Glossary
Definitions for the terms and concepts you'll come across on the Adopt platform
100 terms shown
Accounting Operations & Financial Close
Account Reconciliation
Account reconciliation compares a general ledger balance to supporting evidence, explains differences, and resolves discrepancies. It is the main control for ensuring the balance sheet's completeness and accuracy, and auditors often find control issues here.
Accounts Receivable Aging
An accounts receivable aging groups open customer balances by how long they have been outstanding, usually in 30-day buckets. It drives collections, supports the allowance for credit losses, and must tie to the receivable control account in the general ledger.
Accrual Accounting
Accrual accounting recognizes revenue when it is earned and expenses when they are incurred, regardless of when cash moves. It is required under GAAP, and the tax rules that govern it diverge from the book rules in ways that create book-tax differences.
Accrued Expenses
Accrued expenses are liabilities for received but unpaid goods or services, reflecting the matching principle in accounting.
Adjusting Journal Entry (AJE)
An adjusting journal entry is made at period-end to align account balances with accounting standards before issuing financial statements.
Allowance for Doubtful Accounts
The allowance for doubtful accounts is a contra-asset that reduces accounts receivable to the amount the company expects to collect. Controllers estimate it each period from the aging and history, and must defend the estimate at close and in audit.
Balance Sheet Reconciliation
Balance sheet reconciliation is the practice of reconciling every balance sheet account, not just cash, on a documented schedule with a named owner and risk tier per account. It is the close deliverable auditors test first, and account reconciliation is the technique it applies, account by account.
Bank Feed
A bank feed is an automated connection that pulls transaction data from a bank into accounting or reconciliation software, so it arrives without anyone logging into the bank's own portal. Not every bank offers one.
Bank Reconciliation
A bank reconciliation explains the difference between the cash balance in the general ledger and the balance on the bank statement at a point in time, identifying timing differences, bank-only items, and errors, and adjusting the ledger for what belongs in it.
Cash Application
Cash application matches an incoming customer payment to the specific open invoice or invoices it pays, using whatever remittance advice came with it, so accounts receivable reflects what a customer actually still owes. What can't be matched becomes unapplied cash until someone resolves it.
Cash Conversion Cycle
The cash conversion cycle measures the days between paying for inventory or inputs and collecting cash from the sale. It equals days inventory outstanding plus days sales outstanding minus days payable outstanding. A shorter cycle frees cash.
Chart of Accounts
The chart of accounts is a structured list that classifies all transactions in an entity's general ledger.
Close Calendar
A close calendar is the schedule that runs a month-end close: which task happens on which day, who owns it, and what it depends on. It turns a close checklist into a dependency graph, showing the critical path that determines how fast the books can lock
Close Cycle Time / Days to Close
Days to close, or close cycle time, is the count of business days from period end to locked books. It is the standard way companies measure and compare how fast a month-end close runs, and the drivers behind the number matter more than the number itself.
Continuous Close
The continuous close runs reconciliation and transaction matching throughout the month instead of in a burst after the period ends. It shortens the close window by moving preparation earlier; it doesn't remove cutoff, estimates, review, or sign-off, which stay period-end acts.
Days Sales Outstanding (DSO)
Days Sales Outstanding (DSO) measures the average number of days it takes a company to collect payment after a credit sale. It is calculated from accounts receivable and credit sales over a period, and it is the single number most finance leaders use to judge how fast cash is actually coming in.
Depreciation Schedule
A depreciation schedule lists every capitalized asset with its in-service date, cost, method, life, convention, accumulated depreciation, current period expense, and net book value. It supports the ledger, the financial statements, and Form 4562.
Dunning
Dunning is the escalating sequence of reminders a business sends about an overdue invoice, moving from a routine nudge to a firmer notice as the balance ages through the accounts receivable aging's buckets. A single reminder is not dunning; the escalation is.
Duplicate Payment
A duplicate payment is the same vendor obligation paid more than once, usually because a resubmitted or re-keyed invoice doesn't match the original closely enough, on invoice number, vendor name, amount, or date, for simple matching to catch. It surfaces in a full-population scan, not at approval.
Flux Analysis
Flux analysis, or fluctuation analysis, involves comparing financial results to a reference point - like the previous month, year, or budget - while providing written explanations for significant variances.
General Ledger
The general ledger is the master record of an entity's accounts, holding every posted debit and credit by account and period. Subledgers feed it, the chart of accounts defines its structure, and the trial balance is its summary.
GRNI (Goods Received Not Invoiced)
GRNI, goods received not invoiced, is the population of purchase orders where the goods or services arrived before period end but the vendor invoice has not. It is a real liability of the period the moment the receipt is recorded, invoice or not, and it has to be accrued.
Intercompany Reconciliation
Intercompany reconciliation is the process of matching one entity's intercompany receivable or payable balance to the same balance on the counterparty entity's books, transaction by transaction, until both ledgers agree before consolidation eliminates the balance.
Invoice Processing
Invoice processing is the full path a vendor bill takes from arrival to payment: capture, coding to the chart of accounts, matching against a purchase order and receipt, approval, and posting. Capturing an invoice's fields is only the first step of it.
Journal Entry
A journal entry is the record that posts debits and credits to the general ledger. Every entry balances, carries a date, accounts, amounts, and a description, and should be supported by documentation and approved by someone other than its preparer.
Month-End Close
The month-end close is the process where accounting finalizes the books and produces financial statements. It involves a sequence of steps: close sub-ledgers, complete reconciliations, identify adjusting entries, and post them before locking the trial balance and generating statements.
Reconciling Item
A reconciling item is the specific, named difference between a ledger balance and the independent source used to verify it, such as one deposit, one unmatched invoice, or one timing gap. A reconciliation is not one comparison; it is a list of these worked down to zero.
Record to Report (R2R)
Record to report (R2R) is the finance process tower that runs from posting a transaction to publishing the financial statements built from it: recording, closing, consolidating, and reporting. It is the enterprise term for the whole cycle the month-end close sits inside.
Remittance Advice
Remittance advice is the document a customer sends with or after a payment to say which invoices it covers and for how much. Accounts receivable teams use it to apply cash to the right invoices and to explain short pays.
Reversing Journal Entry
A reversing journal entry is an entry booked in one period and automatically reversed, opposite debit and credit, on the first day of the next. It is most often used for accrual estimates so the real invoice that follows is neither missed nor double-counted.
Soft Close vs Hard Close
A hard close runs the full month-end process: every reconciliation, every accrual, audit-ready statements. A soft close deliberately skips or estimates parts of it in interim months to save time, with a hard close still required at quarter and year end.
Audit & Assurance
Audit Sampling
Audit sampling means checking a smaller portion of items instead of looking at everything. This approach helps us make a good guess about the whole group. This is done because testing everything usually isn’t worth the effort compared to the confidence we get from it.
Audit Trail
An audit trail is the chronological record of who did what, when, to which record, and with what values before and after. It is what makes a reported balance traceable to its source and what makes any process, human or automated, reviewable after the fact.
Audit Workpapers
Audit workpapers are records of procedures, evidence, and conclusions from an audit. They must be clear enough for an experienced auditor, unfamiliar with the engagement, to understand the nature, timing, extent of procedures, results, significant findings, and conclusions.
Going Concern
Going concern assumes an entity will operate indefinitely, avoiding liquidation or major operational cuts. Financial statements are based on this, allowing assets to be valued at historical cost instead of liquidation value, and liabilities to be classified by their contractual maturity.
Internal Control Over Financial Reporting (ICFR)
Internal control over financial reporting ensures reliable financial statements. SEC registrants must assess and report on ICFR effectiveness annually under Sarbanes-Oxley Section 404(a). Accelerated and large accelerated filers also need an auditor attestation under Section 404(b).
Material Weakness and Significant Deficiency
A significant deficiency is a control deficiency important enough to merit attention by those charged with governance. A material weakness is more severe: a reasonable possibility that a material misstatement would not be prevented or detected on a timely basis.
Materiality
Materiality is the point where an omission or error in financial statements could influence a reasonable user's judgment. It allows auditors to focus on significant issues rather than verifying every transaction.
Prepared by Client (PBC) List
A PBC list (prepared by client) is a schedule of documents, reconciliations, analyses, and supporting data requested by the audit team to conduct the engagement. Issued during planning, it is organised by financial statement area, sequenced by item due dates, and includes an owner for each request.
SOC 1 Report
A SOC 1 report assesses a service organisation's controls related to user entities' financial reporting, following AICPA's SSAE No. 18 standards. It targets a specific audience: user entities outsourcing significant financial processes and their auditors.
SOC 2 Report
A SOC 2 report assesses a service organization's controls against the AICPA Trust Services Criteria. Unlike SOC 1, which focuses on financial reporting, SOC 2 covers operational and security controls.
SOX Compliance
SOX compliance is meeting the Sarbanes-Oxley Act of 2002 requirements for accurate financial reporting: executive certification, management's assessment of internal control over financial reporting, auditor attestation, and retention of records.
Business & Corporate Tax
Arm's Length Principle
The arm's length principle holds that a controlled transaction should produce the result that uncontrolled parties would have realized in the same transaction under the same circumstances. It is the standard against which every transfer price is tested.
Book-Tax Differences
Book-tax differences are the gaps between income reported under GAAP and the Internal Revenue Code due to differing purposes.
Form 1042 and Form 1042-S
Form 1042 is the withholding agent's annual return for US-source income paid to foreign persons. Form 1042-S is the payee statement issued for each recipient, income type, and withholding rate. Both are due March 15 for the preceding calendar year.
Form 1065
Form 1065 is the US Return of Partnership Income. The partnership reports its results and allocates them to partners on Schedules K-1; it generally pays no entity-level tax, though the centralized audit regime can assess one.
Form 1120
Form 1120 is the annual tax return for C corporations, detailing income, deductions, and tax liability, due by April 15 every year.
Form 1120-S
Form 1120-S is the income tax return of an S corporation. The corporation reports its results and allocates them to shareholders on Schedules K-1, generally paying no entity-level tax, with exceptions for built-in gains and excess net passive income.
Form 3115
Form 3115 is the Application for Change in Accounting Method. It covers automatic and non-automatic changes, and it carries the Section 481(a) adjustment that prevents items from being duplicated or omitted when the method changes.
Form 4562
Form 4562 reports depreciation and amortization on a tax return, including the Section 179 election, the special depreciation allowance, MACRS deductions by class, listed property, and amortization beginning in the current year.
Form 5471
Form 5471 is the information return US persons file for interests in certain foreign corporations. It computes no tax, it is due per corporation per filer per year whether or not there was activity, and a substantially incomplete form is treated as no form at all.
Form 5472
Form 5472 reports transactions between a 25% foreign-owned US corporation, or a foreign-owned US disregarded entity, and its foreign related parties. The penalty is $25,000 per failure per year, and a foreign-owned single-member LLC must file even with no income.
Form 8832 (Check-the-Box Election)
Form 8832 is the entity classification election, known as the check-the-box election. An eligible entity uses it to elect treatment as a corporation, a partnership, or an entity disregarded from its owner, overriding the default classification.
Form 8858
Form 8858 is the information return for foreign disregarded entities and foreign branches. US persons that are tax owners of an FDE, or that operate an FB, file it with their income tax return, and CFCs and controlled foreign partnerships file it through their owners.
Form 8865
Form 8865 is the information return for US persons with interests in certain foreign partnerships. Four filer categories cover control, ten-percent ownership in a US-controlled partnership, contributions of property, and reportable acquisitions or dispositions.
GILTI (Global Intangible Low-Taxed Income)
GILTI is a US shareholder's current inclusion, under Section 951A, of a CFC's income above a routine return on tangible assets. For tax years of foreign corporations beginning after December 31, 2025, OBBBA renames the regime net CFC tested income.
Net Operating Loss (NOL) Carryforward
A net operating loss allows deductions exceeding income to be carried forward to offset future taxable income.
S Corporation Election
An S corporation election allows qualifying domestic corporations to be taxed as pass-through entities, avoiding double taxation.
Schedule K-1 (Form 1065)
Form 1065 is filed by partnerships and multi-member LLCs to report income allocated to partners, with penalties for late submissions.
Schedule M-1 & Schedule M-3
Schedule M-1 reconciles book net income to taxable income, while Schedule M-3, for larger filers, provides a more detailed analysis of differences and consolidation structures.
Section 163(j) Business Interest Limitation
Section 163(j) restricts business interest expense deductions, but recent legislation reintroduces depreciation-related add-backs, enhancing deductibility.
Section 174 & 174A
Section 174 mandates that research and experimental expenditures must be capitalized and amortized over 5 years domestically and 15 years for foreign research, starting from the midpoint of the year in which they are incurred.
Section 482
Section 482 authorizes the IRS to allocate income, deductions, credits, and allowances between commonly controlled taxpayers where necessary to prevent evasion of taxes or to clearly reflect income. It is the statutory basis of the US transfer pricing regime.
Financial Reporting
ASC 606
ASC 606 is an accounting rule that helps companies know when and how to report income from customer sales.
ASC 740
ASC 740 is the U.S. GAAP accounting standard that tells companies how to recognize, measure, present, and disclose the income taxes they have on their financial statements; it includes both the current income tax liabilities and the deferred tax effects.
ASC 805
ASC 805 is a U.S. GAAP accounting standard that covers business combinations. It requires companies to use the acquisition method for mergers and acquisitions.
ASC 842
ASC 842 is the US GAAP lease accounting standard from the FASB. It tells organizations to show right-of-use (ROU) assets and matching lease liabilities on their balance sheet for leases longer than 12 months.
Board Reporting Package
A board reporting package is the set of financial statements, KPIs, variance commentary, and forecasts a CFO sends to directors before each board meeting. It turns closed books into a decision document.
Budget vs Actual
Budget vs actual compares what a company planned to spend or earn with what it did, line by line, and explains the gaps. It measures plan accuracy and spending control. Flux analysis compares periods instead, and variance analysis covers any benchmark.
Cash Forecasting
Cash forecasting projects the cash a business will receive and pay out over a future period, often as a 13-week rolling view. Finance teams use it to see shortfalls early and decide on timing for payments and borrowing.
Currency Translation Adjustment (CTA)
Currency translation adjustment (CTA) is the balancing amount that arises when a foreign subsidiary's financial statements are translated into the parent's reporting currency under ASC 830. It sits in accumulated other comprehensive income and bypasses net income.
Current Expected Credit Losses (CECL)
CECL is the credit loss model introduced by ASC 326, replacing the incurred-loss approach for doubtful accounts and loan loss reserves.
Deferred Revenue
Deferred revenue is a liability for consideration received before the related performance obligation is satisfied. Under ASC 606 it is a contract liability, and it is released to revenue as the obligation is performed rather than when the cash arrives.
Deferred Tax Asset & Deferred Tax Liability
Deferred tax assets and liabilities arise from temporary differences between financial accounting (book income) and tax accounting rules and are reported on the balance sheet.
Elimination Entries
Elimination entries are consolidation adjustments that remove transactions and balances between entities in the same group, so the combined statements report only dealings with outside parties. They cover intercompany sales, loans, and equity investments.
Financial Consolidation
Financial consolidation combines the financial statements of a parent company and its subsidiaries into one set of statements, as if the group were a single entity. It requires eliminating intercompany transactions and balances so the group's numbers are not double-counted.
FP&A (Financial Planning and Analysis)
FP&A is the finance function that builds budgets, forecasts, and variance analysis to guide business decisions. It looks forward and sideways across the business, while accounting looks backward and closes the books on what already happened.
Goodwill Impairment
Goodwill impairment is an accounting loss occurring when the recorded goodwill value on a company's balance sheet exceeds its fair market value.
Rolling Forecast
A rolling forecast is a projection that adds a new period each time one closes, so the horizon stays fixed, usually 12 to 18 months. It replaces a static annual budget as the working view of where the business is heading.
Individual & Pass-Through Tax
Alternative Minimum Tax (AMT)
The alternative minimum tax ensures taxpayers with significant deductions pay a minimum tax, while the corporate AMT was replaced by a new 15% tax for large corporations.
Estate & Gift Tax Exemption
The federal estate and gift tax system unifies exemptions, with the One Big Beautiful Bill Act locking in a $15 million exemption per individual from 2026.
Estimated Tax Payments & Safe Harbor
The US tax system requires quarterly estimated tax payments to avoid penalties, with safe harbors based on prior-year liabilities.
FBAR (FinCEN Form 114)
The FBAR is FinCEN Form 114, the annual report of foreign financial accounts filed by any US person whose accounts exceed $10,000 in aggregate at any point in the calendar year. It is filed with FinCEN, not with the tax return.
Form 1040
Form 1040 is the annual federal income tax return for individuals, calculating taxable income, tax owed or refunds.
Form 8938 (FATCA)
Form 8938 is the FATCA statement of specified foreign financial assets, filed under Section 6038D with the income tax return when a filer's assets exceed thresholds that vary by filing status and residence. It overlaps with the FBAR but does not replace it.
Partner Outside Basis & Shareholder Basis
Partner basis refers to a partner's investment in a partnership, encompassing cash, property contributions, and share of liabilities. Shareholder basis denotes a shareholder's investment in a corporation, comprising cash, property contributed, and adjusted for corporate earnings and distributions.
Schedule C (Form 1040)
Schedule C reports the profit or loss of a sole proprietorship on Form 1040. Net profit flows to Schedule 1 and to Schedule SE for self-employment tax, and single-member LLCs that have not elected otherwise file here by default.
Section 199A
Section 199A lets non-corporate taxpayers deduct 20% of qualified business income and certain dividends, now permanently established.
State & Local Tax (SALT)
Economic Nexus
Nexus links a taxpayer to a state for tax obligations, established through economic activity rather than physical presence, reshaped by the 2018 Wayfair decision.
Pass-Through Entity Tax (PTET)
The pass-through entity tax allows partnerships or S corporations to pay state income tax on behalf of owners, circumventing the federal SALT deduction cap.
Sales & Use Tax
Sales tax and use tax together impose a complex, fragmented system of consumption taxation across various states and local jurisdictions.
Tax Credits & Incentives
Cost Segregation Study
A cost segregation study reclassifies building components to accelerate depreciation and enhance cash flow.
Employee Retention Credit (ERC)
The employee retention credit, part of the CARES Act, incentivized employers to keep staff during COVID-19 by offering refundable payroll tax credits.
Foreign Tax Credit
The foreign tax credit prevents double taxation by allowing US taxpayers to offset foreign income taxes against their US tax liability.
R&D Tax Credit (Section 41)
The Section 41 research and development credit (R&D) incentivises qualified research activities in the US through a direct tax credit, subject to a four-part qualification test.
Tax Practice, Compliance & Ethics
Circular 230
Circular 230 outlines Treasury regulations governing professionals representing taxpayers before the IRS, which are enforced by the Office of Professional Responsibility.
Engagement Letter
An engagement letter outlines the services, responsibilities, and terms of engagement between a CPA firm and its client and is required for all engagements.
Form 2848
Form 2848 is the IRS power of attorney and declaration of representative. It authorizes an eligible practitioner to represent a taxpayer before the IRS for specified matters and periods, and to receive confidential information about them.
Form 7004
Form 7004 requests an automatic extension to file various business tax returns, each with specific extension periods.
Form 8879
Form 8879 authorizes electronic filing of tax returns, serving as a signature equivalent for various return types.