P
 

P & L (profit and loss statement)
See income statement.


paid-in capital
The total amount of cash or other consideration received by a corporation for issued stock.


paid-in surplus
The amount received by a corporation for its stock in excess of the par or stated value.


par value of stock
The face amount of a stock share of a corporation as stated in the corporate charter.


passive activity
The income tax treatment for passive activity income and losses is very specific. The IRS states the following; "Generally, you are in a passive activity if 1) you have a trade or business activity in which you do not materially participate during the tax year, or 2) you have a rental activity, even if you do materially participate in it (unless you are a real estate professional)." We will gladly assist you with tax planning concerning your investment activities.


patronage dividend
These are not true dividends. They represent a refund of part of your purchase of items from a cooperative. If you purchased items for personal use, the dividends are not taxable. If you purchased business items from the cooperative, dividends are taxable income to the business.


percentage depletion
Depletion expense computed as a percentage of the income from natural resources extracted from the property without regard to the cost of the property. The Internal Revenue Code specifies percentages for various minerals and oil and gas.
See also depletion.


performance bond
A surety bond purchased by a contractor that guarantees that the contractor will complete a project as spelled out in the contract.


personal holding company
Under income tax law, this is a company organized to hold the stock of other corporations as well as bonds and other investments. The personal holding company will distribute earnings at a time that is most advantageous to its shareholders. Its highest tax rate is equal to that of the highest income tax bracket for individuals.


personal property
All property that is not real estate. If an item is attached to the ground or a building, it is probably real estate. If it is not, it is most likely personal property.


personal representative
See executor/executrix.


personal service corporation (PSC)
A personal service corporation is one in which the principal activity is personal services that are provided by the employee-owners. Examples are accounting, law, medical, and engineering corporations.


petty cash
A small amount of cash used to pay for miscellaneous small expenditures to avoid writing checks for every minor item. When the pretty cash fund is replenished from the general checking account, the various expenses are summarized and recorded to the proper expense accounts.
See also imprest fund.


physical inventory
An actual counting, measuring, and pricing of the inventory of a business. Often done at year-end, the physical inventory substantiates the dollar value of inventory presented on the balance sheet.


pledged asset
An asset assigned as collateral for a loan or to secure the performance of a contract.


Ponzi scheme
Named after Charles Ponzi. In the 1920s, Ponzi was paying investors 50% interest on short-term investments. He was paying these incredible rates with money from new investors. All the while, he was spending some of the incoming funds for personal purposes. A Ponzi scheme can continue as long as there are enough new investors to keep the cash coming. Ponzi schemes are illegal and will eventually collapse.
See also pyramid schemes.


postdated
To use a date later than the one on which a document is being written. For example, a postdated check which can't be deposited or cashed until the date shown on it.


posting
The process of recording an amount from an original document or a journal to a ledger account in the bookkeeping system.


pour-over will
Language in a will that provides for the transfer (pour-over) of assets to a trust that, usually due to oversight, were not transferred to the trust during a person's lifetime.


power of attorney
A document that authorizes one person to act on behalf of another. The power can be for general purposes or for a single specified purpose.
See also durable power of attorney.


preferred creditor
A person or company whose claim against another person or company ranks ahead of other creditors. Tax liens, mechanics' liens, and those with a perfected security interest are examples.


preferred stock
Shares of stock that have dividend and liquidation distribution rights ahead of common stock. Such preferred rights have specified limits usually expressed in dollars or pennies per share.


prepaid asset (expense)
A current asset listed on the company balance sheet, such as prepaid insurance. If you pay a one-year insurance premium in advance, you have prepaid twelve months of insurance expense. Each month, a bookkeeping entry is made to charge off one-twelfth of the prepaid amount to the insurance expense account. The remaining unused insurance premium is a company asset, because it could be converted to cash if the policy were canceled.


present value
The value today of a sum to be received at a future date. Today's value is determined by the interest rate and the elapsed time until the sum is to be received. In other words, one dollar received a year from now is worth more than a dollar received five years from now. For example, using 6% (the value for the use of money), one dollar received one year from now is worth 94 cents today, but the value of a dollar received five years from now is only worth about 75 cents today. And if received twenty years from now, that dollar's present value is about 31 cents. The higher the interest rate, the lower the present value for any given future receipt.


price-earnings ratio (P/E ratio)
This ratio compares the current stock price of a corporation to its earnings per share. A stock that is currently selling at $16 and has $1 of earnings per share has a P/E ratio of sixteen. Historically, ratios of sixteen to twenty-five were typical, for stocks, with variations due to the economy, industry variables, and company performance. In recent years, high-tech stocks lured many investors into ignoring traditional standards such as the P/E ratio.


prime interest rate
The interest rate that commercial banks charge their most credit-worthy customers for short-term, unsecured loans. This rate would generally be given to large corporations. The prime rate is used by many banks as the base from which they set rates for other loans.


private mortgage insurance (PMI)
Private mortgage insurance is a financial guaranty that protects lenders against loss in the event that a borrower defaults. It is the reason so many young families today can afford homeownership without waiting half their lives to save the amount required for a down payment.


probate
A process whereby a court validates one's will and oversees the distribution of the assets in accordance with the provisions of the will. Probate is a public event, and assets passing through probate are a matter of public record.


profit margin
Gross profit margin equals sales revenue minus cost of goods sold.
See also gross profit.


proforma (projected) statements
The traditional proforma statements were financial statements based on assumptions of future events in a business. In other words, the income statement and balance sheet would look like this or that if certain events happened. They were prepared by accountants and management to review the financial effects of proposed or estimated transactions.

In more recent times, proforma statements exclude certain expenses which, according to management, misleads investors. Management says that investors can better see how the core of the business is performing if certain expenses are left off the financial statements. Proforma statements should always be compared to financial statements which are prepared under generally accepted accounting principles.


progressive tax
A tax system under which the percentage of tax paid increases as the level of income being taxed increases. For example, the tax rate on up to $20,000 of taxable income is 15%, but the tax rate on $20,000 to $50,000 is 28%. The U.S. tax system is a progressive system.


promissory note
A written promise to pay a certain sum of money by a given date or to make payments at specific dates to another person or company. If the promissory note does not state a rate of interest, the Internal Revenue Service may impute (compute) an interest rate that creates interest income to the payee and an interest expense to the payer.


proof of loss
The submission of adequate information to an insurance company to allow it to determine the amount of money to be paid to the insured for a loss.


proprietorship
See sole proprietorship.


prospectus
Any notice or advertisement that offers to sell any security to a prospective buyer. The securities laws require that a prospectus contain all essential facts about the security and the company selling it.


proxy
A written statement authorizing one person to act on behalf of another, such as for voting one's shares of stock at a corporate shareholder's meeting.


PSC
See personal service corporation.


public accountant (PA)
A designation used in some states for a person who is licensed to provide accounting services to the general public, but who is not a certified public accountant (CPA). In some states, PA is used to designate a Professional Association (Corporation), so you will see firm names such as "Jones and Smith CPAs, PA."


public offering
The sale of securities to the public as opposed to a private offering. Public offerings are regulated by state and federal securities laws.
See also IPO.


pyramid scheme
Pyramid schemes, as currently defined by the Federal Trade Commission (FTC): "generally ignore the marketing and selling of products and services, and concentrate on the commissions you could earn just for recruiting new distributors." Pyramid schemes may or may not involve the sale of products. Some multi-level marketing (MLM) programs fall under this category.
See also Ponzi scheme.
 

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