another. For example, when customer A pays his bill, the employee pockets the money. Before the theft can be detected,
A's account is shown as paid when B pays his bill. The scheme can go on for an extended period by lapping customer
over customer. This theft will show up if the thief is absent from the business for more than just a day or two. This is why
some businesses require employees to take their vacations as scheduled and remain off the premises for the entire
vacation. A proper division of employee duties can help reduce opportunities for employee theft. See also internal control.
last in, first out (LIFO): An inventory pricing method that assumes the last item purchased is the first item sold. If the
cost of merchandise is going up, the higher-cost, newer purchases are charged against sales and produce a lower net
profit. The older, less expensive items are deemed to be on hand at the end of the year and create a lower inventory
valuation. See also first in, first out (FIFO).
LCM (lower cost or market): A basis for valuing certain assets at the lower of original cost or current market value.
lease: A contract that specifies the terms under which the owner of an asset (the lessor) agrees to transfer the right to
use the asset to another party (the lessee).
ledger: The book of accounts into which the summary from the journals are entered. Also, a ledger account is an
individual account that shows all the debits and credits and the ending balance at the end of an accounting period. For
example, the ledger account for cash in bank will show a debit for the summary of all deposits from the cash receipts
journal and a credit for all expenditures from the cash disbursements journal. The resulting balance in the cash in bank
ledger account will be reconciled to the balance on the bank statement.
legal capital: The amount of contributed capital not available for dividends; usually equal to the par or stated value of
outstanding capital stock.
legal entity: Any organization that can function with separate legal existence. An entity such as a corporation,
partnership, trust, etc., that can sue or be sued.
lessee: One who rents (leases) property from another.
lessor: One who rents (leases) property to another. In the case of real estate leases, the lessor is also known as the
landlord.
letter of credit: An authorization by a bank that they will stand behind the performance of a buyer under specified
conditions. This allows a seller to feel free to deliver goods or services to a buyer without concern for the buyer's ability to
pay.
levy: There are several uses for the term levy. Of interest to most taxpayers would be the use to which the IRS puts a
levy. This is a means by which the IRS can force collection of unpaid taxes. The levy can be applied against almost any
asset you have. The most common and easiest to attach are your bank accounts and your wages. The IRS regulations
require a pre-notification to the taxpayer before a levy can be put in force. If you stay in contact with the IRS and work out
a payment schedule for delinquent taxes, you should be able to avoid having a levy against your assets.
liabilities: Obligations measurable in monetary terms that represent amounts owed to creditors, governments,
employees, and other parties.
LIBOR: London Inter-Bank Offer Rate. The interest rate that the banks charge each other for loans. This rate is
applicable to the short-term international interbank market, and applies to very large loans borrowed for anywhere from
one day to five years. This market allows banks with liquidity requirements to borrow quickly from other banks with
surpluses, enabling banks to avoid holding excessively large amounts of their asset base as liquid assets. The LIBOR is
officially fixed once a day by a small group of large London banks, but the rate changes throughout the day. Adjustable
Rate Mortgage (ARMS) are often tied to the LIBOR.
license: The right to perform certain activities, generally granted by a governmental agency.
licensed public accountant (LPA): A designation in some states for public accountants who have met certain licensing
requirements. See also public accountant (PA) and certified public accountant (CPA).
lien : A security interest that attaches to property. Should the property be sold, this gives the government or other
claimant a right to the proceeds in an amount necessary to satisfy the lien. For example, a taxing authority may file a lien
against the property for unpaid real estate taxes. See also mechanic's lien.
life insurance trust: An irrevocable trust established to keep life insurance out of a person's taxable estate.
life annuity: An annuity (series of payments) that terminates when the beneficiary dies.
life tenant: A person entitled to the use of real estate or the income from that real estate for the duration of his or her
life. The ownership rights go to the remainderman on the death of the life tenant.
LIFO (last-in, first-out): An inventory cost flow whereby the last goods purchased are assumed to be the first goods sold
so that the ending inventory consists of the first goods purchased.
like-kind exchange: See Section 1031 and tax-deferred exchange.
limited liability: The legal protection given stockholders whereby they are responsible for the debts and obligations of a
corporation only to the extent of their capital contributions.
limited liability company (LLC): A legal entity that is a hybrid between a corporation and a partnership. The members
(owners) enjoy limited liability as they would with a corporation, but the income of the LLC can be taxed to the members as
if it were a partnership, corporation, or sole proprietorship.
limited partnership: A partnership in which some, but not all, of the partners have limited liability from creditor claims.
There must be at least one general partner in a limited partnership. The limited partners contribute capital and share in
the profits and losses, but they do not take part in running the business.
liquidation: The process of dissolving a business by selling the assets, paying the debts, and distributing the remaining
equity to the owners.
liquidation value: The net value of all the assets of a business that is being liquidated. Contrast this with going-concern
value.
liquidity: A company's ability to meet current obligations with cash or other assets that can be quickly converted to cash.
liquidation value: The net value of all the assets of a business that is being liquidated. Contrast this with going-concern
value.
living trust: A trust created during the lifetime of the one who sets it up. See also testamentary trust.
living will: Not to be confused with a living trust. A living will is a medical directive that spells out what you want to
happen under circumstances when you are unable to speak for yourself, and your death is eminent due to an incurable
medical condition.
load (investments): See front-end load.
long-term capital gain: See capital gain.
long-term investment: An expenditure to acquire a non-operating asset that is expected to increase in value or
generate income for longer than 1 year.
long-term liabilities: Debts or toher obligations that will not be paid within one year.
losses: Costs that provide no benefit to an organization.
loss per share: The amount of net loss related to each share of stock; computed by dividing net loss by a number of
shares of common stock outstanding during the period.
lower cost or market (LCM): A basis for valuing certain assets at the lower of original cost or current market value.
LLC: See limited liability company.
lump-sum distribution: This is the payout of an individual's entire interest in a pension plan. The income tax on the
distribution is determined by several factors, including the age of the recipient, the reason for the distribution, and the
amount and type of contributions to the plan by the individual. If you are facing a lump-sum distribution from your
retirement plan, see us about the tax consequences.
