / **Processor payout** | A payment processor's transfer to the merchant's bank: charges less refunds, chargebacks, fees and any reserve held. A net figure, booked gross through a clearing account | "revenue", "deposit" unqualified | Processor agreement — not codified |
| **Direct write-off method** | Charging a receivable to bad debt expense only when it is judged uncollectible, with no allowance. Not GAAP where expected credit losses are material; the federal tax rule works the same way (specific charge-off) | "allowance method", "write-off" alone | [ASC 326-20](https://asc.fasb.org/326/tableOfContent) |
| **Specific charge-off method** | The federal income tax method for business bad debts: a deduction for a specific debt in the year it becomes wholly or partly worthless, never for an estimated reserve — and, for an accrual-method business, only for an amount already included in income | "allowance", "reserve method" (repealed in 1986) | [26 U.S.C. §166](https://www.law.cornell.edu/uscode/text/26/166) |
| **Bad debt recovery** | Cash collected on a receivable already written off. Under GAAP it is recorded when received: reinstate the receivable against the allowance, then apply the cash. For tax, recovering an amount previously deducted is generally income | "revenue", "reversal" | [ASC 326-20-35-8](https://asc.fasb.org/326/tableOfContent) |

## Payables

| Term | Definition | Not | Authority |
|---|---|---|---|
| **Bill** | A claim against us | "invoice" (that's what we issue) | [ASC 405](https://asc.fasb.org/405/tableOfContent) |
| **Purchase order** | A commitment to buy | "order" | Bookkeeping convention — not codified |
| **Goods receipt** | Confirmation that goods arrived | "delivery" | [ASC 330](https://asc.fasb.org/330/tableOfContent) |
| **Three-way match** | Agreeing the purchase order, the goods receipt and the vendor invoice — quantity and price, line by line, within tolerance — before a bill is approved for payment | "matching" | [Internal control — SOX §404](https://www.sec.gov/rule-release/33-8238) |
| **Payment run** | A batch of payments released together | "batch", "payout" | Bookkeeping convention — not codified |
| **Vendor** | A party we buy from | "supplier" (pick one — we use vendor) | Bookkeeping convention — not codified |
| **Payee** | The party receiving a payment | "recipient" in an accounting context | Bookkeeping convention — not codified |
| **GR/IR** | Goods received / invoice received — the clearing account credited at receipt and debited when the vendor invoice arrives; its balance is received-not-yet-invoiced | "accrued AP" alone | [ASC 330](https://asc.fasb.org/330/tableOfContent) |
| **Two-way match** | Agreeing the vendor invoice to the purchase order, without a receipt — used for services and where nothing physical arrives | "three-way match" | [Internal control — SOX §404](https://www.sec.gov/rule-release/33-8238) |
| **Early-payment discount** | A reduction offered for paying before the net due date — 2/10 net 30 is 2% off if paid in 10 days, an annualized return of about 37% | "rebate", "prompt-pay credit" | Commercial practice — not codified |
| **Vendor master** | The record of every approved vendor — legal name, tax classification, TIN, tax form on file, bank details, default terms and who approved the setup. Bank details are versioned, never overwritten | "vendor list", "supplier file" | Internal control — [SOX §404](https://www.sec.gov/rule-release/33-8238) |
| **Form W-8BEN** | The certificate a foreign individual gives a US payer, in place of a Form W-9, to establish foreign status. Entities use Form W-8BEN-E. Generally in effect until the last day of the third calendar year after the year it is signed | "foreign W-9", "W-8" unqualified | [Form W-8BEN; Instructions for Form W-8BEN](https://www.irs.gov/instructions/iw8ben) |
| **TIN matching** | The IRS e-Services check of a payee's name and taxpayer identification number against IRS records, open to payers who file information returns. It says whether the pair matches, not what the right number is | "TIN verification", "EIN lookup" | [IRS — TIN Matching](https://www.irs.gov/tax-professionals/taxpayer-identification-number-tin-matching) |
| **Form 1099-MISC** | The IRS information return for rents, prizes and other listed payments made in the course of a business — $2,000 or more for payments made in 2026, $600 through 2025. Services go on Form 1099-NEC instead | "1099" unqualified | [Instructions for Forms 1099-MISC and 1099-NEC](https://www.irs.gov/instructions/i1099mec) |
| **Form 1096** | The transmittal that summarizes paper Forms 1099 (and certain others) sent to the IRS. Not used when filing electronically | "1099 summary", "cover sheet" | [IRS — About Form 1096](https://www.irs.gov/forms-pubs/about-form-1096) |
| **IRIS** / **Information Returns Intake System** | The IRS's system for filing Forms 1099 electronically, including a free web portal that needs an IRIS Transmitter Control Code. Electronic filing is required once a filer has 10 or more information returns in a year | "FIRE" (the older system) | [IRS — E-file information returns with IRIS](https://www.irs.gov/filing/e-file-information-returns-with-iris) |
| **Business email compromise** / **BEC** | Fraud that uses a compromised or impersonated email account — often a vendor's or an executive's — to have payments sent to an account the fraudster controls, typically by "updating" a vendor's bank details | "phishing" (BEC is a payment fraud, not only a credential theft), "hack" | [FBI IC3 — Business Email Compromise](https://www.ic3.gov/PSA/2024/PSA240911) |
| **Payroll liabilities** | What an employer owes on wages it has already paid — the income tax and the employees' share of Social Security and Medicare withheld from their pay, plus the employer's own payroll taxes — until it is deposited with the government. The withheld part was never the employer's money: IRS Pub. 15 calls it trust fund taxes | "payroll expense" (the gross wage), "accrued wages" (wages earned and not yet paid) | [Bookkeeping mechanic — not codified; the obligation is in IRS Publication 15](https://www.irs.gov/publications/p15) |

## Cash

| Term | Definition | Not | Authority |
|---|---|---|---|
| **Available balance** | Spendable now | "balance" unqualified | Bookkeeping convention — not codified |
| **Current balance** | Posted, including uncleared items | "actual balance" | Bookkeeping convention — not codified |
| **Pending** | Submitted or authorized, not settled | "processing", "in progress" | Bookkeeping convention — not codified |
| **Bank-posted** | Recorded by the bank (distinct from posting an entry to the ledger) | "cleared" (a reconciliation state) | Bookkeeping convention — not codified |
| **Settled** | Finally and irrevocably transferred | "complete", "done" | Bookkeeping convention — not codified |
| **Reconciled** | Matched to a bank statement line | "verified", "confirmed" | [Internal control — SOX §404](https://www.sec.gov/rule-release/33-8238) |
| **Deposit in transit** | A receipt recorded in the book cash account but not yet on the bank statement — added to the bank balance in a reconciliation | "pending deposit" | Bookkeeping convention — not codified |
| **Outstanding check** | A check recorded as paid in the books but not yet presented to the bank — deducted from the bank balance in a reconciliation | "uncleared check" | Bookkeeping convention — not codified |
| **Sweep** | An automatic transfer between our own accounts at a set time or threshold — typically excess balances into a concentration or investment account | "transfer" unqualified | [ASC 230-10-45 — not a cash flow](https://asc.fasb.org/230/tableOfContent) |
| **Cash equivalents** | Short-term, highly liquid investments readily convertible to known cash amounts, with an original maturity of three months or less — treasury bills, money market funds | "cash" unqualified | [ASC 230-10-20](https://asc.fasb.org/230/tableOfContent) |
| **Restricted cash** | Cash legally or contractually unavailable for general use — escrow, collateral, compensating balances. Presented separately, but included with cash in the statement of cash flows since ASU 2016-18 | "available cash" | [ASC 230-10-45-4; ASU 2016-18](https://asc.fasb.org/230/tableOfContent) |
| **Positive pay** | A bank fraud control: the company sends the bank a file of issued checks (or approved ACH debits) and the bank returns any presented item that does not match for a decision | "check verification" | Banking practice — not codified |
| **ACH** | The Automated Clearing House network — the US batch system for electronic credits and debits under Nacha rules; same-day to two-day settlement, with limited return rights | "bank transfer" unqualified, "wire" | [Nacha Operating Rules](https://www.nacha.org/rules) |
| **Wire transfer** | A payment settled individually and in full — domestically over Fedwire, cross-border through correspondent banks via SWIFT — same-day and final once sent, which is why it carries the highest fraud risk | "ACH", "bank transfer" unqualified | [Federal Reserve — Fedwire Funds Service](https://www.frbservices.org/financial-services/wires) |
| **Stale-dated check** | A check presented more than six months after its date, which the bank may refuse — still a liability on our books until voided or escheated | "expired check" | [UCC §4-404](https://www.law.cornell.edu/ucc/4/4-404) |
| **Escheatment** / **Unclaimed property** / **Escheat** | Remitting unclaimed property — uncashed vendor checks, customer credit balances — to the state after its dormancy period | "writing back" to income | State unclaimed property law — not codified in GAAP |
| **Chargeback** / **Dispute** | A card payment reversed by the cardholder's issuing bank on a cardholder claim — fraud, goods not received, not as described. The processor debits the merchant the amount plus a fee; the merchant may contest it with evidence (representment) | "refund" (merchant-initiated), "return" | Card network rules (Visa Core Rules, Mastercard Chargeback Guide) — not codified |
| **Processor reserve** / **Rolling reserve** | Card settlements a payment processor withholds against future chargebacks and refunds — a rolling percentage held for a set number of days, a fixed amount, or an upfront hold. It is the merchant's receivable from the processor, not cash on hand | "cash", "available balance" | Processor agreement — not codified |
| **Day-count convention** | The rule that turns a date range into a fraction of a year for interest — 30/360, actual/360, actual/365, actual/actual. The same rate on the same loan accrues a different amount under each | "days" unqualified, "interest method" | Market convention (ISDA definitions) — not codified |
| **Dormancy period** | The time without owner contact after which property — an uncashed vendor check, a customer credit balance, unpaid wages — is presumed abandoned and must be reported to the state. Commonly three years for vendor checks and one year for wages, varying by state and property type | "expiry", "write-back period" | State unclaimed property law (Revised Uniform Unclaimed Property Act) — not codified in GAAP |
| **CCC** / **Cash conversion cycle** | DSO + DIO − DPO: the days between paying suppliers and collecting from customers. Negative means customers pay before suppliers are paid | "cash cycle", "working-capital days" | Operating metric — not codified; computed from GAAP balances |

## Statements

| Term | Definition | Not | Authority |
|---|---|---|---|
| **Statement** | P&L, balance sheet, or cash flow | "report" (a report is generated ad hoc) | [ASC 205](https://asc.fasb.org/205/tableOfContent) |
| **P&L** / **Income statement** | Performance over a period | "profit report" | [ASC 220](https://asc.fasb.org/220/tableOfContent) |
| **Balance sheet** | Assets, liabilities and equity at a point in time, proving the accounting equation | "statement of position" in US copy (IFRS: statement of financial position) | [ASC 210](https://asc.fasb.org/210/tableOfContent) |
| **As at** / **As of** | The point-in-time label for a balance sheet | "for the period" | [Reg S-X, 17 CFR 210](https://www.ecfr.gov/current/title-17/part-210) |
| **For the period ended** | The label for a P&L or cash flow | "as of" | [Reg S-X, 17 CFR 210](https://www.ecfr.gov/current/title-17/part-210) |
| **Comparative** | A prior period column | "previous", "last" | [Reg S-X 3-01, 3-02](https://www.ecfr.gov/current/title-17/part-210) |
| **Consolidated** | Presenting a parent and the entities it controls as one economic entity, with intercompany balances and transactions eliminated | "group" alone | [ASC 810](https://asc.fasb.org/810/tableOfContent) |
| **Standalone** | A single entity, without consolidation | "individual", "solo" | [ASC 810](https://asc.fasb.org/810/tableOfContent) |
| **Elimination** | A consolidation-only entry removing intercompany balances, transactions and unrealized profit, so the group does not report trading with itself | "adjustment" | [ASC 810](https://asc.fasb.org/810/tableOfContent) |
| **Presentation currency** | The currency the statements are shown in. ASC 830 calls it the reporting currency; IAS 21 the presentation currency — we use the latter | "functional currency" (a different decision) | [ASC 830](https://asc.fasb.org/830/tableOfContent) |
| **Functional currency** | The currency of the primary economic environment in which the entity generates and spends cash — a judgment from cash-flow, sales-price, expense and financing indicators | "local currency" | [ASC 830-10-45](https://asc.fasb.org/830/tableOfContent) |
| **Translation** | Converting an entity's functional-currency statements into the presentation currency — assets and liabilities at the closing rate, income and expense at average — with the difference recorded in OCI as the CTA | "conversion" | [ASC 830-30](https://asc.fasb.org/830/tableOfContent) |
| **Remeasurement** | Restating foreign-currency monetary balances, or books kept in a currency other than the functional one, into the functional currency — differences go to the P&L | "revaluation" | [ASC 830-20](https://asc.fasb.org/830/tableOfContent) |
| **CTA** / **Cumulative translation adjustment** | Cumulative translation adjustment — the running total of translation differences, held in AOCI until the foreign entity is sold or substantially liquidated | "FX adjustment" | [ASC 830-30-45](https://asc.fasb.org/830/tableOfContent) |
| **Cost of revenue** / **COGS** | The direct costs of producing the goods or delivering the services sold in the period — the line gross profit is measured after | "expenses" unqualified, "opex" | [Reg S-X 5-03](https://www.ecfr.gov/current/title-17/part-210) |
| **Inventory** | Goods held for sale, or being made for sale, carried as an asset at cost until sold — when the cost moves to cost of revenue | "stock" in US copy | [ASC 330](https://asc.fasb.org/330/tableOfContent) |
| **Perpetual inventory** | Updating the inventory account with every purchase and every sale, so cost of revenue is recorded sale by sale; the periodic alternative works it out at period end from a count | "live stock" | Bookkeeping convention — not codified |
| **FIFO** / **First-in, first-out** | The cost-flow assumption that the oldest units leave inventory first, so cost of revenue carries the earliest costs and the shelf the latest. When prices rise, FIFO reports the lower cost of revenue and the higher inventory | "first in, first sold" as a claim about the physical goods | [ASC 330-10-35-1B](https://asc.fasb.org/330/tableOfContent) |
| **Weighted-average cost** / **Average cost** | The cost-flow assumption that every unit carries the average cost of what is on hand — in a perpetual record, recomputed after each purchase and applied to each issue | "average price" (that is a selling price) | [ASC 330-10-35-1B](https://asc.fasb.org/330/tableOfContent) |
| **Net realizable value** / **NRV** | Estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. FIFO and average-cost inventory is carried at the lower of cost and NRV, and the shortfall is a loss of the period it arises in | "market value", "lower of cost or market" (still the rule for LIFO and the retail method) | [ASC 330-10-35-1B; Master Glossary (ASU 2015-11)](https://asc.fasb.org/330/tableOfContent) |
| **Shrinkage** / **Inventory shrinkage** | The units a physical count finds missing against the perpetual record — loss, theft, damage, miscounted receipts — taken out of inventory at cost as a loss of the period | "write-down" (goods still there, worth less), "cost of revenue" unqualified | Bookkeeping convention — not codified |
| **Operating income** | Gross profit less operating expenses — the result of the core business before interest, other income and tax | "EBIT" (which adds back non-operating items), "EBITDA" | [ASC 220](https://asc.fasb.org/220/tableOfContent) |
| **Other comprehensive income** / **OCI** | Gains and losses that bypass net income by standard — translation adjustments, unrealized gains on available-for-sale debt securities, cash-flow hedges, pension remeasurements — accumulated in AOCI within equity | "other income" | [ASC 220-10](https://asc.fasb.org/220/tableOfContent) |
| **Current asset** | An asset expected to be realized, sold or consumed within twelve months of the balance sheet date or the operating cycle, if longer | "short-term asset" | [ASC 210-10-45](https://asc.fasb.org/210/tableOfContent) |
| **Current liability** | An obligation expected to be settled with current assets, or by creating another current liability, within twelve months or the operating cycle, if longer | "short-term debt" | [ASC 210-10-45](https://asc.fasb.org/210/tableOfContent) |
| **Non-GAAP financial measure** | A numerical measure of performance, position or cash flow that adjusts a GAAP figure — EBITDA, free cash flow, adjusted net income. A registrant publishing one must reconcile it to the most comparable GAAP measure | "adjusted" unlabeled, "pro forma" | [Reg G — SEC Release 33-8176](https://www.sec.gov/rule-release/33-8176) |
| **Direct method** | Presenting operating cash flows as gross receipts and payments by major class — cash from customers, cash paid to suppliers and employees. Encouraged by ASC 230, but it must still be accompanied by the reconciliation from net income | "cash receipts report" | [ASC 230-10-45-25](https://asc.fasb.org/230/tableOfContent) |
| **Indirect method** | Presenting operating cash flows by starting from net income and adjusting for non-cash items and changes in working capital — the method most entities use. ASC 230 also calls it the reconciliation method | "cash reconciliation" (a bank reconciliation is a different control) | [ASC 230-10-45-28](https://asc.fasb.org/230/tableOfContent) |
| **Income tax expense** / **Provision for income taxes** | The P&L charge for income taxes — current tax payable for the period plus the change in deferred tax assets and liabilities | "taxes paid", "tax payable" | [ASC 740-10-20 — glossary](https://asc.fasb.org/740/tableOfContent) |

## Controls

| Term | Definition | Not | Authority |
|---|---|---|---|
| **Segregation of duties** | Splitting authorization, recording, custody of assets and reconciliation across different people, so no one person can both commit and conceal an error or fraud — at minimum, preparer ≠ approver | "permissions" | [Internal control — SOX §404](https://www.sec.gov/rule-release/33-8238) |
| **Approval** | Formal authorization of a specific version | "sign-off" (reserved for close sections) | [Internal control — SOX §404](https://www.sec.gov/rule-release/33-8238) |
| **Evidence** | Documentation supporting a recorded amount | "attachment", "file" | [Internal control — SOX §404](https://www.sec.gov/rule-release/33-8238) |
| **Audit trail** | The immutable record of every state change | "history", "log" | [Internal control — SOX §404](https://www.sec.gov/rule-release/33-8238) |
| **Exception** | A break requiring investigation | "error", "issue" | [Internal control — SOX §404](https://www.sec.gov/rule-release/33-8238) |
| **Finding** | An identified control or accounting problem | "issue" | [Internal control — SOX §404](https://www.sec.gov/rule-release/33-8238) |
| **ICFR** | Internal control over financial reporting — the process designed to give reasonable assurance that the financial statements are reliable, which management of an SEC registrant must assess annually | "internal audit" | [SEC Release 33-8238; Rule 13a-15(f)](https://www.sec.gov/rule-release/33-8238) |
| **Material weakness** | A deficiency, or combination of deficiencies, in ICFR such that there is a reasonable possibility a material misstatement will not be prevented or detected on a timely basis | "finding" unqualified, "audit issue" | [PCAOB AS 2201](https://pcaobus.org/oversight/standards/auditing-standards/details/AS2201) |
| **Significant deficiency** | A control deficiency less severe than a material weakness yet important enough to merit the attention of those overseeing financial reporting | "material weakness" | [PCAOB AS 2201](https://pcaobus.org/oversight/standards/auditing-standards/details/AS2201) |
| **Commingling** | Running company and personal money through the same account or card, so the books can no longer show whose a transaction was. The fix is a separate business account and a recorded entry — a reimbursement, a loan from the founder or a contribution — for every crossing | "personal expense" (that is one symptom), "a founder paying for things" | [IRS Pub. 583 — Business checkbook](https://www.irs.gov/publications/p583) |
| **Compilation** | An engagement in which an accountant presents financial statements from management's information without obtaining or giving any assurance — no audit, no review — and says so in the report; an accountant who is not independent must disclose it | "audit", "review", "certified statements" | AICPA SSARS — AR-C 80 |

## Multi-entity

| Term | Definition | Not | Authority |
|---|---|---|---|
| **Intercompany** | A balance or transaction between two entities in the same group — real in each entity's books, eliminated on consolidation | "related party" (wider — includes owners and directors) | [ASC 810-10-45-1](https://asc.fasb.org/810/tableOfContent) |
| **Non-controlling interest** / **NCI** | The equity in a consolidated subsidiary not attributable to the parent — shown within equity, separately from the parent's, with its share of net income allocated on the P&L | "minority interest" (superseded term) | [ASC 810-10-45-16](https://asc.fasb.org/810/tableOfContent) |
| **Equity method** | Accounting for an investee over which the investor has significant influence — presumed at 20–50% of the vote — as one investment line adjusted by the investor's share of its earnings | "consolidation", "proportionate consolidation" | [ASC 323](https://asc.fasb.org/323/tableOfContent) |
| **Transaction currency** | The currency a single transaction is denominated in — the invoice's currency, which may differ from the entity's functional currency | "functional currency", "local currency" | [ASC 830-20](https://asc.fasb.org/830/tableOfContent) |
| **Monetary item** | A balance fixed in currency units — cash, receivables, payables, debt — and therefore remeasured when exchange rates move; inventory, prepaids and PP&E are non-monetary | "cash item" | [ASC 830-10-45-17](https://asc.fasb.org/830/tableOfContent) |
| **Closing rate** | The spot exchange rate at the balance sheet date, used to translate assets and liabilities and to remeasure monetary items | "current rate" in UI copy, "today's rate" | [ASC 830-30-45-3](https://asc.fasb.org/830/tableOfContent) |
| **Average rate** | An average of exchange rates over the period, used as a practical proxy for transaction-date rates when translating income and expenses — its method stated | "blended rate" | [ASC 830-30-45-3](https://asc.fasb.org/830/tableOfContent) |
| **Realized FX gain or loss** | The exchange difference crystallized when a foreign-currency item is settled — settlement-date rate versus the rate it was last carried at | "FX adjustment" | [ASC 830-20-35-1](https://asc.fasb.org/830/tableOfContent) |
| **Unrealized FX gain or loss** | The exchange difference on an open foreign-currency monetary item at period end, recognized in the P&L and reversed or carried forward until settlement | "CTA" (translation, in OCI) | [ASC 830-20-35-1](https://asc.fasb.org/830/tableOfContent) |
| **Combined reporting** | Filing one state income tax return for a unitary group — the members' income combined, then apportioned. Two rules decide whose in-state sales count in the numerator: Joyce (only members with nexus) and Finnigan (every member, once any member has nexus) | "consolidated return" (the federal election) | State law — not codified in GAAP |
| **Water's-edge election** | An election by a unitary group filing a combined state return to leave most foreign affiliates out of the combined report — in California a binding contract for 84 months | "worldwide combined report" | [Cal. Rev. & Tax. Code §25110](https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?lawCode=RTC&sectionNum=25110) |

## Revenue recognition

| Term | Definition | Not | Authority |
|---|---|---|---|
| **Performance obligation** | A promise in a contract to transfer a distinct good or service, or a series of substantially the same ones — the unit revenue is recognized by | "deliverable", "line item" | [ASC 606-10-25-14](https://asc.fasb.org/606/tableOfContent) |
| **Transaction price** | The consideration an entity expects to be entitled to for the contract, including estimated variable consideration and excluding amounts collected for third parties such as sales tax | "contract value", "TCV" | [ASC 606-10-32-2](https://asc.fasb.org/606/tableOfContent) |
| **Standalone selling price** / **SSP** | The price at which an entity would sell a good or service separately — the basis for allocating the transaction price across performance obligations | "list price" (only evidence of SSP, not SSP itself) | [ASC 606-10-32-31](https://asc.fasb.org/606/tableOfContent) |
| **Variable consideration** | Any part of the price that can change — discounts, rebates, refunds, credits, usage, bonuses, penalties — estimated and included only to the extent a significant reversal is not probable | "estimated revenue" | [ASC 606-10-32-5](https://asc.fasb.org/606/tableOfContent) |
| **Refund liability** | The amount of consideration an entity expects to refund to customers — recorded when the sale is, with revenue reduced by the same amount, and remeasured each period as the estimate changes | "returns reserve" unqualified, "allowance" (an allowance covers credit losses, not returns) | [ASC 606-10-32-10 — refund liability](https://asc.fasb.org/606/tableOfContent) |
| **Contract cost** / **Capitalized commission** | The incremental cost of obtaining a contract — typically a sales commission the entity would not have paid had the contract not been signed — recognized as an asset when expected to be recovered, then amortized as the related goods or services transfer. Expensing it when incurred is permitted if the amortization period would be one year or less | "deferred commission expense", "prepaid commission" | [ASC 340-40](https://asc.fasb.org/340/tableOfContent) |
| **Contract asset** | Revenue recognized ahead of an unconditional right to payment — the right still depends on something other than the passage of time | "unbilled receivable", "accrued revenue" | [ASC 606-10-45-3](https://asc.fasb.org/606/tableOfContent) |
| **Unbilled receivable** | Revenue recognized where the right to payment is unconditional but the invoice has not yet been issued — a receivable, not a contract asset | "contract asset", "WIP" | [ASC 606-10-45-4](https://asc.fasb.org/606/tableOfContent) |
| **Remaining performance obligations** / **RPO** | Transaction price allocated to obligations not yet satisfied — deferred revenue plus contracted, unbilled amounts — disclosed with when it is expected to be recognized | "backlog" (a sales term, broader or narrower by company), "bookings" | [ASC 606-10-50-13](https://asc.fasb.org/606/tableOfContent) |
| **Principal versus agent** | Whether the entity controls a good or service before it passes to the customer — a principal reports revenue gross, an agent reports only its fee or commission net | "gross-up" | [ASC 606-10-55-36](https://asc.fasb.org/606/tableOfContent) |
| **Accrued revenue** | Revenue earned and recognized before it is invoiced. ASC 606 splits it: an unbilled receivable where only time stands between it and payment, a contract asset where the right still depends on further performance | "deferred revenue" (the opposite timing), "contract asset" unqualified | [ASC 606-10-45-3](https://asc.fasb.org/606/tableOfContent) |
| **Contra-revenue account** | An account with a debit balance netted against gross revenue — returns, allowances, sales discounts, rebates — so net revenue is presented after them | "expense", "cost of revenue" | Bookkeeping convention — not codified; ASC 606 reduces the transaction price |
| **Material right** | A customer option to buy additional goods or services at a discount it would not get without the contract — a renewal discount, loyalty points — accounted for as a separate performance obligation, deferring part of today's price | "marketing offer", "free gift" | [ASC 606-10-55-42](https://asc.fasb.org/606/tableOfContent) |
| **Breakage** | The portion of a prepaid right a customer is expected never to exercise — unused gift card balances, unredeemed credits. Recognized in proportion to the pattern of redemption if the entity expects breakage; otherwise when redemption becomes remote. Amounts owed to a state under unclaimed property law are a liability, not revenue | "forfeit income", "write-back" | [ASC 606-10-55-48](https://asc.fasb.org/606/tableOfContent) |
| **Revenue recognition** | Deciding when, and how much, revenue is recorded — under US GAAP, when (or as) control of a promised good or service transfers to the customer, at the consideration the entity expects to be entitled to | "billing", "invoicing", "booking revenue" when cash arrives | [ASC 606-10-05-3](https://asc.fasb.org/606/tableOfContent) |
| **ASC 606** | Topic 606, Revenue from Contracts with Customers — five steps: identify the contract, identify the performance obligations, determine the transaction price, allocate it, recognize revenue as each obligation is satisfied | "ASC 605" (superseded), "the revenue rule" | [ASC 606-10-05-4](https://asc.fasb.org/606/tableOfContent) |
| **Contract with a customer** | An agreement that creates enforceable rights and obligations — written, oral or implied by customary practice — accounted for under Topic 606 only once it is approved, each party's rights and the payment terms can be identified, it has commercial substance and collection is probable | "order", "deal" | [ASC 606-10-25-1, -25-2](https://asc.fasb.org/606/tableOfContent) |
| **Over-time recognition** | Recognizing a performance obligation's revenue as it is satisfied, measured by progress — required when the customer receives and consumes the benefit as the entity performs, controls the asset as it is built, or the asset has no alternative use and the entity has an enforceable right to payment to date | "ratable" alone, "straight-line revenue" | [ASC 606-10-25-27](https://asc.fasb.org/606/tableOfContent) |
| **Point-in-time recognition** | Recognizing a performance obligation's revenue on the date control passes, judged by indicators: a present right to payment, legal title, physical possession, the risks and rewards of ownership, acceptance | "on invoice", "when paid" | [ASC 606-10-25-30](https://asc.fasb.org/606/tableOfContent) |

## Fixed assets & leases

| Term | Definition | Not | Authority |
|---|---|---|---|
| **Fixed asset** / **PP&E** | A tangible asset held for use in operations over more than one period — property, plant and equipment — carried at cost less accumulated depreciation | "capex" (the spend, not the asset) | [ASC 360-10](https://asc.fasb.org/360/tableOfContent) |
| **Capitalization** | Recording a cost as an asset rather than an expense because it brings a future benefit — then allocated to expense over that benefit | "capitalizing" for financing, "capex" | [ASC 360-10-30](https://asc.fasb.org/360/tableOfContent) |
| **Capital expenditure** / **Capex** | Cash spent acquiring or improving long-lived assets in the period — the investing outflow free cash flow subtracts | "fixed asset" | [ASC 230-10-45-13](https://asc.fasb.org/230/tableOfContent) |
| **Useful life** | The period over which an asset is expected to contribute to cash flows, which sets the depreciation period — an estimate, revised prospectively | "tax life", "warranty period" | [ASC 360-10-35-4](https://asc.fasb.org/360/tableOfContent) |
| **Salvage value** | The amount expected from disposing of an asset at the end of its useful life, net of disposal costs — the floor depreciation stops at | "scrap" alone, "fair value" | [ASC 360-10-35-4](https://asc.fasb.org/360/tableOfContent) |
| **Net book value** / **NBV** | Cost less accumulated depreciation and impairment — the carrying amount of an asset | "market value", "fair value" | [ASC 360-10](https://asc.fasb.org/360/tableOfContent) |
| **Accumulated depreciation** | The contra-asset holding every dollar of a fixed asset's cost already charged to depreciation — credited each period, presented beneath the asset's cost, and removed with the asset when it is sold or scrapped | "depreciation reserve", "depreciation" (the period's charge) | [ASC 360-10](https://asc.fasb.org/360/tableOfContent) |
| **Capitalization threshold** / **Capitalization policy** | The written dollar amount, and minimum useful life, below which an entity expenses a purchase that would otherwise be an asset. GAAP sets no amount — its provisions need not be applied to immaterial items; many US companies align it with the IRS de minimis safe harbor | "GAAP limit", "the $2,500 rule" (the safe harbor is a tax election) | [ASC 105-10-05-6](https://asc.fasb.org/105/tableOfContent); [IRS de minimis safe harbor](https://www.irs.gov/businesses/small-businesses-self-employed/tangible-property-final-regulations) |
| **Gain or loss on disposal** | Proceeds from selling or scrapping a long-lived asset less its net book value on that date — presented outside revenue, with the asset's cost and accumulated depreciation removed together | "revenue", "profit on the asset" | [ASC 360-10](https://asc.fasb.org/360/tableOfContent) |
| **Impairment** | Writing an asset down because its carrying amount is not recoverable — for long-lived assets, a recoverability test on undiscounted cash flows, then a write-down to fair value | "depreciation", "write-off" | [ASC 360-10-35-17](https://asc.fasb.org/360/tableOfContent) |
| **Goodwill** | The excess of the consideration transferred in a business combination, plus the fair value of any non-controlling interest and of any previously held interest in the acquiree, over the identifiable net assets acquired (measured mostly at fair value) — not amortized by public companies, tested for impairment at least annually | "intangible asset" unqualified, "brand value" | [ASC 350-20](https://asc.fasb.org/350/tableOfContent) |
| **Intangible asset** | A non-physical asset other than goodwill — software, customer lists, patents, trademarks — amortized over its useful life unless indefinite-lived | "goodwill" | [ASC 350-30](https://asc.fasb.org/350/tableOfContent) |
| **Right-of-use asset** / **ROU asset** | The lessee's right to use an underlying asset for the lease term — the lease liability plus prepaid lease payments and initial direct costs, less incentives received | "leased asset" (owned by the lessor) | [ASC 842-20-30-5](https://asc.fasb.org/842/tableOfContent) |
| **Lease liability** | The present value of the lease payments not yet paid, discounted at the rate implicit in the lease or, if not determinable, the incremental borrowing rate | "rent payable" | [ASC 842-20-30-1](https://asc.fasb.org/842/tableOfContent) |
| **Operating lease** | Under ASC 842, a lessee lease that is not a finance lease — on the balance sheet, with a single straight-line lease cost in the P&L | "off-balance-sheet lease" (no longer, since ASC 842) | [ASC 842-20-25-6](https://asc.fasb.org/842/tableOfContent) |
| **Finance lease** | A lease that effectively transfers control of the asset — ownership transfer, purchase option reasonably certain, major part of life or substantially all of fair value, or a specialized asset — expensed as amortization plus interest | "capital lease" (ASC 840 term) | [ASC 842-10-25-2](https://asc.fasb.org/842/tableOfContent) |
| **Incremental borrowing rate** / **IBR** | The rate the lessee would pay to borrow, on a collateralized basis over a similar term, an amount equal to the lease payments — the discount rate when the implicit rate is unknown | "cost of capital", "WACC" | [ASC 842-20-20 — glossary](https://asc.fasb.org/842/tableOfContent) |
| **Short-term lease** | A lease with a term of twelve months or less and no purchase option the lessee is reasonably certain to exercise — may be kept off the balance sheet by policy election | "month-to-month" alone | [ASC 842-20-25-2](https://asc.fasb.org/842/tableOfContent) |
| **Straight-line** | Allocating an amount evenly across the periods it covers — cost less salvage value divided by useful life for depreciation; equal monthly amounts for a prepaid or a ratable subscription. One systematic and rational method among several | "linear", "even split" | [ASC 360-10-35-4](https://asc.fasb.org/360/tableOfContent) (systematic and rational allocation) |
| **ASC 842** | Topic 842, Leases — puts nearly every lessee lease longer than twelve months on the balance sheet as a right-of-use asset and a lease liability, classified as operating or finance | "ASC 840" (superseded), "off-balance-sheet lease" | [ASC 842-20-25-1](https://asc.fasb.org/842/tableOfContent) |

## Equity & financing

| Term | Definition | Not | Authority |
|---|---|---|---|
| **Dividend** | A distribution of earnings to shareholders, declared by the board — a liability from the declaration date and a reduction of retained earnings, never an expense | "expense", "drawings" (an owner's withdrawal from an unincorporated business) | [ASC 505](https://asc.fasb.org/505/tableOfContent) |
| **Accumulated deficit** | Retained earnings below zero — cumulative losses exceeding cumulative earnings, presented as a negative within equity, as at almost every venture-funded startup | "negative equity" (equity can stay positive after paid-in capital) | [ASC 505](https://asc.fasb.org/505/tableOfContent) |
| **Liquidation preference** | A preferred stockholder's right to be paid a stated amount — usually 1× the original issue price plus declared but unpaid dividends — before common stockholders in a sale or liquidation. Non-participating preferred takes the greater of that or its as-converted share; participating preferred takes both | "valuation", "debt" | [NVCA model certificate of incorporation](https://nvca.org/model-legal-documents/) |
| **83(b) election** | An election, filed with the IRS within 30 days of receiving restricted stock, to be taxed on its value at grant rather than as it vests — at a founder's purchase price, usually no tax at all, and the capital gain holding period starts at once | "early exercise" (which makes the election possible) | [IRC §83(b)](https://www.law.cornell.edu/uscode/text/26/83) |
| **Qualified small business stock** / **QSBS** / **Section 1202** | Original-issue stock of a domestic C corporation with gross assets of $75 million or less at issuance that lets holders exclude gain on sale — for stock issued after July 4, 2025, 50% after three years, 75% after four and 100% after five, up to the greater of $15 million or ten times basis per issuer. Stock issued earlier keeps the old rules: $50 million of gross assets, five years, $10 million | "small business stock" unqualified | [IRC §1202](https://www.law.cornell.edu/uscode/text/26/1202) |
| **Default alive** | Whether, with expenses held where they are and revenue growing at its recent rate, a company reaches profitability on the cash it already has. If not, it is default dead and its runway ends in a raise | "profitable", "runway" | Startup convention (Paul Graham, 2015) — not codified |
| **Quality of earnings** / **QoE** | A diligence analysis, usually by an accounting firm before an acquisition or financing, of whether reported EBITDA is sustainable — normalizing and non-recurring adjustments, proof of cash, the net working capital peg. It gives no assurance and is not an audit | "audit", "review" | Transaction diligence practice — not codified |
| **APIC** / **Additional paid-in capital** | What shareholders paid for stock above its par value, plus the credit side of stock-based compensation — part of contributed capital within equity | "profit", "retained earnings" | [ASC 505-10](https://asc.fasb.org/505/tableOfContent) |
| **Stock-based compensation** / **SBC** | The cost of equity awards — options, RSUs, restricted stock — measured at grant-date fair value and recognized as expense over the service period. Non-cash, so added back in operating cash flow, but a real cost | "free equity", "not a real expense" | [ASC 718-10](https://asc.fasb.org/718/tableOfContent) |
| **409A valuation** | An appraisal of a private company's common stock at fair market value, so options granted with a strike at or above it avoid the tax penalties of IRC §409A. A tax safe harbor; the books measure option expense under ASC 718, often starting from the same common-stock value | "the valuation" (the priced round sets the preferred price, not the common) | [IRC §409A](https://www.law.cornell.edu/uscode/text/26/409A); Treas. Reg. §1.409A-1(b)(5)(iv) |
| **SAFE** / **Simple agreement for future equity** | Cash from an investor in exchange for a right to shares in a future priced round, usually at a valuation cap or a discount. Not debt and not yet stock; because a SAFE can require cash on a change of control, it is often classified as a liability under ASC 480 and remeasured at fair value — the terms decide | "convertible note" (that is debt), "equity" | [ASC 480-10](https://asc.fasb.org/480/tableOfContent) |
| **Convertible note** | Debt that converts into stock at a future financing, usually at a discount or a cap, accruing interest until it does — a liability until conversion, with any embedded conversion feature assessed for separate accounting | "SAFE" (not debt), "equity" | [ASC 470-20](https://asc.fasb.org/470/tableOfContent); [ASC 815-15](https://asc.fasb.org/815/tableOfContent) |
| **Cap table** / **Capitalization table** | The register of who owns what in a company — every share issued, every option granted, the unissued pool and every SAFE or note that will become shares — shown as share counts and as percentages, issued and fully diluted. It must agree with the stock ledger, the board consents and the books | "the shareholder list" (which leaves out options and SAFEs), "the 409A" | Corporate practice — not codified |
| **Fully diluted** | Counting every share that exists or could: issued stock, options granted, the unissued option pool and convertible securities as converted. The basis a SAFE's Company Capitalization, a priced round's price per share and most ownership percentages are quoted on | "outstanding" (issued shares only), "authorized" | [YC post-money SAFE — Company Capitalization](https://www.ycombinator.com/documents) |
| **Par value** | The nominal value per share a charter assigns — often a fraction of a cent. Delaware lets stock be issued for any consideration not less than par; on the books, shares × par goes to the stock account and the rest of the price to additional paid-in capital | "price", "value" | [8 Del. C. §153](https://delcode.delaware.gov/title8/c001/sc05/index.html) |
| **Common stock** | The residual class of shares — founders', employees' and option holders' — paid after creditors and after any preferred stock's preference. The class a 409A valuation prices | "ordinary shares" in US copy, "equity" (which also holds APIC and retained earnings) | [8 Del. C. §151](https://delcode.delaware.gov/title8/c001/sc05/index.html) |
| **Preferred stock** | A class or series of stock with rights common lacks, set out in the charter — usually a liquidation preference, conversion into common, anti-dilution protection, protective provisions and board seats. What investors buy in a priced round, and what a SAFE converts into | "debt", "preference shares" in US copy | [8 Del. C. §151](https://delcode.delaware.gov/title8/c001/sc05/index.html); [NVCA model certificate of incorporation](https://nvca.org/model-legal-documents/) |
| **Restricted stock** / **Restricted stock purchase agreement** / **RSPA** | Shares bought or received outright but subject to a vesting schedule: if the holder leaves early, the company may repurchase the unvested shares on the agreement's terms. Taxed under §83 as it vests, unless an 83(b) election is filed within 30 days | "RSU" (a promise of shares later, not shares now), "restricted securities" (a securities-law resale limit) | [26 U.S.C. §83](https://www.law.cornell.edu/uscode/text/26/83) |
| **Vesting** | Earning equity over time, so a holder who leaves keeps only what has vested. The common schedule is four years with a one-year cliff: nothing for twelve months, a quarter on the first anniversary, then monthly to month 48 | "granting", "exercising" | Contract practice — not codified; tax follows [26 U.S.C. §83](https://www.law.cornell.edu/uscode/text/26/83) |
| **Vesting cliff** / **Cliff** | The waiting period before any of a grant vests; on the cliff date the whole period's share vests at once. Leave a day before a one-year cliff and nothing has vested | "probation", "lockup" | Contract practice — not codified |
| **Acceleration** / **Single-trigger acceleration** / **Double-trigger acceleration** | A clause that vests unvested equity early. Single-trigger accelerates on one event, usually a sale of the company; double-trigger needs a second, usually the holder's termination without cause within a set period after the sale | "vesting" alone, "change of control" (the trigger, not the clause) | Contract practice — not codified |
| **Pre-money valuation** | What a company is priced at immediately before new money comes in. Pre-money ÷ pre-money fully diluted shares is the round's price per share — so whatever the term sheet puts in the pre-money (converting SAFEs, a bigger option pool) is paid for by the existing holders | "valuation" alone, "post-money" | [YC SAFE User Guide](https://www.ycombinator.com/documents) |
| **Post-money valuation** | Pre-money valuation plus the new money. An investor's ownership is its investment ÷ post-money; a post-money SAFE's cap is stated this way, so the SAFE's ownership is known the day it is signed | "pre-money", "exit value" | [YC SAFE User Guide](https://www.ycombinator.com/documents) |
| **Valuation cap** | The highest valuation a SAFE or note converts at. On YC's post-money SAFE the Safe Price is the cap ÷ Company Capitalization, and the holder takes whichever of that or the round price issues more shares | "valuation", "price" | [YC post-money SAFE](https://www.ycombinator.com/documents) |
| **Conversion discount** | A SAFE's or note's right to convert at a percentage below the round price — 20% off a $1.00 round is $0.80 — whichever of the discount price or the cap price is lower wins | "discount" on an invoice, "interest" | [YC SAFE documents](https://www.ycombinator.com/documents) |
| **Most favored nation clause** / **MFN** | A promise that an investor's terms improve to match better terms the company gives a later investor. YC's MFN SAFE has no cap or discount and takes those of any SAFE issued later | "pro rata right", "side letter" | [YC SAFE documents](https://www.ycombinator.com/documents) |
| **Pro rata right** / **Right of first offer** | An investor's right to buy its proportionate share of a later round, so it can keep its percentage. In the NVCA model it belongs to Major Investors; on a post-money SAFE it lives in an optional side letter | "preemptive right" alone, "MFN" | [NVCA model investors' rights agreement §4.1](https://nvca.org/model-legal-documents/); [YC Pro Rata Side Letter](https://www.ycombinator.com/documents) |
| **Priced round** / **Series Seed** / **Series A** | A financing in which investors buy a new series of preferred stock at a stated price per share, on a negotiated pre-money valuation — as opposed to a SAFE or note, which defers the price. Converting SAFEs and notes convert at its close | "SAFE round", "bridge" | [NVCA model legal documents](https://nvca.org/model-legal-documents/) |
| **Term sheet** | The short summary of a priced round's economics and control terms — price, pre-money, pool, liquidation preference, anti-dilution, board, protective provisions, pro rata — that the definitive documents then implement | "the deal" (the documents are the deal), "LOI" | [NVCA model legal documents](https://nvca.org/model-legal-documents/) |
| **Option pool** | Shares the board reserves under a stockholder-approved equity plan for future grants of options and other awards. Granted options and the unissued remainder both count in fully diluted shares | "options outstanding" (only the granted part), "treasury stock" | [26 U.S.C. §422(b)(1)](https://www.law.cornell.edu/uscode/text/26/422) |
| **Option pool shuffle** | Sizing a round's new option pool as a percentage of the post-money but creating it in the pre-money, so its cost falls on existing holders and the effective pre-money is the headline pre-money less the new pool's value | "dilution" alone | Venture practice — not codified |
| **Dilution** | The fall in a holder's percentage when new shares are issued. The holder's share count does not change; a round priced high enough can dilute ownership and raise the value of the stake at once | "loss", "down round" | Arithmetic — not codified |
| **Down round** | A priced round at a lower price per share than the last one — the event anti-dilution provisions are written for | "flat round", "dilution" | Venture practice — not codified |
| **Anti-dilution protection** / **Broad-based weighted average** / **Full ratchet** | A charter provision that lowers preferred stock's conversion price when the company later sells stock below it. Broad-based weighted average moves it part way, by CP2 = CP1 × (A + B) ÷ (A + C); full ratchet moves it all the way down to the new price | "pro rata right" (buying more), "dilution" itself | [NVCA model certificate of incorporation §4.4.4](https://nvca.org/model-legal-documents/) |
| **Participating preferred** | Preferred that takes its liquidation preference and then shares in what is left alongside common as if converted, often up to a cap. Non-participating preferred takes the greater of its preference or its as-converted share, not both | "liquidation preference" alone | [NVCA model certificate of incorporation §2](https://nvca.org/model-legal-documents/) |
| **Deemed liquidation event** | A merger, sale of control or sale of substantially all assets that the charter treats as a liquidation, so the liquidation preference applies to the sale proceeds | "IPO", "dissolution" alone | [NVCA model certificate of incorporation §2.3](https://nvca.org/model-legal-documents/) |
| **Protective provisions** | Actions the company may not take without the consent of a set majority of the preferred — selling the company, changing the charter against the preferred, creating a senior class, changing authorized shares, paying dividends, changing the board's size | "board approval" (a different vote) | [NVCA model certificate of incorporation §3.3](https://nvca.org/model-legal-documents/) |
| **Preferred director** / **Board seat** | A director the preferred stockholders elect as a separate class, under the charter. The NVCA model splits the board into seats the preferred elect, seats the common elect and at-large seats everyone elects together — so a board seat is a class vote written into the certificate, not a courtesy | "observer" (attends, does not vote), "advisor" | [NVCA model certificate of incorporation §3.2](https://nvca.org/model-legal-documents/) |
| **Incentive stock option** / **ISO** | A stock option meeting IRC §422: employees only, granted under a stockholder-approved plan, strike at least fair market value, exercisable for no more than ten years. No regular tax at grant or exercise (the spread can trigger AMT); gain is capital if the stock is held two years from grant and one from exercise. Only $100,000 of stock, valued at grant, may first become exercisable in a calendar year | "NSO", "RSU" | [26 U.S.C. §422](https://www.law.cornell.edu/uscode/text/26/422) |
| **Nonstatutory stock option** / **NSO** / **Nonqualified stock option** | A stock option that is not an ISO — any grant to a contractor or director, and an ISO's excess over the $100,000 limit. With no readily determinable value at grant, the spread is ordinary income at exercise, as wages for an employee | "ISO", "warrant" | [IRS Topic No. 427](https://www.irs.gov/taxtopics/tc427); [IRS Pub. 525](https://www.irs.gov/publications/p525) |
| **Exercise price** / **Strike price** | What an option holder pays per share to buy it. Set at least at fair market value on the grant date — the 409A value for a private company — to keep an option outside §409A and, for an ISO, inside §422 | "409A value" (the benchmark, not the price), "grant price" | [Treas. Reg. §1.409A-1(b)(5)](https://www.law.cornell.edu/cfr/text/26/1.409A-1) |
| **Early exercise** | Exercising options before they vest, receiving restricted stock the company may repurchase if the holder leaves. Paired with an 83(b) election, the holding periods and the tax measurement start at exercise | "83(b) election" (which it makes possible), "acceleration" | [26 U.S.C. §83](https://www.law.cornell.edu/uscode/text/26/83) |
| **Post-termination exercise period** / **PTEP** | How long a departing holder has to exercise vested options before they lapse — often 90 days, because an ISO exercised more than three months after employment ends is taxed as an NSO. A plan may allow longer; the options then lose ISO treatment, not validity | "vesting period", "cliff" | [26 U.S.C. §422(a)(2)](https://www.law.cornell.edu/uscode/text/26/422) |
| **Restricted stock unit** / **RSU** | A promise to deliver shares (or their cash value) once vesting conditions are met. Nothing is bought; the shares' value is income when they are delivered. Common at later-stage companies, where an option's low strike no longer exists | "restricted stock" (shares now), "option" | [26 U.S.C. §83](https://www.law.cornell.edu/uscode/text/26/83) |
| **Accredited investor** | A person or entity Regulation D trusts to bear a private offering's risk — among others, an individual with more than $1,000,000 of net worth excluding the primary residence, or more than $200,000 of income ($300,000 joint) in each of the last two years with the same expected; a director or executive officer of the issuer; an entity with more than $5,000,000 of assets | "qualified purchaser", "sophisticated investor" | [17 CFR §230.501(a)](https://www.law.cornell.edu/cfr/text/17/230.501) |
| **Regulation D** / **Reg D** | The SEC's exemptions from registering a private offering — Rule 504 and Rule 506. Securities bought under it are restricted, and the issuer files Form D within 15 days of the first sale | "Reg A", "Reg CF" | [17 CFR §230.506](https://www.law.cornell.edu/cfr/text/17/230.506); [§230.503](https://www.law.cornell.edu/cfr/text/17/230.503) |
| **Rule 506(b)** | The private placement most startup rounds use: no limit on the amount, unlimited accredited investors and no more than 35 other purchasers in 90 days (each sophisticated, and given disclosure), and no general solicitation | "Rule 506(c)", "Reg CF" | [17 CFR §230.506(b)](https://www.law.cornell.edu/cfr/text/17/230.506) |
| **Rule 506(c)** | The private placement that allows general solicitation — posting the round publicly — on condition that every purchaser is accredited and the issuer takes reasonable steps to verify it | "Rule 506(b)", "crowdfunding" | [17 CFR §230.506(c)](https://www.law.cornell.edu/cfr/text/17/230.506) |
| **Form D** | The notice of an exempt offering filed with the SEC no later than 15 calendar days after the first sale under Rule 504 or 506 — a notice, not an application — and the basis of the states' notice filings | "registration statement", "Form 10" | [17 CFR §230.503](https://www.law.cornell.edu/cfr/text/17/230.503) |
| **Blue sky laws** / **State notice filing** | State securities laws. For a Rule 506 offering federal law preempts state registration, but states may still require a notice filing and a fee where investors live | "Form D" (the federal notice) | [SEC — Rule 506(b)](https://www.sec.gov/resources-small-businesses/exempt-offerings/private-placements-rule-506b) |
| **Regulation Crowdfunding** / **Reg CF** | The exemption for raising up to $5 million in 12 months from the public, online, through one SEC-registered broker-dealer or funding portal, with per-investor limits for non-accredited investors | "Rule 506(c)", "Reg A" | [17 CFR §227.100](https://www.law.cornell.edu/cfr/text/17/227.100) |
| **Rule 701** | The exemption a private company uses to grant options and stock to employees, directors, officers and individual consultants under a written compensatory plan — up to the greatest of $1,000,000, 15% of total assets or 15% of the class in any 12 months, with extra disclosure above $10 million | "Regulation D", "S-8" (for public companies) | [17 CFR §230.701](https://www.law.cornell.edu/cfr/text/17/230.701) |
| **Venture debt** | A loan to a venture-backed company, usually alongside or just after an equity round, often with warrants for the lender. It extends runway with less dilution than equity, and must be repaid whatever happens | "convertible note", "revenue-based financing" | Lending practice — not codified |
| **Revenue-based financing** / **RBF** | Capital repaid as a fixed percentage of ongoing revenue until a set multiple of the amount advanced is returned. Non-dilutive; costly if revenue grows fast, slow to repay if it doesn't | "venture debt", "factoring" | Financing practice — not codified |
| **Warrant** | A right, issued by the company, to buy its shares at a fixed price for a set period — what a venture lender usually takes alongside a loan | "option" (granted to service providers), "SAFE" | Contract practice — not codified |
| **Small Business Innovation Research** / **SBIR** / **STTR** | Federal research funding that agencies award to US small businesses in phases, with no equity taken — non-dilutive capital for technical work an agency wants done | "loan", "R&D tax credit" | [SBIR.gov](https://www.sbir.gov/about) |
| **Secondary sale** | A shareholder selling existing shares to a buyer, rather than the company issuing new ones. The company receives nothing; the buyer's shares are not original issue, so they are not QSBS in the buyer's hands, and the company's right of first refusal and transfer restrictions usually apply | "primary" (new shares from the company), "tender" alone | [26 U.S.C. §1202(c)](https://www.law.cornell.edu/uscode/text/26/1202) |
| **Data room** | The organized set of documents a company opens to investors in diligence — charter, cap table, board consents, stock and option agreements, 83(b) elections, financial statements, material contracts, IP assignments | "pitch deck", "the drive" | Transaction practice — not codified |

## Tax

| Term | Definition | Not | Authority |
|---|---|---|---|
| **Temporary difference** | A difference between an asset or liability's tax basis and its book carrying amount that will reverse in future years — the source of deferred taxes | "permanent difference" (never reverses) | [ASC 740-10-25-20](https://asc.fasb.org/740/tableOfContent) |
| **Deferred tax asset** / **DTA** | Future tax savings from deductible temporary differences and carryforwards, measured at enacted rates | "tax refund receivable" | [ASC 740-10-30-5](https://asc.fasb.org/740/tableOfContent) |
| **Deferred tax liability** / **DTL** | Future tax payable on taxable temporary differences — typically accelerated tax depreciation — measured at enacted rates | "income tax payable" (current, due now) | [ASC 740-10-30-5](https://asc.fasb.org/740/tableOfContent) |
| **Valuation allowance** | The reduction of a deferred tax asset to the amount more likely than not (over 50%) to be realized | "reserve" | [ASC 740-10-30-5](https://asc.fasb.org/740/tableOfContent) |
| **Effective tax rate** / **ETR** | Total income tax expense divided by pre-tax income, reconciled to the statutory rate in the notes — by category and jurisdiction under ASU 2023-09 | "statutory rate", "marginal rate" | [ASC 740-10-50-12; ASU 2023-09](https://asc.fasb.org/740/tableOfContent) |
| **Sales tax nexus** | The connection with a state that obliges a seller to collect its sales tax — physical presence, or economic nexus from sales into the state above a threshold (commonly $100,000) since South Dakota v. Wayfair (2018) | "registration" | [South Dakota v. Wayfair, 585 U.S. 162 (2018)](https://www.supremecourt.gov/opinions/17pdf/585us1r58_pok0.pdf) |
| **Sales tax payable** | Sales tax charged to customers and not yet remitted to the state — a liability from the moment it is collected, never revenue, when the entity has elected to exclude such taxes from the transaction price | "revenue", "sales" | [ASC 606-10-32-2A — accounting policy election](https://asc.fasb.org/606/tableOfContent) |
| **Form 1099-NEC** | The IRS information return for nonemployee compensation paid to a contractor in the course of business — required at $600 a year for payments through 2025 and $2,000 from 2026 (indexed from 2027), due to the recipient and the IRS by January 31 | "1099" unqualified, "payslip" | [IRS — About Form 1099-NEC](https://www.irs.gov/forms-pubs/about-form-1099-nec) |
| **Form W-9** | The IRS form a US payee gives a payer to certify its name, tax classification and taxpayer identification number — collected before the first payment, because it drives 1099 reporting and backup withholding | "tax form" unqualified | [IRS — About Form W-9](https://www.irs.gov/forms-pubs/about-form-w-9) |
| **FUTA** | The federal unemployment tax an employer pays — 6.0% of the first $7,000 of each employee's wages, reduced to a net 0.6% by the state credit unless the state is a credit-reduction state; filed on Form 940 | "SUTA", "payroll withholding" (FUTA is employer-only) | [IRS — About Form 940](https://www.irs.gov/forms-pubs/about-form-940) |
| **SUTA** | The state unemployment insurance tax an employer pays on each employee's wages up to a state wage base, at an experience-rated rate assigned by the state | "FUTA", "SUI withholding" (employee contributions exist only in a few states) | [US DOL — state unemployment insurance](https://oui.doleta.gov/unemploy/) |
| **Net operating loss** / **NOL** | The excess of tax deductions over gross income for a year. Federal NOLs arising after 2017 carry forward indefinitely, cannot be carried back (farming aside), and may offset only 80% of taxable income computed before the NOL deduction | "tax loss" unqualified, "book loss" | [IRC §172](https://www.law.cornell.edu/uscode/text/26/172) |
| **NOL deduction cap** | A limit on how much of a year's income a loss carryforward may offset — federally 80% for post-2017 NOLs; in the states it varies: Pennsylvania caps pre-2025 losses at 40% and later ones at 50% in 2026, rising ten points a year to 80% from 2029, and some states suspend NOL deductions outright in deficit years | "NOL expiry" (a time limit rather than an amount limit) | [IRC §172(a)(2)](https://www.law.cornell.edu/uscode/text/26/172); state law |
| **Section 382 limitation** | The annual cap on using pre-change NOLs and credits after an ownership change — a more-than-50-percentage-point increase in ownership by 5% shareholders over a rolling three-year testing period. The cap is the loss corporation's equity value immediately before the change times the IRS long-term tax-exempt rate; unused cap carries forward | "NOL expiry", "change of control" alone | [IRC §382](https://www.law.cornell.edu/uscode/text/26/382) |
| **Section 174A** | The OBBBA rule restoring immediate deduction of domestic research or experimental expenditures for tax years beginning after 2024, with an election to amortize over 60 months or more instead. Foreign research stays capitalized over 15 years under §174; small businesses could apply it back to 2022–2024 | "R&D credit" (a separate credit, §41) | [Rev. Proc. 2025-28](https://www.irs.gov/pub/irs-drop/rp-25-28.pdf) |
| **Payroll tax offset** / **Research credit against payroll tax** | An election by a qualified small business — gross receipts under $5 million and none before the last five years — to apply up to $500,000 a year of its research credit against the employer share of Social Security and then Medicare tax. Elected on Form 6765 with a timely original return, claimed on Form 8974 from the next quarter | "refundable R&D credit" | [IRS — Instructions for Form 8974](https://www.irs.gov/instructions/i8974) |
| **De minimis safe harbor** | An annual tax election to deduct, rather than capitalize, tangible property costing up to $2,500 per invoice or item — $5,000 with an applicable financial statement — provided the books expense the same amounts under an accounting policy in place at the start of the year | "capitalization threshold" (the book policy it relies on) | [Treas. Reg. §1.263(a)-1(f)](https://www.ecfr.gov/current/title-26/section-1.263(a)-1) |
| **Section 179 expensing** / **Section 179** | An election to deduct the cost of qualifying equipment and software in the year it is placed in service — up to $2,560,000 for 2026, phased out dollar for dollar above $4,090,000 of purchases, and limited to taxable business income | "bonus depreciation", "write-off" | [IRC §179](https://www.law.cornell.edu/uscode/text/26/179); Rev. Proc. 2025-32 |
| **Bonus depreciation** | Additional first-year tax depreciation under §168(k) — 100%, permanently, for qualified property acquired after January 19, 2025, under the OBBBA. Not limited to taxable income, so it can create an NOL; book depreciation is unaffected, creating a temporary difference | "Section 179", "accelerated depreciation" unqualified | [IRC §168(k)](https://www.law.cornell.edu/uscode/text/26/168) |
| **Economic nexus** | A connection with a state created by economic activity alone — sales into the state above a threshold — rather than physical presence. The basis of remote-seller sales tax since South Dakota v. Wayfair (2018), and of many states' income and franchise taxes, where P.L. 86-272 still shields solicitation of tangible goods sales | "physical presence", "registration" | [South Dakota v. Wayfair, 585 U.S. 162 (2018)](https://www.supremecourt.gov/opinions/17pdf/585us1r58_pok0.pdf) |
| **Marketplace facilitator** | A platform — Amazon, Etsy, eBay — that every sales-tax state requires to collect and remit sales tax on sales it facilitates for third-party sellers; the seller does not collect again on those sales | "marketplace seller" (the third party) | State sales tax law — not codified in GAAP |
| **Remote-seller grace period** | The time a seller with no physical presence has, after crossing a state's economic nexus threshold, before it must register and collect — immediately, the first day of a following month, or the next calendar year, depending on the state | "amnesty", "safe harbor" | State sales tax law — not codified in GAAP |
| **Use tax** / **Compensating tax** | The buyer-side complement of sales tax, owed at the same rate on taxable goods and services used in a state when the seller did not collect sales tax — self-assessed and remitted by the buyer | "sales tax" (collected by the seller) | State sales and use tax law — not codified in GAAP |
| **Exemption certificate** / **Resale certificate** | The document a buyer gives a seller to claim a sales tax exemption — resale, manufacturing, an exempt organization — which the seller keeps to prove why it did not collect. New Mexico's version is the nontaxable transaction certificate (NTTC) | "tax ID", "W-9" | State sales tax law — not codified in GAAP |
| **Vendor's compensation** / **Timely filing discount** | The share of collected sales tax a seller may keep, in states that allow it, for filing and paying on time — usually a small percentage, often capped | "sales tax refund", "rebate" | State sales tax law — not codified in GAAP |
| **Home-rule sales tax** | A local sales tax that a home-rule city administers itself — its own license, return, base and audit — rather than through the state. Common in Colorado, Louisiana and Alabama | "local sales tax" unqualified | [Colo. Const. art. XX, §6](https://leg.colorado.gov/colorado-constitution); state law |
| **Gross receipts tax** / **GRT** / **Transaction privilege tax** / **B&O tax** | A tax on a business's gross receipts with no deduction for costs, levied on the seller — Washington B&O, Ohio CAT, Nevada commerce tax, New Mexico GRT, Arizona TPT. An operating expense, not an income tax under ASC 740; Texas's margin tax, measured on a modified gross margin, is treated as an income tax | "sales tax" (a tax on the buyer), "income tax" | State tax law; [ASC 740-10-15-4](https://asc.fasb.org/740/tableOfContent) |
| **Municipal net profit tax** / **Net profits tax** / **Earnings tax** | A city income tax on a business's net profits, usually paired with a tax on wages earned in the city — Ohio municipalities, Philadelphia, Wilmington, Kansas City and St. Louis. Filed with the city, not the state | "state income tax", "gross receipts tax" | [Ohio Rev. Code ch. 718](https://codes.ohio.gov/ohio-revised-code/chapter-718) |
| **Apportionment** / **Single sales factor** | Dividing a multistate business's taxable income among states by formula — historically property, payroll and sales; now in most states the sales factor alone | "allocation" (assigning nonbusiness income to one state) | Multistate Tax Compact art. IV (UDITPA); state law — not codified in GAAP |
| **Market-based sourcing** | Assigning receipts from services and intangibles to the state where the customer receives the benefit, for the sales factor — the rule in most states | "cost-of-performance sourcing" | State law — not codified in GAAP |
| **Cost-of-performance sourcing** | Assigning receipts from services to the state where the income-producing activity is performed — under the UDITPA rule, all of it to the state with the greater share of the costs of performance | "market-based sourcing" | Multistate Tax Compact art. IV, §17 (UDITPA) — not codified in GAAP |
| **IRC conformity** / **Conformity date** | How a state's income tax adopts the federal Internal Revenue Code — rolling (as currently amended), fixed-date (as of a stated date, updated by legislation) or selective. A fixed-date state may not follow §174A, bonus depreciation or other recent federal changes | "federal taxable income" unqualified | State law — not codified in GAAP |
| **Refundable credit** | A tax credit whose excess over the tax due is paid out in cash. Because it does not depend on taxable income, it is generally accounted for outside ASC 740 — as a reduction of the related cost or as other income | "deduction", "carryforward" | Tax law; ASC 740 scope judgment — not codified |
| **Transferable credit** | A tax credit the holder may sell for cash to another taxpayer — federal clean-energy credits under §6418, many state film and historic credits; New Jersey's program also lets technology companies sell NOLs | "refundable credit" (paid by the government) | [IRC §6418](https://www.law.cornell.edu/uscode/text/26/6418); state law |
| **Voluntary disclosure agreement** / **VDA** | An agreement in which a business with unfiled state tax obligations comes forward before the state contacts it — often anonymously at first — and files and pays a limited lookback period, typically three to four years, with penalties waived and interest usually due | "amnesty" (a time-limited program), "audit settlement" | State tax agency programs; MTC National Nexus Program — not codified |
| **Form 1099-K** | The information return from a payment settlement entity reporting a payee's gross payment card and third-party network receipts — card transactions at any amount; third-party network transactions only above $20,000 and 200 transactions, the threshold the OBBBA retroactively reinstated. Gross of refunds, chargebacks and fees, so it never ties to revenue | "1099" unqualified, "sales report" | [IRS — Form 1099-K threshold FAQs](https://www.irs.gov/newsroom/irs-issues-faqs-on-form-1099-k-threshold-under-the-one-big-beautiful-bill-dollar-limit-reverts-to-20000) |
| **Backup withholding** | Federal income tax a payer must withhold at 24% from reportable payments — contractor fees, interest, dividends, card settlements — when the payee has not given a correct TIN or the IRS has notified the payer to withhold. Deposited and reported on Form 945 | "payroll withholding" | [IRC §3406; IRS — Backup withholding](https://www.irs.gov/businesses/small-businesses-self-employed/backup-withholding) |
| **Combined Federal/State Filing Program** / **CF/SF** | The IRS program that forwards 1099s filed electronically to participating states, satisfying their filing requirement — though many states still require direct filing, or a reconciliation return of their own | "state 1099 filing" unqualified | [IRS Pub. 1220](https://www.irs.gov/pub/irs-pdf/p1220.pdf) |
| **Form 7004** | The IRS application for an automatic extension of time to file business income tax returns — six months for Forms 1120, 1120-S and 1065 — filed by the original due date. It extends the time to file, not the time to pay | "tax extension" for payment | [IRS — About Form 7004](https://www.irs.gov/forms-pubs/about-form-7004) |
| **Worker classification** | Deciding whether a worker is an employee or an independent contractor — federally by the common-law control test (behavioral, financial and relationship facts), in some states by the stricter ABC test. It decides who withholds and pays employment taxes | "contractor status" chosen by contract alone | [IRS — Independent contractor or employee](https://www.irs.gov/businesses/small-businesses-self-employed/independent-contractor-self-employed-or-employee) |
| **ABC test** | A state test presuming a worker is an employee unless the hiring entity proves all three: (A) free from its control, (B) work outside the usual course of its business, and (C) customarily engaged in an independent trade — California (AB 5), Massachusetts, and New Jersey for unemployment | "IRS test", "common-law test" | [Cal. Lab. Code §2775](https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?lawCode=LAB&sectionNum=2775) |
| **Voluntary Classification Settlement Program** / **VCSP** | The IRS program letting an employer prospectively reclassify contractors as employees by paying 10% of one year's employment tax liability, computed at the reduced §3509 rates — no interest or penalties, and no audit of the prior classification. Applied for on Form 8952 | "amnesty" | [IRS — VCSP](https://www.irs.gov/businesses/small-businesses-self-employed/voluntary-classification-settlement-program) |
| **Social Security wage base** / **Contribution and benefit base** | The maximum annual wages subject to the 6.2% Social Security tax, for employee and employer each — $184,500 in 2026, $176,100 in 2025, indexed every year. Medicare tax has no cap | "FUTA wage base", "Medicare wage base" | [SSA — Contribution and benefit base](https://www.ssa.gov/oact/cola/cbb.html) |
| **FUTA credit reduction** | The cut to the 5.4% state credit against FUTA for employers in a state that has carried a federal unemployment loan for two consecutive January 1 balances and not repaid it by November 10 — 0.3 points, growing each further year. For 2025: California 1.2%, US Virgin Islands 4.5% | "SUTA increase" | [US DOL — FUTA credit reductions](https://oui.doleta.gov/unemploy/futa_credit.asp) |
| **Paid family and medical leave** / **PFML** | A state insurance program, funded by payroll contributions from employees, employers or both, that pays wage replacement during leave for a serious health condition, a new child or family care — in about a dozen states and DC, each with its own rate and wage base | "FMLA" (unpaid, federal job protection) | State law — not codified in GAAP |
| **State disability insurance** / **SDI** | A state program paying partial wages to employees off work with a non-work-related illness or injury, funded mainly by employee withholding — California, Hawaii, New Jersey, New York, Rhode Island and Puerto Rico | "workers' compensation" (work-related injury) | State law — not codified in GAAP |
| **Monopolistic state fund** | A state workers' compensation fund that is the only insurer allowed — North Dakota, Ohio, Washington and Wyoming — so coverage cannot be bought privately (Ohio and Washington permit self-insurance) | "private carrier" | State law — not codified in GAAP |
| **Large corporate filer** | A Delaware corporation with stock listed on a national securities exchange that reports consolidated gross revenues or assets of $750 million or more — it pays a flat $250,000 annual franchise tax instead of the $200,000 maximum | "public company" unqualified | [8 Del. C. §503](https://delcode.delaware.gov/title8/c005/index.html) |
| **Assumed par value capital method** | The alternative Delaware franchise tax calculation: assumed par (total gross assets ÷ issued shares) times authorized shares, taxed at $400 per $1,000,000, minimum $400 — usually far below the authorized shares method for a startup with millions of authorized shares | "authorized shares method" | [Delaware Division of Corporations — franchise tax](https://corp.delaware.gov/frtaxcalc/) |
| **Authorized shares method** | The default Delaware franchise tax calculation, from the number of shares the charter authorizes: $175 for 5,000 shares or fewer, $250 for 5,001 to 10,000, and $85 for each further 10,000 or part of 10,000, up to $200,000. It is what Delaware's notice computes, and for a startup with millions of authorized shares it runs to five figures | "assumed par value capital method", "the franchise tax" (the lower of the two methods is the tax) | [Delaware Division of Corporations — franchise tax](https://corp.delaware.gov/frtaxcalc/) |
| **Form 1120** | The federal income tax return of a domestic C corporation, filed every year whether or not it has taxable income — due the 15th day of the 4th month after year end, April 15 for a calendar year, with tax at 21% of taxable income under IRC §11(b) | "the tax return" unqualified, "Form 1120-S" (an S corporation's) | [IRS — Instructions for Form 1120](https://www.irs.gov/instructions/i1120) |
| **Corporate estimated tax** / **Estimated tax installments** | The four installments a corporation pays toward the current year's income tax when it expects $500 or more — on the 15th day of the 4th, 6th, 9th and 12th months of its tax year, each 25% of the required annual payment, through EFTPS. Underpayment is figured on Form 2220; Form 1120-W is historical | "quarterly payroll deposits", "Form 1120-W" (no longer revised) | [IRC §6655](https://www.law.cornell.edu/uscode/text/26/6655); [IRS Pub. 542](https://www.irs.gov/publications/p542) |
| **Information return** | A return that reports a payment to the IRS and to the person paid, rather than computing a tax — Form 1099-NEC, 1099-MISC, 1099-K, W-2, 3921. Due dates are per form, and §7503 moves a weekend date to the next business day | "tax return" (which computes tax owed) | [IRS — Instructions for Forms 1099-MISC and 1099-NEC](https://www.irs.gov/instructions/i1099mec) |
| **Physical presence nexus** | The connection with a state created by being in it — an office, a shop, inventory, employees — which obliges a seller to collect its sales tax from the first sale. Before South Dakota v. Wayfair (2018) it was the only basis on which a state could require collection | "economic nexus" (created by sales alone) | [South Dakota v. Wayfair, 585 U.S. 162 (2018)](https://www.supremecourt.gov/opinions/17pdf/585us1r58_pok0.pdf) |

---

## Payroll

The words of running a US payroll: wages, withholding, the employer's taxes, deposits and the returns that report them.

| Term | Definition | Not | Authority |
|---|---|---|---|
| **Gross pay** / **Gross wages** | What an employee earned for the pay period before anything is withheld — salary, or hours times rate, plus overtime, bonuses and commissions. Payroll expense in the books is the gross, not what reached the bank | "net pay", "take-home pay" | [IRS Pub. 15 (2026), §5](https://www.irs.gov/pub/irs-pdf/p15.pdf) |
| **Net pay** / **Take-home pay** | Gross pay less every withholding — income taxes, the employee's Social Security and Medicare, benefit deductions — and so what reaches the employee's bank. Always the remainder, never a separately computed figure | "salary", "wages" | Bookkeeping convention — not codified |
| **Payroll register** | The record of one payroll run, a row per employee: gross pay, each withholding, net pay and the employer's taxes, footed. The subledger the payroll journal entries summarize, and what each Form 941 is reconciled to | "pay stub" (one employee's copy), "payroll report" unqualified | Bookkeeping convention — not codified |
| **Federal income tax withholding** | The income tax an employer withholds from each paycheck, worked out from the employee's Form W-4 by a method in IRS Pub. 15-T — in an automated payroll, the percentage method and Worksheet 1A — and deposited with FICA | "payroll tax" unqualified, "income tax expense" (the company's own tax) | [IRS Pub. 15-T (2026)](https://www.irs.gov/pub/irs-pdf/p15t.pdf) |
| **FICA** / **Federal Insurance Contributions Act tax** | Social Security tax — 6.2% of wages up to the year's wage base — and Medicare tax — 1.45% of all wages — each paid twice: withheld from the employee and matched by the employer. 7.65% a side below the wage base | "payroll tax" for every employment tax, "FUTA" (employer-only) | [IRS Pub. 15 (2026), What's New](https://www.irs.gov/pub/irs-pdf/p15.pdf) |
| **Additional Medicare Tax** | A further 0.9% Medicare tax an employer must withhold on an employee's wages over $200,000 in a calendar year, from the pay period they pass it. Employee-only: there is no employer match | "Medicare match", "net investment income tax" | [IRS Pub. 15 (2026), §9](https://www.irs.gov/pub/irs-pdf/p15.pdf) |
| **Supplemental wages** | Pay that isn't regular wages — bonuses, commissions, overtime, severance, back pay. Federal income tax on it may be withheld at a flat 22% for 2026, and must be at 37% on an employee's supplemental wages over $1 million in the year | "bonus tax" | [IRS Pub. 15 (2026), §7](https://www.irs.gov/pub/irs-pdf/p15.pdf) |
| **Form W-4** / **Employee's Withholding Certificate** | The form a new employee gives the employer to set federal income tax withholding — filing status, the two-jobs checkbox, credits, other income, deductions and extra withholding. Kept by the employer, not sent to the IRS unless it asks. A state with an income tax may use its own certificate, such as California's DE 4 | "W-9" (a payee's TIN certificate), "W-2" (the year-end statement) | [Form W-4 (2026)](https://www.irs.gov/pub/irs-pdf/fw4.pdf) |
| **Form I-9** / **Employment Eligibility Verification** | The Department of Homeland Security form proving a new hire may work in the US. The employee completes Section 1 by the first day of work; the employer examines documents and completes Section 2 within three business days. Kept on file, never filed with the government | "W-4", "background check" | [USCIS — Form I-9 instructions](https://www.uscis.gov/sites/default/files/document/forms/i-9instr.pdf) |
| **New-hire reporting** | The employer's report of each new employee — name, address, SSN, start date and the employer's EIN — to the State Directory of New Hires where the employee works, within 20 days of hire or sooner if the state says so. It feeds child support enforcement | "registering for payroll tax", "E-Verify" | [42 U.S.C. §653a](https://www.law.cornell.edu/uscode/text/42/653a) |
| **Lookback period** | The four quarters — July 1 two years back to June 30 last year — whose Form 941 tax decides a year's deposit schedule: $50,000 or less, monthly; more, semiweekly. A new employer's lookback quarters count as zero | "the prior year", "the last four quarters" | [IRS Pub. 15 (2026), §11](https://www.irs.gov/pub/irs-pdf/p15.pdf) |
| **Monthly schedule depositor** | An employer whose lookback-period tax was $50,000 or less, and every employer in its first year: the federal income tax withheld and both halves of FICA on a month's paydays are deposited by the 15th of the next month | "monthly payroll" (the deposit schedule is not the pay frequency) | [IRS Pub. 15 (2026), §11](https://www.irs.gov/pub/irs-pdf/p15.pdf) |
| **Semiweekly schedule depositor** | An employer whose lookback-period tax was over $50,000: taxes on Wednesday-to-Friday paydays are deposited by the next Wednesday, Saturday-to-Tuesday paydays by the next Friday. Reports its liability by payday on Schedule B (Form 941) | "biweekly payroll" | [IRS Pub. 15 (2026), §11](https://www.irs.gov/pub/irs-pdf/p15.pdf) |
| **Next-day deposit rule** / **$100,000 rule** | $100,000 or more of employment tax accumulated on any day is due the next business day, on either schedule — and turns a monthly depositor semiweekly for the rest of the year and the next | "same-day wire" | [IRS Pub. 15 (2026), §11](https://www.irs.gov/pub/irs-pdf/p15.pdf) |
| **EFTPS** / **Electronic Federal Tax Payment System** | The Treasury's free system for federal tax deposits. Every federal payroll deposit must be made electronically — through EFTPS, IRS Direct Pay or the IRS business tax account — and an employer whose provider deposits for it can check each one in EFTPS | "ACH to the IRS" | [IRS Pub. 15 (2026), §11](https://www.irs.gov/pub/irs-pdf/p15.pdf) |
| **Trust fund recovery penalty** / **TFRP** | A penalty of 100% of the withheld income tax and employee FICA a business failed to pay over, assessed personally on each responsible person who acted willfully — an officer, or anyone who signs the checks | "late deposit penalty" (2% to 15% of the deposit) | [IRS Pub. 15 (2026), §11](https://www.irs.gov/pub/irs-pdf/p15.pdf) |
| **Form 941** / **Employer's Quarterly Federal Tax Return** | The quarterly return of wages paid, federal income tax withheld and both halves of Social Security and Medicare tax, reconciled to the quarter's deposits. Due April 30, July 31, October 31 and January 31 — ten days later if every deposit was on time | "Form 940" (annual FUTA), "W-2" | [Form 941 (Rev. March 2026)](https://www.irs.gov/pub/irs-pdf/f941.pdf) |
| **Form 940** | The employer's annual FUTA return, due January 31 of the next year — February 10 if every FUTA deposit was on time — with Schedule A for wages paid in a credit-reduction state | "Form 941", "SUTA return" | [IRS — Form 940](https://www.irs.gov/pub/irs-pdf/f940.pdf) |
| **Form W-2** / **Wage and Tax Statement** | The year-end statement of an employee's wages and withholding — boxes 1, 3 and 5 for income tax, Social Security and Medicare wages — furnished to the employee and filed with the SSA by January 31, with no automatic extension | "1099-NEC" (a contractor's), "pay stub" | [General Instructions for Forms W-2 and W-3 (2026)](https://www.irs.gov/pub/irs-pdf/iw2w3.pdf) |
| **Form W-3** | The transmittal that totals every Form W-2 an employer files with the SSA. Its totals should equal the year's four Forms 941 | "W-2" | [General Instructions for Forms W-2 and W-3 (2026)](https://www.irs.gov/pub/irs-pdf/iw2w3.pdf) |
| **Exempt employee** | An employee the FLSA's overtime and minimum-wage rules don't cover — for the executive, administrative and professional exemptions, one paid a salary of at least $684 a week whose primary duties meet the exemption's test. A job title decides nothing | "salaried" (a salaried employee can be non-exempt) | [US DOL — Fact Sheet #17A](https://www.dol.gov/agencies/whd/fact-sheets/17a-overtime) |
| **Non-exempt employee** | An employee owed at least the minimum wage and overtime at one and one-half times the regular rate for hours over 40 in a workweek — salaried or hourly | "hourly" (an hourly employee is non-exempt, not every non-exempt employee is hourly) | [29 U.S.C. §207](https://www.law.cornell.edu/uscode/text/29/207) |
| **Workweek** | A fixed and regularly recurring period of 168 hours — seven consecutive 24-hour periods — that overtime is measured in. Hours are never averaged across workweeks: 30 hours one week and 50 the next owe ten hours of overtime | "pay period" | [29 CFR §778.105; §778.104](https://www.law.cornell.edu/cfr/text/29/778.105) |
| **Regular rate** | The hourly rate overtime is computed from. For a salary meant to cover 40 hours, the weekly salary divided by 40 — a monthly salary is first turned weekly by multiplying by 12 and dividing by 52 | "base rate" unqualified, "minimum wage" | [29 CFR §778.113](https://www.law.cornell.edu/cfr/text/29/778.113) |
| **Minimum wage** | The lowest hourly rate an employer may pay a non-exempt employee — $7.25 federally since July 24, 2009. A higher state or city minimum still applies; the FLSA excuses no one from it | "living wage" | [US DOL — FLSA](https://www.dol.gov/agencies/whd/flsa) |
| **Payroll service provider** / **PSP** | A firm that runs payroll under the employer's own EIN — paychecks, deposits, Forms 941, 940 and W-2. It isn't liable for the employer's employment taxes; the employer stays liable for every deposit it makes | "PEO" (co-employs), "the employer" | [IRS Pub. 15 (2026), §16](https://www.irs.gov/pub/irs-pdf/p15.pdf) |
| **Professional employer organization** / **PEO** / **CPEO** | A firm that co-employs a client's staff and runs payroll, benefits and HR under its own EIN for a fee. Only a PEO the IRS has certified (a CPEO) is generally treated as the employer for employment tax on the wages it pays | "payroll provider", "employer of record" unqualified | [IRS Pub. 15 (2026), §16](https://www.irs.gov/pub/irs-pdf/p15.pdf) |
| **Reasonable compensation** | The wages an S corporation must pay a shareholder who works in the business, for that work, before it makes non-wage distributions to them. A C corporation's founder on payroll is an employee too, but the rule is the S corporation's | "owner's draw", "dividend" | [IRS — S corporation compensation](https://www.irs.gov/businesses/small-businesses-self-employed/s-corporation-compensation-and-medical-insurance-issues) |
| **Accountable plan** | An employer reimbursement arrangement under which an employee's business expense reimbursements are not wages: the expense has a business connection, the employee adequately accounts for it within a reasonable time, and any excess is returned within a reasonable time. Fail one test and the reimbursement is taxable wages | "expense policy" alone, "per diem" (one kind of allowance) | [IRS Pub. 463 — accountable plans](https://www.irs.gov/publications/p463) |

## Benefits

Group health and retirement plans, and the federal rules — ERISA, the ACA, COBRA, the Code — that govern them.

| Term | Definition | Not | Authority |
|---|---|---|---|
| **Applicable large employer** / **ALE** | An employer that averaged at least 50 full-time employees, full-time equivalents included, over the prior calendar year — the employers the ACA's employer mandate and Form 1095-C reporting apply to. Companies under common control are counted together | "large company" by revenue, "50 heads" (part-time hours count too) | [IRC §4980H(c)(2)](https://www.law.cornell.edu/uscode/text/26/4980H) |
| **Full-time equivalent employee** / **FTE** | For the ALE count, a month's hours of every employee who was not full-time, each capped at 120, divided by 120. A full-time employee averages 30 hours a week, or 130 hours in a month | "part-timer", "headcount" | [Treas. Reg. §54.4980H-2(c)](https://www.law.cornell.edu/cfr/text/26/54.4980H-2) |
| **Employer shared responsibility payment** / **Section 4980H payment** | What an ALE owes the IRS when a full-time employee gets a premium tax credit on the Marketplace: under §4980H(a), for not offering coverage to 95% of full-time employees, $3,340 a year for 2026 per full-time employee minus 30; under §4980H(b), for coverage that was unaffordable or not minimum value, $5,010 a year for 2026 per credited employee, capped at the (a) amount | "ACA fine" for the individual mandate, "penalty for not offering insurance" at any size | [IRC §4980H; Rev. Proc. 2025-26](https://www.irs.gov/pub/irs-drop/rp-25-26.pdf) |
| **ACA affordability** / **Required contribution percentage** | The test of whether an employer's cheapest self-only coverage is affordable: the employee's contribution may not exceed a percentage of household income — 9.96% for plan years beginning in 2026 — which employers measure through the W-2, rate-of-pay or federal poverty line safe harbor | "cheap", "under budget" | [Rev. Proc. 2025-25](https://www.irs.gov/pub/irs-drop/rp-25-25.pdf) |
| **Minimum essential coverage** / **MEC** | The health coverage that satisfies the ACA — including an eligible employer-sponsored plan. An ALE must offer it to avoid the §4980H(a) payment, and California requires its residents to have it | "any insurance", "minimum value" (a separate test of the plan's richness) | [IRC §4980H(a)](https://www.law.cornell.edu/uscode/text/26/4980H); [FTB Pub. 3895C](https://www.ftb.ca.gov/forms/2025/2025-3895c-publication.pdf) |
| **Group health plan** | A health plan an employer maintains for its employees — insured or self-insured. Subject to ERISA for a private employer, and to COBRA once the employer has 20 or more employees | "health insurance" (the policy, which is one way to fund the plan) | [ERISA §601, 29 U.S.C. §1161](https://www.law.cornell.edu/uscode/text/29/1161) |
| **Fully insured plan** | A group health plan funded by an insurance policy: the employer pays a fixed premium and the carrier bears the claims risk. Regulated by the state's insurance law through the carrier | "self-insured" | [DOL Technical Release 2014-01](https://www.dol.gov/agencies/ebsa/employers-and-advisers/guidance/technical-releases/14-01) |
| **Self-insured plan** / **Self-funded plan** | A group health plan that pays claims out of the employer's own funds, usually through a third-party administrator and with stop-loss insurance. Generally not subject to state health insurance laws, though the ACA's group market reforms still apply | "uninsured", "fully insured with a TPA" | [DOL Technical Release 2014-01](https://www.dol.gov/agencies/ebsa/employers-and-advisers/guidance/technical-releases/14-01) |
| **Level-funded plan** | A self-funded plan sold to small employers as a fixed monthly payment covering expected claims, administration and stop-loss insurance with a low attachment point. Legally a self-insured plan, whatever the invoice looks like | "fully insured" | [DOL Technical Release 2014-01](https://www.dol.gov/agencies/ebsa/employers-and-advisers/guidance/technical-releases/14-01) |
| **Stop-loss insurance** | A policy that reimburses a self-insured employer when claims pass a threshold — per person (specific) or in total (aggregate). It insures the employer, not the employees, and is generally not health insurance under state law | "reinsurance", "health insurance" | [DOL Technical Release 2014-01](https://www.dol.gov/agencies/ebsa/employers-and-advisers/guidance/technical-releases/14-01) |
| **Small Business Health Options Program** / **SHOP** | The ACA marketplace for small-group coverage — generally employers with 1 to 50 full-time equivalents (up to 100 in some states), at least one employee who is not an owner or family member, and 70% of those offered enrolling. The only route to the small business health care tax credit | "the Marketplace" for individuals | [HealthCare.gov — SHOP eligibility](https://www.healthcare.gov/small-businesses/choose-and-enroll/qualify-for-shop-marketplace/) |
| **Cafeteria plan** / **Section 125 plan** | A written plan that lets employees choose between cash and qualified benefits — health premiums, a health FSA, dependent care — so that what they choose is paid pre-tax: out of income-tax wages and out of FICA wages | "flexible benefits" unqualified, "a 401(k)" (deferred compensation is excluded) | [IRC §125](https://www.law.cornell.edu/uscode/text/26/125); [IRS Pub. 15-B](https://www.irs.gov/pub/irs-pdf/p15b.pdf) |
| **High-deductible health plan** / **HDHP** | A health plan with at least the year's minimum deductible and no more than its out-of-pocket maximum — for 2026, $1,700 and $8,500 self-only, $3,400 and $17,000 family. Coverage under one is what makes a person HSA-eligible; from 2026, Exchange bronze and catastrophic plans count too | "any plan with a big deductible" | [Rev. Proc. 2025-19](https://www.irs.gov/pub/irs-drop/rp-25-19.pdf) |
| **Health savings account** / **HSA** | An account the employee owns, funded pre-tax by the employee or the employer while they are covered by an HDHP, spent tax-free on medical care and carried from job to job. 2026 limits: $4,400 self-only, $8,750 family, plus $1,000 from age 55 | "FSA" (use-or-lose, owned by the plan), "HRA" | [IRC §223](https://www.law.cornell.edu/uscode/text/26/223); [Rev. Proc. 2025-19](https://www.irs.gov/pub/irs-drop/rp-25-19.pdf) |
| **Health flexible spending arrangement** / **Health FSA** | A cafeteria-plan account the employee funds by salary reduction for the year's medical costs — up to $3,400 for 2026 — which is use-or-lose, softened by a grace period or a carryover of up to $680 | "HSA" | [Rev. Proc. 2025-32 §4.15](https://www.irs.gov/pub/irs-drop/rp-25-32.pdf) |
| **Health reimbursement arrangement** / **HRA** | An employer-funded promise to reimburse employees' medical expenses, tax-free, up to an amount the employer sets. Employees cannot contribute. QSEHRAs, individual coverage HRAs and excepted benefit HRAs are the kinds a small employer meets | "HSA" (an account the employee owns) | [IRS Pub. 969](https://www.irs.gov/publications/p969) |
| **Qualified small employer HRA** / **QSEHRA** | An HRA for an employer that is not an ALE and offers no group health plan, reimbursing employees with their own minimum essential coverage, on the same terms for all — up to $6,450 self-only and $13,100 family for 2026, with written notice 90 days before the year | "ICHRA" | [IRC §9831(d)](https://www.law.cornell.edu/uscode/text/26/9831); [Rev. Proc. 2025-32 §4.63](https://www.irs.gov/pub/irs-drop/rp-25-32.pdf) |
| **Individual coverage HRA** / **ICHRA** | An HRA, open to employers of any size, that reimburses individual health insurance premiums and costs with no federal dollar cap, offered on the same terms within each class of employees — and never to a class that is offered the group plan | "QSEHRA" | [DOL — FAQs on new health coverage options](https://www.dol.gov/sites/dolgov/files/ebsa/about-ebsa/our-activities/resource-center/faqs/employee-health-coverage-options.pdf) |
| **COBRA continuation coverage** / **COBRA** | The federal right of an employee and family who lose group health coverage through a qualifying event to keep it, at up to 102% of its cost, for 18 months (termination or reduced hours) or 36 (most other events). Applies once the employer had 20 or more employees on more than half its business days the year before | "severance benefit", "Marketplace coverage" | [DOL — Employer's Guide to COBRA](https://www.dol.gov/agencies/ebsa/about-ebsa/our-activities/resource-center/publications/an-employers-guide-to-group-health-continuation-coverage-under-cobra) |
| **Qualifying event** | The event that makes COBRA continuation available — for an employee, termination for any reason other than gross misconduct, or a reduction in hours; for a spouse or child, also divorce or legal separation, the employee's death, and a child's loss of dependent status. The employer has 30 days to tell the plan of a termination or reduced hours | "life event" in open enrollment | [DOL — Employer's Guide to COBRA](https://www.dol.gov/agencies/ebsa/about-ebsa/our-activities/resource-center/publications/an-employers-guide-to-group-health-continuation-coverage-under-cobra) |
| **State continuation coverage** / **Mini-COBRA** | A state's own continuation right for insured plans, usually reaching employers too small for federal COBRA — California's Cal-COBRA covers employers with 2 to 19 employees, for up to 36 months | "COBRA" | [California Department of Insurance — Cal-COBRA](https://www.insurance.ca.gov/01-consumers/110-health/frequently-asked-questions.cfm) |
| **ERISA** | The Employee Retirement Income Security Act of 1974 — the federal law that governs private employers' benefit plans, health and retirement alike: a written plan document, disclosure to participants, annual reporting and fiduciary duties | "the IRS rules" (the Code is a separate layer) | [29 U.S.C. §1102](https://www.law.cornell.edu/uscode/text/29/1102) |
| **Plan document** | The written instrument every ERISA plan must be established and maintained under, naming the fiduciaries and stating how the plan works. An insurance certificate alone often is not one | "the policy", "the SPD" | [ERISA §402(a), 29 U.S.C. §1102](https://www.law.cornell.edu/uscode/text/29/1102) |
| **Summary plan description** / **SPD** | The plain-language explanation of an ERISA plan a participant is owed within 90 days of becoming covered — and a new plan within 120 days of becoming subject to ERISA | "plan document", "SBC" (the standard benefits summary) | [DOL — Reporting and Disclosure Guide](https://www.dol.gov/agencies/ebsa/about-ebsa/our-activities/resource-center/publications/reporting-and-disclosure-guide-for-employee-benefit-plans) |
| **ERISA fiduciary** | Anyone who exercises discretion over a plan or its assets, starting with the named fiduciary the plan document must name. Must act solely in participants' interest, for the exclusive purpose of providing benefits and paying reasonable plan expenses, prudently, diversifying investments, and by the plan's terms | "plan administrator" alone, "the broker" | [ERISA §404(a), 29 U.S.C. §1104](https://www.law.cornell.edu/uscode/text/29/1104) |
| **Form 5500** | The annual return of an ERISA plan, filed electronically through EFAST2 by the last day of the seventh month after the plan year ends (July 31 for a calendar year), extendable by up to 2½ months on Form 5558. An unfunded or fully insured welfare plan under 100 participants at the start of the year is exempt; a 401(k) is not | "Form 5558", "a tax return" | [DOL — Form 5500 Series](https://www.dol.gov/agencies/ebsa/employers-and-advisers/plan-administration-and-compliance/reporting-and-filing/form-5500); [29 CFR §2520.104-20](https://www.law.cornell.edu/cfr/text/29/2520.104-20) |
| **Form 1095-C** | The statement an ALE files for each full-time employee, month by month, of the coverage it offered and what the cheapest option cost — sent to the IRS with Form 1094-C, and the evidence the IRS uses for §4980H. For 2025, filed by March 2, 2026 on paper or March 31 electronically | "Form 1095-B" (coverage provided, by insurers and small self-insured plans), "W-2" | [Instructions for Forms 1094-C and 1095-C (2025)](https://www.irs.gov/pub/irs-pdf/i109495c.pdf) |
| **Form 1095-B** | The statement of minimum essential coverage provided, filed with Form 1094-B by insurers — and by small employers that are not ALEs but sponsor a self-insured plan | "Form 1095-C" | [Instructions for Forms 1094-B and 1095-B (2025)](https://www.irs.gov/pub/irs-pdf/i109495b.pdf) |
| **401(k) plan** | A defined contribution retirement plan in which employees defer part of their pay, pre-tax or Roth, into their own accounts — up to $24,500 for 2026, plus catch-up from age 50 — usually with an employer match. A traditional plan is tested each year for nondiscrimination | "pension" (a defined benefit plan), "IRA" | [Notice 2025-67](https://www.irs.gov/pub/irs-drop/n-25-67.pdf); [IRS — 401(k) plan overview](https://www.irs.gov/retirement-plans/plan-sponsor/401k-plan-overview) |
| **Elective deferral** | The part of pay an employee chooses to put into a 401(k), 403(b) or SIMPLE plan instead of taking it as cash. Traditional deferrals are out of income-tax wages but stay in FICA wages | "employer contribution", "match" | [Notice 2025-67](https://www.irs.gov/pub/irs-drop/n-25-67.pdf) |
| **Safe harbor 401(k)** | A 401(k) that is not subject to the complex annual nondiscrimination tests because it makes a fully vested employer contribution — the basic match (100% of deferrals up to 3% of pay plus 50% of the next 2%), with written notice before the year, or 3% of pay to every eligible non-highly-compensated employee | "SIMPLE 401(k)" | [IRC §401(k)(12)](https://www.law.cornell.edu/uscode/text/26/401) |
| **SIMPLE IRA** | A retirement plan for employers with 100 or fewer employees and no other plan: employees defer up to $17,000 for 2026 into their own IRAs, and the employer matches up to 3% of pay or gives 2% to everyone eligible. Set up effective by October 1 of a year | "SEP IRA", "safe harbor 401(k)" | [IRS — SIMPLE IRA plan](https://www.irs.gov/retirement-plans/plan-sponsor/simple-ira-plan) |
| **State auto-IRA** / **CalSavers** | A state-run retirement program that employers without a retirement plan must make available, deducting employees' contributions from payroll unless they opt out: the employer's participation is mandatory, the employee's voluntary. California's CalSavers covers employers with one or more employees and charges $250, then a further $500, per eligible employee for noncompliance | "401(k)", "state pension" | [California FTB — AB 2650 analysis](https://www.ftb.ca.gov/tax-pros/law/legislation/2025-2026/AB2650-051826-052226.pdf) |
| **Employee benefits expense** | The employer's own share of health premiums, HSA and retirement contributions and other benefit costs, recognized in the period the cover or the service relates to. The employee's share is not in it: that was part of gross wages | "payroll expense" (gross wages), "insurance expense" (the company's own policies) | Accrual accounting — [ASC 710](https://asc.fasb.org/710/tableOfContent) |
| **Benefits payable** | What the employer owes a carrier or a plan: the employees' premiums and deferrals withheld from pay, plus its own share, until paid over. It should clear to zero at each month end, or be explained by a payment in transit | "payroll liabilities" (the tax withheld), "accounts payable" | Bookkeeping convention — [ASC 405](https://asc.fasb.org/405/tableOfContent) |

## Research credit

The federal credit for increasing research activities under IRC §41, and the Section 174 rules for research costs.

| Term | Definition | Not | Authority |
|---|---|---|---|
| **Research credit** / **Credit for increasing research activities** / **R&D tax credit** | A federal general business credit for qualified research expenses — computed on Form 6765 by the regular method or the alternative simplified credit, used against income tax, carried back one year and forward twenty when unused, or, for a qualified small business, elected against payroll tax | "R&D deduction" (that is §174A), "grant" | [IRC §41](https://www.law.cornell.edu/uscode/text/26/41) |
| **Qualified research** / **Four-part test** | Research whose costs are §174A domestic research expenditures, undertaken to discover information that is technological in nature, intended to be useful in developing a new or improved business component, where substantially all (80% or more) of the activities form a process of experimentation for a functional purpose — applied to each business component separately, and excluding research after commercial production, adaptation, duplication, surveys, most internal-use software, foreign research, social sciences and funded research | "R&D" as the income statement reports it (ASC 730 is broader) | [IRC §41(d)](https://www.law.cornell.edu/uscode/text/26/41) |
| **Business component** | The unit qualified research is tested and reported in: a product, process, computer software, technique, formula or invention held for sale, lease or license or used in the taxpayer's own business — listed one by one in Form 6765, Section G | "project" (a business component can span several) | [IRC §41(d)(2)(B)](https://www.law.cornell.edu/uscode/text/26/41) |
| **Process of experimentation** | Evaluating one or more alternatives to achieve a result whose capability, method or appropriate design is uncertain at the start, by modeling, simulation or systematic trial and error grounded in the physical or biological sciences, engineering or computer science | "testing" (routine quality control testing is excluded) | [Treas. Reg. §1.41-4(a)(5)](https://www.law.cornell.edu/cfr/text/26/1.41-4) |
| **Qualified research expenses** / **QREs** | What the credit is computed on: wages for qualified services — doing, directly supervising or directly supporting qualified research (all of a person's wages once that is 80% or more of them) — plus supplies used in the research, rented off-site computers, and 65% of contract research paid to others | "R&D spend", "§174A expenditures" (broader) | [IRC §41(b)](https://www.law.cornell.edu/uscode/text/26/41) |
| **Contract research expenses** | 65% of amounts paid to a non-employee for qualified research performed on the taxpayer's behalf under an agreement made before the work, where the taxpayer bears the cost even if the research fails; 75% for a qualified research consortium | "contractor spend" (only qualifying, US, at-risk work counts) | [IRC §41(b)(3); Treas. Reg. §1.41-2(e)](https://www.law.cornell.edu/cfr/text/26/1.41-2) |
| **Alternative simplified credit** / **ASC method** | The research credit computed as 14% of QREs above 50% of the average QREs of the three prior years, or 6% of current QREs if any one of those years had none; elected on a timely filed original return (or an amended one only if no credit was claimed for that year) and binding for later years unless revoked | "ASC" alone (in this system, the FASB Codification) | [IRC §41(c)(4)](https://www.law.cornell.edu/uscode/text/26/41) |
| **Regular research credit** / **Regular credit** | The research credit computed as 20% of QREs above a base amount — a fixed-base percentage (3% for a start-up's first five years with QREs, never more than 16%) times average gross receipts of the four prior years, and never less than 50% of current QREs | "alternative simplified credit" | [IRC §41(a), (c)](https://www.law.cornell.edu/uscode/text/26/41) |
| **Reduced credit election** / **Section 280C election** | An election on the original timely filed return to take the research credit reduced by the 21% corporate rate (79% of it) instead of cutting the §174A research deduction by the full credit; irrevocable for the year | "reduced payroll credit" | [IRC §280C(c)](https://www.law.cornell.edu/uscode/text/26/280C) |
| **Internal-use software** / **IUS** | Software developed primarily for the taxpayer's own general and administrative functions — financial management, human resources, support services. Its development qualifies for the research credit only if it also meets the high-threshold-of-innovation test: innovative, significant economic risk, and not commercially available | "software for sale", "customer-facing software" | [Treas. Reg. §1.41-4(c)(6)](https://www.law.cornell.edu/cfr/text/26/1.41-4) |
| **Form 6765** | The IRS form that figures the research credit, makes the §280C reduced credit election (Item A), the ASC election (Section B) and the qualified small business payroll election (Section D), and reports QREs (Section F) and business components (Section G, required for tax years beginning after 2025 with exceptions) | "Form 8974" (where the payroll credit is used) | [IRS — Instructions for Form 6765](https://www.irs.gov/pub/irs-pdf/i6765.pdf) |
| **Form 8974** | The form attached to each quarterly Form 941 to apply an elected research payroll credit — first against the employer's Social Security tax, up to $250,000 a quarter, then the employer's Medicare tax — carrying what the quarter cannot absorb to the next | "Form 6765" (where the election is made) | [IRS — Instructions for Form 8974](https://www.irs.gov/pub/irs-pdf/i8974.pdf) |

## Entity & compliance

Forming and keeping a US company in good standing: the entity, its registrations, and the filings each year brings.

| Term | Definition | Not | Authority |
|---|---|---|---|
| **Employer identification number** / **EIN** | The federal tax ID number the IRS assigns to a business, tax-exempt organization or other entity — the number on its returns, its payroll filings and the W-9 it gives customers | "tax ID" unqualified (an individual's is an SSN or ITIN), "state ID" | [IRS — Employer identification number](https://www.irs.gov/businesses/small-businesses-self-employed/employer-id-numbers) |
| **Registered agent** | The person or company, with an address in the state, that a corporation must keep to receive legal process and the state's notices. Delaware sends its annual report and franchise tax notices to the registered agent each December | "mailing address", "incorporator" | [8 Del. C. §132](https://delcode.delaware.gov/title8/c001/sc03/index.html) |
| **Foreign qualification** / **Certificate of authority** | Registering a corporation formed in one state to do business in another — a Delaware corporation with its office or staff in California files there, appoints an agent there and files that state's annual report. "Foreign" means another state, not another country | "incorporating again", "reincorporation" (changing the state of formation) | State corporation law — each state's own statute |
| **Good standing** / **Certificate of good standing** | A state's confirmation that a corporation exists and is current on its annual reports and franchise taxes. In Delaware a year of unpaid franchise tax makes the charter void; banks, investors and other states ask for the certificate | "solvent", "compliant" unqualified | [8 Del. C. §510](https://delcode.delaware.gov/title8/c005/index.html) |
| **State annual report** | The yearly filing a corporation makes with its state of formation and each state where it is qualified — officers, directors, address, and in Delaware the figures the franchise tax is computed from. Names, fees and due dates vary by state | "annual financial report", "10-K" | [8 Del. C. §502](https://delcode.delaware.gov/title8/c005/index.html) |
| **Delaware franchise tax** | The annual tax every Delaware corporation owes for the privilege of being incorporated there, whether or not it does business or makes money there — the lower of the authorized shares method and the assumed par value capital method, minimum $175 or $400, maximum $200,000, due with a $50 annual report by March 1 and prorated in the first year | "income tax", "the notice amount" (computed on authorized shares only) | [Delaware Division of Corporations](https://corp.delaware.gov/frtax/); [8 Del. C. §503](https://delcode.delaware.gov/title8/c005/index.html) |
| **Authorized shares** | The number of shares a corporation's certificate of incorporation permits it to issue — the ceiling, not what anyone holds. Issued shares are those actually sold or granted; the authorized shares method of the Delaware franchise tax counts the ceiling | "issued shares", "outstanding shares", "fully diluted" | [Delaware Division of Corporations — franchise tax](https://corp.delaware.gov/frtaxcalc/) |
| **Form 5472** | The IRS information return a US corporation that is 25% or more foreign-owned at any time in the year — or a US disregarded entity wholly owned by a foreign person — attaches to its income tax return to report transactions with related foreign parties. $25,000 penalty for each failure to file, and $25,000 more for each 30 days it continues past 90 days after IRS notice | "FBAR", "Form 5471" (US owners of foreign corporations) | [IRS — Instructions for Form 5472](https://www.irs.gov/instructions/i5472) |
| **Beneficial ownership information report** / **BOI report** | The report of a company's beneficial owners to FinCEN under the Corporate Transparency Act. Since the March 2025 interim final rule and the final rule effective August 14, 2026, companies created in the United States and US persons are exempt; only entities formed under foreign law and registered to do business in a US state still report | "cap table", "KYC" (a bank's own check) | [FinCEN — BOI](https://www.fincen.gov/boi) |

## Entity types

The legal forms a US business can take and how each is taxed: corporations, LLCs, partnerships, sole proprietorships and the elections that change them.

| Term | Definition | Not | Authority |
|---|---|---|---|
| **C corporation** / **C corp** | A corporation taxed as a taxpayer in its own right: it files Form 1120 and pays 21% of its taxable income, and its shareholders are taxed again on what it pays them as dividends. Every corporation is a C corporation unless it elects S status | "S corporation", "corporation" unqualified when the tax treatment matters | [26 U.S.C. §11(b)](https://www.law.cornell.edu/uscode/text/26/11) |
| **S corporation** / **S corp** | A domestic corporation, or an LLC eligible to be treated as one, that has elected on Form 2553 to pass its income, losses, deductions and credits through to its shareholders. No more than 100 shareholders, all of them individuals other than nonresident aliens, estates, or certain trusts and exempt organizations, and one class of stock. Files Form 1120-S | "a type of company" (it is a tax election, not a state-law entity), "small business" | [26 U.S.C. §1361(b)](https://www.law.cornell.edu/uscode/text/26/1361) |
| **Limited liability company** / **LLC** | A state-law entity whose owners (members) are shielded from its debts like shareholders. Federal tax has no LLC category: by default it is a partnership with two or more members and disregarded with one, and it is a C or S corporation only if it elects | "limited liability corporation", "an LLC tax return" | [IRS — Limited liability company](https://www.irs.gov/businesses/small-businesses-self-employed/limited-liability-company-llc) |
| **Disregarded entity** / **Single-member LLC** | An eligible entity with one owner that has not elected to be a corporation, ignored for income tax so its results go on the owner's return — Schedule C for an individual owner. It is still a separate legal entity, and still the employer for employment taxes | "sole proprietorship" (which has no entity and no liability shield) | [Treas. Reg. §301.7701-2(c)(2)(iv)](https://www.law.cornell.edu/cfr/text/26/301.7701-2) |
| **Sole proprietorship** | A business one individual owns without forming an entity. Its profit is reported on the owner's Schedule C with self-employment tax on Schedule SE, and the owner is personally liable for its debts | "single-member LLC" (an entity that limits liability) | [IRS — Sole proprietorships](https://www.irs.gov/businesses/small-businesses-self-employed/sole-proprietorships) |
| **General partnership** | Two or more people carrying on a business together for profit without forming another entity. Each partner is personally liable for the partnership's debts; it files Form 1065 and pays no income tax itself | "LLC", "joint venture" unqualified | [IRS Pub. 541](https://www.irs.gov/publications/p541) |
| **Limited partnership** / **LP** | A partnership with at least one general partner who carries unlimited liability and limited partners whose liability is limited. A limited partner's share of income is kept out of self-employment earnings, apart from guaranteed payments for services | "LLP", "limited liability company" | [SBA — Choose a business structure](https://www.sba.gov/business-guide/launch-your-business/choose-business-structure) |
| **Limited liability partnership** / **LLP** | A partnership that gives limited liability to every partner, not only the limited ones. Formed under state law, which sets who may use it | "LP" (where one partner stays fully liable) | [SBA — Choose a business structure](https://www.sba.gov/business-guide/launch-your-business/choose-business-structure) |
| **Public benefit corporation** / **PBC** | A for-profit Delaware corporation formed to produce a public benefit named in its charter, whose board must balance the stockholders' financial interests, the interests of those its conduct materially affects, and that benefit. Reports to stockholders on it at least every two years; taxed like any other corporation | "B Corp" (a private certification), "nonprofit" | [8 Del. C. §362(a)](https://delcode.delaware.gov/title8/c001/sc15/index.html) |
| **501(c)(3) organization** | A nonprofit organized and operated exclusively for the exempt purposes section 501(c)(3) names — charitable, educational, religious, literary, scientific and the like — none of whose earnings may benefit a private shareholder or individual. It has no owners and no equity to sell | "nonprofit" unqualified (a state-law status; not every nonprofit is exempt under 501(c)(3)) | [IRS — Exemption requirements, 501(c)(3)](https://www.irs.gov/charities-non-profits/charitable-organizations/exemption-requirements-501c3-organizations) |
| **Pass-through entity** / **Flow-through entity** | An entity whose income is taxed to its owners instead of itself — a partnership, an S corporation, a disregarded entity. Each owner is taxed on their share of the income, which need not match the cash the entity pays out | "tax-free", "untaxed" | [IRS Pub. 541](https://www.irs.gov/publications/p541) |
| **Double taxation** | A C corporation's profit taxed to the corporation when earned and again to its shareholders when paid out as dividends. The corporation gets no deduction for the dividend, and shareholders cannot deduct its losses | "double tax treaty" (two countries taxing the same income) | [IRS — Forming a corporation](https://www.irs.gov/businesses/small-businesses-self-employed/forming-a-corporation) |
| **Check-the-box election** / **Entity classification election** | The election on Form 8832 by which an eligible entity — an LLC or a partnership, never a corporation formed under a state's corporation statute — chooses its federal tax classification. Effective no more than 75 days before or 12 months after it is filed, and after a change, no second change for 60 months | "S election" (Form 2553) | [Treas. Reg. §301.7701-3](https://www.law.cornell.edu/cfr/text/26/301.7701-3) |
| **Form 2553** | The S corporation election, signed by every shareholder and filed no more than 2 months and 15 days after the start of the tax year it is to take effect, or at any time in the year before. An eligible LLC files it without Form 8832; a late election can be rescued under Rev. Proc. 2013-30 | "Form 8832" (the classification election) | [IRS — Instructions for Form 2553](https://www.irs.gov/instructions/i2553) |
| **Schedule K-1** | The statement a partnership (with Form 1065) or an S corporation (with Form 1120-S) gives each owner, reporting that owner's share of income, deductions and credits for their own return | "Form 1099", "Form W-2" | [IRS — Instructions for Form 1065](https://www.irs.gov/instructions/i1065) |
| **Self-employment tax** / **SE tax** | Social Security and Medicare on net earnings from self-employment — 92.35% of net profit, taxed at 12.4% up to the year's wage base and 2.9% on all of it — owed once net earnings reach $400, with half deducted from income. Sole proprietors and general partners pay it on Schedule SE | "FICA" (the employee and employer version), "payroll tax" | [Schedule SE (Form 1040)](https://www.irs.gov/pub/irs-pdf/f1040sse.pdf) |
| **Qualified business income deduction** / **Section 199A deduction** / **QBI deduction** | A deduction for taxpayers other than corporations of up to 20% of qualified business income from pass-through businesses, limited above an income threshold. Made permanent by Pub. L. 119-21, which also added a $400 minimum for $1,000 or more of income from businesses the owner materially participates in | "a 20% tax rate", "a C corporation deduction" | [26 U.S.C. §199A](https://www.law.cornell.edu/uscode/text/26/199A) |
| **Statutory conversion** | Changing an entity's legal form under a state conversion statute — an LLC becoming a Delaware corporation under 8 Del. C. §265 — so the converted corporation is the same entity and nothing is wound up. For tax, a partnership's conversion is treated as a transfer of its assets to the corporation for stock, followed by a distribution of the stock to the partners | "reincorporation" (changing the state), "merger" | [8 Del. C. §265](https://delcode.delaware.gov/title8/c001/sc09/index.html) |
| **Section 351 exchange** | A transfer of property to a corporation solely for its stock, with no gain or loss recognized when the transferors control it immediately after — at least 80% of the combined vote and 80% of every other class of stock | "tax-free reorganization" (§368(a)) | [26 U.S.C. §351(a)](https://www.law.cornell.edu/uscode/text/26/351) |
| **Subsidiary** | A company that another company, the parent, owns or controls. It is a separate legal entity with its own books; a wholly owned LLC subsidiary that has not elected corporate status is disregarded for income tax but not for state law or payroll | "division", "branch" (parts of the same entity) | [ASC 810-10](https://asc.fasb.org/810/tableOfContent) |
| **Consolidated return** | One federal income tax return filed by an affiliated group of corporations: a common parent and the corporations it owns at least 80% of, by vote and by value | "consolidated financial statements" (GAAP's, under ASC 810, with a different control test) | [26 U.S.C. §1501](https://www.law.cornell.edu/uscode/text/26/1501), [§1504(a)](https://www.law.cornell.edu/uscode/text/26/1504) |
| **ITIN** / **Individual Taxpayer Identification Number** | The 9-digit number the IRS issues to a person who needs a US taxpayer identification number but is not eligible for a Social Security number, applied for on Form W-7 | "EIN" (the company's number) | [IRS — ITIN](https://www.irs.gov/individuals/individual-taxpayer-identification-number) |

## Finance & planning

The words of forecasting and managing cash rather than recording it: budgets, forecasts, scenarios and the board pack.

| Term | Definition | Not | Authority |
|---|---|---|---|
| **Budget** / **Operating budget** | The plan for a period, line by line, approved before the period starts and held fixed while it runs, so actual results can be measured against it. Built on the same basis as the books — an accrual budget for accrual books — or every variance is partly a basis difference | "forecast" (which is revised), "target" | FP&A convention — not codified |
| **Forecast** / **Reforecast** | The current best estimate of a period's results or cash, revised as actuals arrive. A budget says what was planned; a forecast says what is now expected | "budget", "projection" used for a plan nobody updates | FP&A convention — not codified |
| **Variance** / **Budget vs actual** | Actual less budget (or forecast) for one line, labeled favorable or unfavorable by the line's polarity: revenue above plan is favorable, a cost above plan is not. The sign is arithmetic; the label is the finding | "error", a bare plus or minus | FP&A convention — not codified |
| **Flexed budget** / **Flexible budget** | The budget restated at the volume actually achieved, so a variable cost is judged against what it should have been at actual sales. Separates "we sold less" from "each sale cost more" | "revised budget" (a new plan, not a restatement of the old one) | Management-accounting convention — not codified |
| **Run rate** | One period's figure with named one-offs removed, as a measure of what a normal period looks like — run-rate burn, run-rate revenue. Always shown beside the reported figure, with the one-offs listed | "annualized" (a run rate times twelve), "forecast" | Startup and FP&A convention — not codified |
| **13-week cash flow** / **Thirteen-week cash flow** | A direct-method forecast of cash receipts and payments week by week for the next quarter, built from the bank balance, bills, payroll and tax dates and expected collections, and rolled forward every week | "cash flow statement" (historical, under ASC 230), "runway" | Treasury convention — not codified; direct method as in [ASC 230-10-45-25](https://asc.fasb.org/230/tableOfContent) |
| **Operating model** / **Three-statement model** | A forecast in which the income statement, balance sheet and cash flow statement are linked: profit flows to retained earnings, working-capital balances come from assumptions, and cash is derived from the cash flow — never typed — so the balance sheet balances by construction | "budget spreadsheet", "P&L forecast" (one statement) | FP&A convention — not codified |
| **Driver** / **Forecast driver** | An input assumption a forecast line is computed from — a growth rate, days of receivables, headcount, price — rather than typed. Changing a driver moves every line that depends on it | "plug", "hardcode" | FP&A convention — not codified |
| **Board pack** / **Reporting package** | The set of statements, metrics and commentary delivered to the board or investors each month or quarter: the three statements, cash and runway, budget variances with explanations, and each metric with its definition, period and basis | "investor update" (the letter; the pack is the numbers behind it), "deck" | Governance practice — not codified; on defining each metric, [SEC Release 33-10751](https://www.sec.gov/rules/interp/2020/33-10751.pdf) by analogy |

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## Words we don't use

| Banned | Why | Instead |
|---|---|---|
| "Oops", "Whoops" | Not a register for money | State what happened |
| Any emoji | Platform-inconsistent, untintable, unserious | An icon, or nothing |
| "Simply", "just" | Minimizes something the user found hard | Remove |
| "Sync failed" | Says nothing about consequences | "Couldn't reach Xero. No data changed." |
| "Are you sure?" | Asks nothing useful | Restate the action, amount and destination |
| "Invalid" | Doesn't say how to fix it | "Enter an amount of $0.01 or more" |
| "Total" for a subtotal | Precision matters here | "Total revenue" vs. "Net income" |
| "Balance" unqualified | Available vs. current is material | Say which |
| "Delete" on posted data | Impossible by design | "Reverse" |
| "Approve" by the preparer | Control violation | The action isn't offered |