Baratelli Foundations Glossary

QBO functionality that flags vendors as 1099-eligible, sums payments by box, and produces year-end 1099-NEC and 1099-MISC filings.

Business meals are 50% deductible (Section 274(n)). De-minimis food, employer cafeteria, and a handful of other narrow exceptions get 100%.

The complete eight-step process that turns transactions into closed books: identify, journal, post, trial balance, adjust, adjusted trial balance, statements, close. Repeats every period.

Amounts the business owes vendors for goods/services already received. Current liability. The DPO denominator.

Amounts customers owe for goods/services already delivered. Current asset. The DSO denominator.

Records revenue when earned and expenses when incurred, regardless of cash timing. Required for any business of consequence; the basis the rest of this Series assumes.

An expense incurred but not yet paid at period end - typically wages or interest. Recognized via adjusting entry; cleared on the next cash payment.

A contra-asset that accumulates depreciation charges over an asset's life. Offsets the gross fixed-asset balance to produce net book value.

Vehicle deduction tracking real costs - gas, insurance, maintenance, depreciation - multiplied by the business-use percentage.

Equity raised in excess of stock's par value. Companion line to Common Stock on the balance sheet.

An end-of-period journal entry that updates account balances to reflect economic reality - depreciation, prepaid burn-down, accrued wages, earned portions of unearned revenue.

A contra-asset estimating uncollectible receivables under the allowance method. Bad Debt Expense is the income-statement counterpart.

The intangible-asset counterpart to depreciation. Allocates the cost of finite-life intangibles over their useful life.

A stream of equal cash flows over equal periods. Ordinary annuity pays at period end; annuity due pays at period start.

Something the business owns or is owed that has future economic value. Normal balance is debit. Current (within 12 months) or non-current (long-term).

Revenue / Total Assets. How many dollars of revenue every dollar of assets produces - the activity-side complement to margin.

Sorting SKUs by dollar value so counting effort follows the money: high-value 'A' items are counted often, low-value 'C' items rarely.

The income-statement charge for receivables not expected to be collected. Recognized via the allowance method (preferred) or direct write-off.

Snapshot of assets, liabilities, and equity at a point in time. Assets = Liabilities + Equity. The accounting equation made visible.

Automated connection between a bank/credit-card account and QBO that pulls transactions in for categorization. The backbone of modern bookkeeping.

Comparing the bank statement to the books to confirm every transaction is recorded once and only once. Done monthly; unreconciled accounts hide errors and fraud.

QBO automation that categorizes recurring bank-feed transactions automatically based on payee, amount, or memo patterns.

Sensitivity of a stock's return to the market's return. Beta of 1 moves with the market; >1 amplifies; <1 dampens. The CAPM systematic-risk input.

Additional first-year depreciation on qualifying property. Subject to a statutory phase-down schedule that compresses the percentage available over time.

On the taxpayer to substantiate every deduction claimed. Documentation discipline beats the Cohan rule every time.

A debt arising from the trade or business that is wholly or partially worthless. Section 166 - ordinary deduction (not capital).

Assigning each SKU a storage 'home' (bin) and tagging batches with a lot/expiry so stock can be found, counted, traced, and recalled.

The reconciliation between an inventory figure on the books and the (often higher) figure required for tax, most commonly driven by UNICAP.

Expected return = Risk-free rate + Beta * (Market risk premium). The standard cost-of-equity model.

Cash spent on long-lived assets - equipment, buildings, software. Investing-section outflow on the cash flow statement.

The most liquid current asset - checking, savings, money market. The account every reconciliation starts with.

DIO + DSO - DPO. Days between cash going out for inventory and cash coming back from customers. Lower is better.

Reconciles net income to cash via three sections: operating, investing, financing. Tells you whether the profits are turning into cash.

The master list of every account a business uses. Organized by account type with a numbering convention (1000s assets, 2000s liabilities, etc.). The filing system the general ledger depends on.

A departmental tagging dimension in QBO. Enables a single Chart of Accounts to produce class-by-class P&Ls (locations, business lines, programs).

A QBO setting that locks the books as of a date and requires a password to make changes. Sealing the close is non-negotiable for accrual books.

End-of-year entries that zero out temporary accounts (revenue, expenses, dividends/drawings) by transferring their balances to Retained Earnings or Owner's Capital.

Judicial doctrine that lets a taxpayer estimate a deduction without perfect records - subject to the court being convinced an expense was incurred. Section 274(d) categories are carved out.

Par-value equity issued to shareholders. Pairs with Additional Paid-In Capital (APIC) for amounts above par.

An income statement or balance sheet where every line is expressed as a percent of revenue (or total assets). Removes scale, exposes mix.

After-tax yield demanded by lenders: Kd = pre-tax yield * (1 - tax rate). The interest-tax-shield is what makes debt cheaper than equity at the margin.

The return shareholders require to hold the stock. CAPM is the workhorse estimator; dividend-discount and build-up methods are alternatives.

The direct costs of goods sold during the period - materials and direct labor. Expensed when revenue is recognized, not when inventory is bought.

An entry on the right side of an account. Increases liabilities, equity, and revenue; decreases assets and expenses. Memory hook: CLER goes up with a credit.

Current Assets / Current Liabilities. Above 1.0 means short-term obligations are covered; below 1.0 is a warning sign.

Beginning inventory + purchases - ending inventory = cost of goods sold; the build behind every COGS figure under any method.

Goods that stay on the owner's (consignor's) books until the consignee sells them to an end customer, even though they sit in the consignee's location.

A documented hard stop (last shipment and receiver numbers) drawing the line between goods counted on-hand and goods already shipped or not yet received.

Counting a rotating subset of inventory continuously so high-value items are verified often and the business never stops for a full count.

Discounted Cash Flow valuation: PV of projected FCFF plus a terminal value, discounted at WACC. The fundamental intrinsic-value method.

Section 1.263(a)-1(f) election to expense items below a per-item threshold. Removes capitalization decisions on small purchases.

An entry on the left side of an account. Increases assets, expenses, and drawings; decreases liabilities, equity, and revenue. Memory hook: DEA-D goes up with a debit.

Total Debt / Total Equity. Leverage marker. Industry-relative; capital-intensive businesses carry more.

The periodic allocation of a fixed asset's cost over its useful life. Income-statement charge paired with Accumulated Depreciation.

Section 1245 (personal property) or 1250 (real) recapture rules tax the prior depreciation as ordinary income on sale, up to the gain amount.

Inventory / COGS * 365. How long inventory sits before being sold. Drift up signals obsolescence or weakening demand.

Payback computed on discounted cash flows. Fixes the TVM blind spot of the plain payback metric.

AP / COGS * 365. How long the business takes to pay vendors. Up to a point, longer is better - free working-capital float.

AR / Revenue * 365. How long it takes to collect a dollar of credit sales. Drift up signals collection problems or channel-stuffing.

Earnings Before Interest, Taxes, Depreciation, and Amortization. A cash-proxy profitability measure widely used in valuation and lending covenants.

The walk from Net Income up to EBITDA: add back interest, taxes, depreciation, and amortization. The reconciliation auditors and bankers will check.

The true annualized return when interest compounds more than once per year. EAR = (1 + r/m)^m - 1.

Market value of the firm's operations: Equity Value + Debt - Cash. The valuation target before financing adjustments.

Post-TCJA, business entertainment (concerts, sporting events) is non-deductible. Distinguishing meals embedded in entertainment events from the entertainment itself is the audit-bait line.

The owner's residual claim - what's left after liabilities are subtracted from assets. Normal balance is credit. Includes paid-in capital, retained earnings, treasury stock (contra).

A non-posting document - a quote to a customer. Converts to an invoice when accepted; does not hit the books until then.

EV - Debt + Cash = Equity Value. The arithmetic that turns an enterprise valuation into a per-share value.

The cost of doing business. Normal balance is debit. Recognized when incurred under accrual basis.

A contra-asset reserve, usually aging-based, that writes down slow-moving or obsolete stock before it is finally scrapped.

Annual ceiling for Social Security tax withholding. Medicare has no ceiling; Additional Medicare 0.9% kicks in above thresholds.

A lease that transfers substantially all the risks and rewards of ownership. Lessee records a ROU asset plus a lease liability; expense splits into amortization and interest.

Long-lived tangible property used in the business (equipment, vehicles, buildings). Capitalized and depreciated over its useful life.

OCF minus CapEx. The cash left for debt repayment, dividends, buybacks, or reinvestment. The number long-term investors anchor on.

Unlevered free cash flow: EBIT(1 - T) + D&A - change in working capital - CapEx. The cash the firm generates before financing decisions.

Tomorrow's value of today's cash, compounded forward. FV = PV * (1 + r)^n.

A cost-flow method assuming the oldest units sell first, so COGS reflects older costs and ending inventory reflects the most recent costs.

Shipping terms that decide who owns goods in transit at period end: title passes at shipment (shipping point) or at delivery (destination).

Freight-in (cost to receive goods) is inventoriable and flows through COGS; freight-out (cost to ship to customers) is a period selling expense.

The master collection of every account and its running balance. Journal entries are posted here; the ledger is what the trial balance summarizes.

PV of a perpetuity growing at constant rate g: PV = CF1 / (r - g). The textbook terminal-value formula.

Gross Profit / Revenue. Tells you how much of every revenue dollar survives the direct cost of delivering the product.

Revenue minus COGS. The dollars left after the direct cost of delivering the product. Numerator of gross margin.

Partnership / multi-member LLC payment to a partner for services or capital, deductible by the partnership and ordinary income to the partner.

Deduction available to self-employed taxpayers and narrow categories of employees. Requires a regular-and-exclusive-use space.

Safe harbor for home-office deduction: a per-square-foot rate up to a square-foot cap. No depreciation recapture; no actual-expense tracking.

Year-over-year (or quarter-over-quarter) percent change for each line. Surfaces trends; ties growth to driver lines.

Health Savings Account contributions - deductible above-the-line for HDHP-covered taxpayers. Annual limits vary by self-only vs family coverage.

Reports revenue and expenses over a period (month, quarter, year). Answers: did the business make money? Prepared first because net income flows to the balance sheet.

A temporary clearing account used during closing entries to collect all revenues and expenses before the net is transferred to Retained Earnings or Owner's Equity.

Sets a base year equal to 100 and expresses every subsequent year as an index. Useful for multi-year trend comparisons that span growth shocks.

Non-physical long-lived asset (patents, trademarks, goodwill, software licenses). Amortized over its useful life if finite.

EBIT / Interest Expense. How many times operating earnings cover the interest bill. Lending-covenant standard.

The discount rate at which NPV equals zero. Accept the project if IRR exceeds the hurdle rate / cost of capital.

Goods held for sale (or raw materials/WIP to be sold). Current asset. The DIO numerator.

An entry to reduce inventory to net realizable value when goods become obsolete, damaged, or unsellable. Hits Inventory and a loss/COGS account.

Goods moving between parties at period end; ownership follows the FOB terms, and the common error is omitting or double-counting them.

How many times inventory is sold and replaced in a period: COGS divided by average inventory; higher turns tie up less cash.

The first formal record of a transaction. Always at least one debit and one credit; total debits must equal total credits.

Something the business owes to others. Normal balance is credit. Current liabilities are due within 12 months; long-term liabilities beyond.

A revolving lending facility - draws create a liability, repayments reduce it. Short-term financing for working-capital swings.

Family of ratios measuring short-term solvency - current ratio, quick ratio, cash ratio. The first family lenders look at.

A formal interest-bearing obligation to a lender. Principal is a liability; interest is an expense recognized over time.

A second tagging dimension alongside Classes. Often used for physical sites when Classes are used for business lines.

A cost-flow method assuming the newest units sell first; in inflation it raises COGS and lowers taxable income. Allowed under US GAAP, prohibited under IFRS.

If LIFO is used for tax, it generally must also be used in the financial statements shown to owners and lenders.

The difference between FIFO and (lower) LIFO inventory value - the cumulative tax deferral LIFO has produced; a real number at a sale or exit.

Inventory is carried at cost unless net realizable value falls below it, then written down to NRV; write-downs are not later reversed up.

Modified Accelerated Cost Recovery System - the default tax depreciation regime when neither Section 179 nor bonus is elected. Class lives 3 to 39 years.

IRR variant that reinvests interim cash flows at the cost of capital, not the IRR. Removes the IRR-overstatement problem.

In a frictionless world, capital structure does not affect firm value (Prop I, no taxes). With taxes, the interest tax shield adds value with leverage - up to the offsetting cost of distress.

The bottom line of the income statement - revenue minus every expense, gain, and loss. Flows to Retained Earnings via closing.

PV of project cash inflows minus PV of outflows. Accept the project if NPV > 0.

Operating current assets (AR + inventory + prepaids) minus operating current liabilities (AP + accrued expenses). Excludes cash and debt - measures operational liquidity needs.

Restructuring charges, asset impairments, litigation settlements, and similar one-off items that distort run-rate earnings. EBITDA adjustments often start here.

A customer check returned by the bank for non-sufficient funds. Reverses the prior cash receipt and re-establishes the receivable.

QuickBooks's catch-all account when historical balances are entered without offsetting entries. Anything left in OBE at year-end means something is unreconciled.

Cash generated by the core business, computed via the indirect method as net income plus non-cash items plus changes in working capital.

Gross Profit minus operating expenses (SG&A, R&D, D&A). The earnings the core business generates before financing and taxes.

A lease that does not transfer substantially all risks and rewards of ownership. Under ASC 842 the lessee still records a right-of-use asset and a lease liability on the balance sheet.

Operating Income / Revenue. Quality marker for the core business engine - free of financing structure and tax-jurisdiction noise.

Years until cumulative undiscounted cash inflows equal the initial outlay. Quick liquidity check; ignores TVM and post-payback flows.

Firms prefer internal financing first, then debt, then equity - because signaling costs make outside equity the most expensive source.

An IRS-published daily allowance for meals and incidentals on travel. Avoids receipt-keeping; rate depends on destination city.

Balance-sheet accounts (assets, liabilities, equity) are permanent - they carry balances forward. Income-statement accounts (revenue, expenses) are temporary - they zero out at year-end via closing entries.

An annuity that goes on forever. PV = CF / r. The building block for terminal-value math.

A small on-hand cash fund for minor purchases. Replenished by check; the replenishment is when actual expenses are recorded.

Cash paid for a future-period benefit (e.g., insurance, rent). Recorded as an asset; expensed over the benefit period via an adjusting entry.

Today's value of a future cash flow, discounted at a rate. PV = FV / (1 + r)^n.

PV of inflows / |initial outlay|. PI > 1 indicates a value-creating project; useful when capital is rationed.

QBO feature that tags transactions to a specific customer engagement, producing per-project profitability reports without departing from the main COA.

A discount taken for paying a vendor invoice within a stated window (e.g., 2/10 net 30). Reduces Inventory or COGS.

Periodic systems determine COGS only at period end via a count; perpetual systems update inventory and COGS continuously with each sale.

A live per-SKU record of quantity and cost behind the single balance-sheet inventory number, reconciled to the physical count.

A controlled count of goods on hand - blind counts, zone sequencing, tag control, supervision - to correct the books to reality.

How closely reported earnings match the underlying cash economics. Red flags: OCF lagging net income, growing accruals, DSO/DIO drift, lumpy non-recurring items.

(Current Assets - Inventory) / Current Liabilities. The strict liquidity test - inventory may not convert to cash quickly.

Intuit's installed desktop product. Heavier feature set (inventory assemblies, batch invoicing) but a sunsetting roadmap. Still preferred for specific industries.

Intuit's cloud accounting product. Subscription tiers from Simple Start to Advanced; the default for small businesses in 2026.

The IRS requires S-corp owner-employees to pay themselves W-2 wages reasonable for the work performed before taking distributions. The audit-bait line for S-corp owner pay.

Monthly process inside QBO that matches every transaction to the bank statement, line by line, until the ending difference is zero.

Cumulative net income kept in the business (not paid out as dividends). Equity account; closing entries flow into it each year.

Net Income / Total Assets. How efficiently the asset base generates earnings.

Net Income / Shareholders' Equity. The shareholder's pre-leverage return.

NOPAT / (Debt + Equity). The cleanest cross-capital-structure return measure - what the operating business earns on every dollar of capital deployed.

What the business earned from delivering goods or services. Normal balance is credit. Top line of the income statement.

ASC 606 / IFRS 15: identify contract, identify performance obligations, determine transaction price, allocate, recognize as obligations are satisfied.

The lessee's recognized asset under ASC 842 representing the right to use the leased item over the lease term.

Recording goods receipts promptly and by someone independent of purchasing and payment; weak receiving causes cutoff errors and count variances.

The on-hand level that triggers a new order: (average daily usage x lead time) + safety stock.

A contra-revenue account for customer returns or price concessions. Debited when a return is processed; reduces net revenue on the income statement.

QBO module that computes sales tax based on customer location, tracks the liability, and produces filing-ready reports.

A liability for sales tax collected from customers and owed to the government. Never income - it passes through.

IRC Section 162(a) - the foundation of every business deduction. Allows a deduction for all the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business.

Election to fully expense qualifying property in the year placed in service, subject to a dollar cap and a phase-out at higher placed-in-service amounts.

Qualified Business Income deduction - up to 20% of pass-through business income, subject to SSTB and W-2 wage limitations above income thresholds.

Excess golden-parachute payments to disqualified individuals on a change of control. Non-deductible to the corporation plus 20% excise tax on the recipient.

Above-the-line deduction for the SE taxpayer's medical, dental, and qualified long-term care premiums. Reduces AGI without itemizing.

Simplified Employee Pension - employer-funded retirement plan, simplest to administer for solos and very small employers.

Savings Incentive Match Plan for Employees - small-employer plan (<=100 employees) with employee deferrals plus an employer match or non-elective contribution.

Single-participant 401(k) for true solo (and spousal) businesses. Combines employee deferral and employer contribution to reach the highest limit of small-employer plans.

The receipt, invoice, bank statement, or contract that originates a transaction and serves as the audit trail behind a journal entry.

Specified Service Trade or Business categories (law, health, consulting, financial services, etc.) phase out of the QBI deduction above income thresholds.

Vehicle deduction at the IRS-published per-mile rate. Election required in the first year; switching back from actual is restricted.

A child customer under a parent record - used to track jobs, properties, or sub-divisions while still rolling up to the parent for invoicing.

Systematic risk (market-wide, undiversifiable) is what investors are compensated for. Unsystematic risk (company-specific) is diversifiable and earns no premium.

Buffer inventory held against demand spikes and late deliveries; more cushion means fewer stockouts but more cash tied up.

The shortfall when a physical count comes in below book quantity - theft, breakage, spoilage, or errors - recorded as a loss.

Taxpayers under the inflation-adjusted gross-receipts threshold are exempt from the general Sec 471 inventory rules and Sec 263A UNICAP.

Tracking the actual cost of each individual item and expensing it when that item sells; used for unique, high-value, serial-tracked goods.

Booking inventory at predetermined standard costs and recording the difference from actual as variances to investigate and clear.

The tax savings from a deductible expense (most commonly interest). Tax shield on debt = Debt * interest rate * tax rate.

The lump-sum value of all cash flows beyond the explicit forecast period. Calculated via Gordon Growth or exit-multiple methods.

A dollar today is worth more than a dollar tomorrow. The base assumption every discounted-cash-flow technique rests on.

Optimal leverage balances the tax shield against distress costs. Predicts an internal optimum; explains why most firms carry some - but not infinite - debt.

Relative valuation ratios: EV/EBITDA, EV/Revenue, P/E. Anchor a DCF in comparable-company evidence; reveal sentiment-driven mispricing.

Company stock repurchased and held by the issuer. A contra-equity account - increases with a debit.

A period-end listing of every ledger account balance to verify total debits equal total credits. Unadjusted comes before adjusting entries; adjusted comes after.

Matching the purchase order, the receiving report, and the supplier invoice before payment; the core control against overbilling and phantom receipts.

A QBO holding account between Receive Payment and Deposit. Lets you group customer payments before a single bank deposit. Undeposited Funds bloat is QBO's #1 pitfall.

Cash collected before the related goods or services are delivered. A liability until earned; the most common timing-mismatch entry.

Tax rules requiring certain indirect costs to be capitalized into inventory rather than deducted currently, deferring deductions until the goods sell.

IRS multi-factor test for classifying workers - behavioral control, financial control, type of relationship. Misclassification triggers back payroll taxes plus penalties.

Blended cost of debt and equity at market-value weights: WACC = (E/V)*Ke + (D/V)*Kd*(1-T). The DCF discount rate.

Current Assets minus Current Liabilities. The cushion of short-term resources over short-term obligations.

A full physical count of all inventory at once, usually annual, with the business stopped - contrasted with continuous cycle counting.