What is my CPA talking about? Here is a list of common terms your CPA will ask and what they mean.
Assets: Assets can be tangible or intangible. They are recorded on the balance sheet and represent items of value to the company (ie. bank accounts, accounts receivable, inventory, trademarks, copyrights, goodwill)
Current Assets: Current assets are items that are easily converted into cash (i.e. bank accounts, accounts receivable).
Long Term Assets: Long term assets are usually investments that can be converted into cash although it may take a little longer (i.e. stock and bonds).
Fixed Assets: Fixed assets are items that cost more to purchase and have a useful life of over one year (i.e. buildings, furniture, computers, equipment).
Liabilities: Liabilities are recorded on the balance sheet and represent obligations that the company owes to others (i.e. debt, loans, credit cards)
Current Liabilities: Current liabilities are obligations that are due in full in less than one year (i.e. accounts payable, credit cards).
Long Term Liabilities: Long term liabilities are obligations that are due in full in more than one year (i.e. auto loans, mortgages).
Equity: Equity is the value of ownership in the company after all obligations have been paid.
Income: Income is all monies generated in the course of doing business (i.e. sales, services, commissions earned).
Expenses: Expenses are the outflow of monies in order to pay for an item or service. Expenses can be deductible for tax purposes if they are reasonable and necessary to operate the business under code section 162 of the Internal Revenue Code. (i.e. office supplies, rent, meals and entertainment, travel*).
*Bonus: code section 274 of the Internal Revenue Code addresses concerns regarding meals and entertainment, travel, and gifts. The items must be reasonable and necessary for business as well as provide documentation detailing the amount, the time and place, the business purpose, and the relationship of the taxpayer to the person.