Limiting Liability: Professional Corporations and LLPs

The equation Assets = Liabilities + Equity, which demonstrates the two-sided nature of accounting and is useful for explaining the concept of double-entry accounting (or double-entry bookkeeping).

The time period for which financial information is being tracked in a business, such as monthly, quarterly, or annually.

An account that records the amounts that customers owe to a business.

A correction made to a bookkeeping account that adjusts for accounting errors or other necessary changes at the end of the accounting period.

Used to describe the source or sources of cash or how cash is used.

A list of all the accounts used by a business, including what types of transactions go into each account.

An accounting entry that increases an asset or expense account, and decreases a liability or income account.

A portion of a company’s profits paid by share of common stock on a quarterly or annual basis.

Financial Accounting Standards Board. FASB is the highest-ranking authority in the private (non-government) sector of the U.S. for making pronouncements on GAAP and for keeping accounting standards up-to-date.

In the U.S., the fund that used to be known simply as Unemployment. Employers contribute to the fund, and states also collect taxes to fill their unemployment fund reserves. (The acronym FUTA means Federal Unemployment Tax Act.)

A type of insurance — typically carried by employers for their employees — that helps guard against theft and reduce the risk of loss.

First-in, first-out. A method for costs of goods sold in which a business charges out product costs to cost of goods sold expense in the chronological order in which the goods were acquired.

Describes a product that is interchangeable and virtually indistinguishable from another product.

A summary of all of a business’s accounts and transactions.

International Accounting Standards Board. The IASB (based in London) is the main authoritative accounting standards setter outside the U.S.

The location in which bookkeepers keep records (in chronological order) of daily company transactions.

Last-in, first-out. A method for costs of goods sold that selects the last item you purchased first, and then works backward until you have the total cost for the total number of units sold during the period.

Limited liability partnership. A legal structure that state laws offer to qualified professionals in which all the partners have limited liability.

Professional corporation. A legal structure that state laws offer to qualified professionals who otherwise would have to operate as an unlimited partnership liability.

A cash account that businesses keep on hand for unexpected expenses.

Monies that are collected in the process of selling a company’s goods and services.

The amount that an asset is worth after it has been fully depreciated.

A financial statement that summarizes a business’s cash inflows and outflows during an accounting period.

Economic exchanges between a business or other entity and the parties with which the entity interacts and makes deals.

A type of insurance carried by employers that covers its employees in case they are injured on the job.