Bookkeeping is confusing for business owners who didn’t major in accounting. This glossary of terms will help out with some key bookkeeping, QuickBooks, & Tax terminology. This list will evolve over time, so feel free to ask questions below that we can respond to! Also, check out our separate accounting definition of terms.
Bookkeeping: Recording of all the economic activity of an organization using individual transactions. This including: sales, bills paid, invoice received, credit card charges, and deposits. This was originally performed in a physical book which gave it the name bookkeeping.
Bookkeeper: A person who enters all of the individual transactions listed above into a companies accounting system. They should also reconcile accounts to make sure they are complete and exist. They should keep the books up to date at least on a weekly basis to help management.
Double Entry Bookkeeping: Fundamental concept underlying present-day bookkeeping. It’s based on the fact that every financial transaction has equal and opposite effects in at least two different accounts.
General Journal: A detailed account that records all the financial transactions of a business. It’s then used for reconciling and transferring information to financial statements.
Journal Entry: An entry into the general journal that includes debits and credits to accounts. The debits and credits of an entry must be equal under double-entry bookkeeping.
Debit: An accounting entry that increases assets and expenses. It also decreases liabilities and owner’s equity accounts. Has to be matched equally with a credit.
Credit: An accounting entry that increases liabilities, owner’s equity, and revenues. It also decreases assets. (Completely different concept than a debit and credit card.)
QuickBooks: The most popular small business accounting software in the world. It’s an accounting software that a company can download to its personal computer with a pre-developed platform, equations, and business functions to help keep a company’s books. You can send invoices, pay bills, write checks, enter quotes, receive payment, and much more. QuickBooks has an approximate 90% share of the U.S/ market which means easy access to bookkeepers, accountants, and CPAs (Certified Public Accountants).
QuickBooks Online: An accounting software hosted in the cloud by Intuit®. It is an expansion of their QuickBooks software that allows multiple people to access & update the books simultaneously. It comes in a small business or self-employed version tailoring to all businesses as an easy way to keep their books.
ALOEwerx: ALOEwerx is a company that uses the QuickBooks Online platform to effectively deliver a painless accounting service to its customers. Using the online feature a company is able to access their books anywhere at any time and have the help of an accountant, bookkeeper, and CPA through ALOEwerx.
QuickBooks Online Self-Employed: Similar to QuickBooks Online it operates in the cloud. It is generated towards self-employed people so it includes fewer features. The software is made to help you make sense of your accounting and help you with bookkeeping.
IRS: The Internal Revenue Service is in charge of enforcement of income tax laws collects all federal income taxes. When an individual or corporation pay taxes, it is collected by the IRS. If no taxes are paid, the IRS is the entity that will take you to court.
Form 1040: This is a tax form used by an individual or sole proprietorship to file taxes with the IRS. It includes calculating your AGI and standard deductions. Under the new tax law, one can no longer itemize their deductions.
Tax Deductions: These deductions help reduce the taxable income of a person or company. There is a long list of possible deductions including: meals and entertainment, personal, charitable contributions, life insurance premiums, and more.
Schedule C: This tax form is used to report income or loss from a certain type of business you operated or a profession you practiced as a sole proprietor. It ties your business income into your personal income reported on the form 1040.
AGI: Adjusted Gross income is simply the sum of everything an individual earns in a year, which may include includes wages, dividends, alimony, capital gains, interest income, royalties, rental income, retirement distributions, and a few allowable deductions.
Taxable income: AGI minus any deductions and exemptions.
Form 1065: This is the form partnerships are required to file to report their income, gains, losses, deductions, and credits. A partnership is not a taxable entity so this form only gives information on the value of the partnership to the IRS.
Required Payments made to Partners: Partners are not considered employees of a partnership and because of that they don’t receive a salary. Due to this, there is a line item on page 1 of Form 1065 that requires a business to states the required payments made to its partners. The partners then must include partnership items on their tax return.
LLC: A Limited Liability Corporation is identified as a partnership if it has greater than one owner. If only one owner it is treated as a disregarded entity, and a Schedule C form must be filed. An LLC is a type of partnership that provides liability protection to the partners. The LLC gets liability coverage like a corporation but the money is passed through (a “pass through” company) to the owners who are taxed like an individual.
Form 1120S: All corporations registered as a S corporation are required to file this form to report their income, gains, losses, deductions, and credits. This form is different than a Form 1120 which C corporations are required to file.
Form 1120: All corporations registered as a C corporation are required to file this form to report their income, gains, losses, deductions, and credits.
Schedule M-1: This is part of the Form 1120 that requires a business to reconcile book income (loss) to taxable income (loss). Starting with book income then adding and subtracting book/tax differences to get to taxable income.
Form 1099: This tax form is required by the IRS for any business that pays $600+ in a tax year to a vendor or subcontractor. Each vendor/subcontractor requires an individual form.
Tax credits: These come after your taxable income is calculated and minimizes the amount of taxes that you have to pay. There are two types of credits, refundable and nonrefundable.
Refundable Tax Credits: If the amount of the credit exceeds the amount of taxes owed, the excess is given to the taxpayer.
Nonrefundable Tax Credits: If the amount of the credit exceeds the amount of taxes owed, the excess is kept by the IRS and not given to the taxpayer.
Estimated Tax Payments: The payments are made by businesses throughout the year to fulfill their tax obligation. A business must pay quarterly payments to the IRS to the extent of the lesser of last years tax obligation or the current year’s estimated tax obligation. A business can’t pay all of their taxes at the end of the year but rather in four payments throughout the year. These are amounts based on an estimated obligation but you should make sure they are sufficient to avoid penalties and interest charged by the IRS.