Accounting Dictionary
A&E can mean either Appropriation & Expense or Analysis & Evaluation. : Có thể được hiểu là Riêng biệt và Chi phí hoặc Phân tích và Ước lượng
A&G is Adminstrative & General. : Quản trị và Tổng quát
A&M is Additions and Maintenance. :Thêm vào và Bảo trì
A&P is an acronym for Administrative and Personnel. Dạng viết tắt của Quản trị và Cá nhân
ABATEMENT, in general, is the reduction or lessening. In law, it is the termination or suspension of a lawsuit. For example, an abatement of taxes is a tax decrease or rebate. : Hạ giá hoặc giảm giá:
ABC see ACTIVITY BASED COSTING. : Xác định chi phí theo PP ABC
ABM see ACTIVITY BASED MANAGEMENT.
ABOVE THE LINE, in accounting, denotes revenue and expense items that enter fully and directly into the calculation of periodic net income, in contrast to below the line items that affect capital accounts directly and net income only indirectly. Được hiểu là Doanh thu và Chi phí được tính toán đầy đủ và chính xác trước thu nhập. Ngược lại có nghĩa là sẽ ảnh hưởng trực tiếp đến Tài khoản vốn và ảnh hưởng gián tiếp doanh thu thuần
ABOVE THE LINE, for the individual, is a term derived from a solid bold line on Form 1040 and 1040A above the line for adjusted gross income. Items above the line prior to coming to adjusted gross income, for example, can include: IRA contributions, half of the self-employment tax, self-employed health insurance deduction, Keogh retirement plan and self-employed SEP deduction, penalty on early withdrawal of savings, and alimony paid. A taxpayer can take deductions above the line and still claim the standard deduction.
ABSORB is to assimilate, transfer or incorporate amounts in an account or a group of accounts in a manner in which the first entity loses its identity and is "absorbed" within the second entity. For example, see ABSORPTION COSTING.
ABSORPTION see ABSORB.
ABSORPTION COSTING is the method under which all manufacturing costs, both variable and fixed, are treated as product costs with non-manufacturing costs, e.g. selling and administrative expenses, being treated as period costs.
ABSORPTION VARIANCE is the variance from budgeted absorption costing of manufactured product. See also ABSORPTION COSTING.
ACAT (Accreditation Council for Accountancy and Taxation) is a national organization established in 1973 as a non-profit independent testing, accrediting and monitoring organization. The Council seeks to identify professionals in independent practice who specialize in providing financial, accounting and taxation services to individuals and small to mid-size businesses. Professionals receive accreditation through examination and/or coursework and maintain accreditation through commitment to a significant program of continuing professional education and adherence to the Council's Code of Ethics and Rules of Professional Conduct.
ACB normally refers to 'adjusted cost base.' : Điều chỉnh chi phí cơ bản
ACCELERATED DEPRECIATION is a method of calculating depreciation with larger amounts in the first year(s). Phương pháp khấu hao nhanh. : Là Phương pháp tính khấu hao với số khấu hao lớn nhất ở năm đầu tiên sử dụng.
ACCEPTANCE is a drawee's promise to pay either a TIME DRAFT or SIGHT DRAFT. Normally, the acceptor signs his/her name after writing "accepted" (or some other words indicating acceptance) on the bill along with the date. That "acceptance" effectively makes the bill a promissory note, i.e. the acceptor is the maker and the drawer is the endorser. Chấp thuận - Thường được ghi trên Hối phiếu trả ngay hoặc trả chậm là sự chấp thuận việc thanh toán khi đến hạn hoặc ngay khi ký chấp nhận.
ACCOMODATION ENDORSEMENT is a) the guarantee given by one legal entity to induce a lender to grant a loan to another legal entity. b) a banking practice where one bank endorses the acceptances of another bank, for a fee, qualifying them for purchase in the acceptance market. : Ký` hậu bảo đảm thanh toán
ACCOUNT is the detailed record of a particular asset, liability, owners' equity, revenue or expense. : Tài khoản : Ghi chép chi tiết của tài sản, Nợ, Vốn chủ sở hữu, doanh thu hoặc chi phí
ACCOUNT AGING usually refers to the methods of tracking past due accounts in accounts receivable based on the dates the charges were incurred. Account aging can also be used in accounts payable, to a lesser degree, to monitor payment history to suppliers. Là Phương pháp theo dõi các TK phải thu dựa trên sự thanh toán hoặc được sử dụng để kiểm soát các khoản đã trả cho nhà cung cấp (TK phải trả)
ACCOUNT ANALYSIS is a way to measure cost behavior. It selects a volume-related cost driver and classifies each account from the accounting records as a fixed or variable cost. The cost accountant then looks at each cost account balance and estimates either the variable cost per unit of cost driver activity or the periodic fixed cost. Phân tích kế toán : là biện pháp đo lường cách ưứg xử của Chi phí : xem xét xem Chi phí phát sinh là Định phí hay Biến phí
ACCOUNTANT'S OPINION is a signed statement regarding the financial status of an entity from an independent public accountant after examination of that entities records and accounts. Báo cáo kế toán trình bày về tình trạng tài chính của một doanh nghiệp từ ý kến của kế toán viên công chứng sau khi đã kiểm tra việc ghi chép kế toán của đơn vị đó.
ACCOUNT DISTRIBUTION is the process by which debits and credits are identified to the correct accounts. : Phân loại tài khoản: là quy trình theo đó nợ và có được xác định chính xác theo các TK:
ACCOUNT GROUP, in accounting, is a designation of a group of accounts of like type (for example: accounts receivable and fixed assets). Nhóm TK kế toán : Ví dụ Nhóm TK phải thu
ACCOUNTING is primarily a system of measurement and reporting of economic events based upon the accounting equation for the purpose of decision making. Generally, when someone says "accounting" they are referring to the department, activity or individuals involved in the application of the accounting equation. Kế toán: Là hệ thống ghi chép do lường và báo cáo các nghiệp vụ kinh tế theo phương trình kế toán nhắm mục đích cung cấp thông tin cho việc ra quyết định
ACCOUNTING CONCEPTS are the assumptions underlying the preparation of financial statements, i.e., the basic assumptions of going concern, accruals, consistency and prudence. Các định nghĩa về kế toán: Các giả định về cách thức trình bày báo cáo tài chính : Tính hoạt động liên tục, dồn tích, nhất quán, thận trọng.
ACCOUNTING CYCLE is the sequence of steps in preparing the financial statements for a given period.
ACCOUNTING DIVERSITY is the recognition that many diverse national and international accounting standards exist in the world. Sự thay đổ kế toán: Là việc ghi nhận sự thay đổi của những chuẩn mực kế toán quốc gia và quốc tế
ACCOUNTING ENTITY ASSUMPTION states that a business is a separate legal entity from the owner. In the accounts the business’ monetary transactions are recorded only. Đơn vị kế toán : Cho rằng Kinh doanh là việc tách rời những nghĩa vụ pháp lý giữa Doanh nghiệp và chủ.
ACCOUNTING EQUATION is a mathematical expression used to describe the relationship between the assets, liabilities and owner's equity of the business model. The basic accounting equation states that assets equal liabilities and owner's equity, but can be modified by operations applied to both sides of the equation, e.g., assets minus liabilities equal owner's equity. Phương trình kế toán : Là mối quan hệ toán học giữa tài sản, nợ và Vốn chủ sở hữu : Có nghĩa là Tài sản = Nợ phải trả + Vốn chủ sở hữu
ACCOUNTING EVENT is when the assets and liabilities of a business increase/decrease or when there are changes in owner's equity. Sự kiện kế toán : là khi tài sản và nợ của một DN tăng lên hoặc giảm đi hoặc có sự thay đổi của Vốn chủ sở hữu.
ACCOUNTING PACKAGE/SOFTWARE, usually, is a commercially available software program or suite that, with little customization, will satisfy the accounting system needs of the purchasing entity. Phân mềm kế toán :
ACCOUNTING PERIOD is the time period for which accounts are prepared, usually one year. Kỳ kế toán
ACCOUNTING RATIO is the result of dividing one financial statement item by another. Ratios help analysts interpret financial statements by focusing on specific relationships.
ACCOUNTING STANDARDS BOARD (ASB) makes, improves, amends and withdraws accounting standards. Many of ASBs specialize in the various fields or sectors of accounting.
ACCOUNTING THEORY tries to describe the role of accounting and is composed of four types of accounting theory: classical inductive theories, income theories, decision usefulness theories, and information economics / agency theories: a. Classical inductive theories are attempts to find the principles on which current accounting processes are based; b. Income theories try to identify the real profit of an organization; c. Decision usefulness theories attempt to describe accounting as a process of providing the relevant information to the relevant decision makers; and, d. The information economics / agency theories of accounting see accounting information as a good to be traded between rational agents each acting in their own self-interest.
ACCOUNTING TIMING DIFFERENCE is the effect that a defered accounting event would have on the financials if taken into consideration e.g., the release of a deferred tax asset to the income statement as a deferred tax expense (ie the reversal of an accounting timing difference).
ACCOUNTS PAYABLE (AP) are trade accounts of businesses representing obligations to pay for goods and services received. : Tài khoản phải trả
ACCOUNTS PAYABLE TO SALES measures the speed with which a company pays vendors relative to sales. Numbers higher than typical industry ratios suggest that the company is using suppliers assets (cash owed) to fund operations.
ACCOUNTS RECEIVABLE is a current asset representing money due for services performed or merchandise sold on credit. – tài khoản phải thu
ACCOUNTS RECEIVABLE LEDGER is the bookkeeping ledger in which all accounts for which cash assets owed to an organization is maintained. Sổ cái TK phải thu
ACCOUNTS RECEIVABLE TURNOVER is the ratio of net credit sales to average accounts receivable, which is a measure of how quickly customers pay their bills.
ACCRETION is the adjustment of the difference between the price of a bond purchased at an original discount and the par value of the bond; or, asset growth through internal growth, expansion or natural causes, e.g. the aging of wine or growth of timber/trees.
ACCRUAL is the recognition of revenue when earned or expenses when incurred regardless of when cash is received or disbursed.
ACCRUAL BASIS OF ACCOUNTING is wherein revenue and expenses are recorded in the period in which they are earned or incurred regardless of whether cash is received or disbursed in that period. This is the accounting basis that generally is required to be used in order to conform to generally accepted accounting principles (GAAP) in preparing financial statements for external users.
ACCRUAL CONCEPT see ACCRUAL BASIS OF ACCOUNTING.
ACCRUED ASSETS are assets from revenues earned but not yet received.
ACCRUED EXPENSES are expenses incurred during an accounting period for which payment is postponed.
ACCRUED INCOME is income earned during a fiscal period but not paid by the end of the period.
ACCRUED INTEREST is interest earned but not paid since the last due date.
ACCRUED INVENTORY functions as a "clearing" account to establish a liability for inventory physically received into the warehouse, but for which a vendor invoice had not yet arrived.
ACCRUED LIABILITY are liabilities which are incurred, but for which payment is not yet made, during a given accounting period. Some examples in a manufacturing environment would be: wages, taxes, suppliers/vendors, etc.
ACCRUED PAYROLL is a liability arising from employees' salary expense that has been incurred but not paid.
ACCRUED REVENUE is the accumulated revenue as they have been recognized over a given period.
ACCUMULATED AMORTIZATION is the cumulative charges against the intangible assets of a company over the expected useful life of the assets.
ACCUMULATED DEPRECIATION is the cumulative charges against the fixed assets of a company for wear and tear or obsolescence.
ACH is Automated Clearing House.
ACID-TEST RATIO is an analysis method used to measure the liquidity of a business by dividing total liquid assets by current liabilities.
ACMA is an acronym for Associate Chartered Management Accountant.
ACQUISITION is one company taking over controlling interest in another company. See also MERGER and POOLING OF INTERESTS.
ACQUISITION COST is the amount, net of both trade and cash discounts, paid for property, plus transportation costs and ancillary costs.
ACTIVITY BASED COSTING (ABC) is a costing system that identifies the various activities performed in a firm and uses multiple cost drivers (non-volume as well as the volume based cost drivers) to assign overhead costs (or indirect costs) to products. ABC recognizes the causal relationship of cost drivers with activities.
ACTIVITY BASED MANAGEMENT (ABM) converts Activity Based Costing (ABC) into a system to manage an organization. Activity Based Management not only focuses on product, service, customer, channel costing, it also emphasizes: cost drivers (root cause analysis), action plans to improve to achieve strategic objectives, and, performance measures for activities and processes.
ACTIVITY DRIVERS, in activity based costing (ABC), activity costs are assigned to outputs using activity drivers. Activity drivers assign activity costs to outputs based on individual outputs’ consumption or demand for activities. For example, a driver may be the number of times an activity is performed (transaction driver) or the length of time an activity is performed (duration driver) see DURATION DRIVERS, INTENSITY DRIVERS, TRANSACTION DRIVERS.
ACTIVITY RATIO is any accounting ratio that measures a firm's ability to convert different accounts within their balance sheets into cash or sales.
ACTUAL COST is the amount paid for an asset; not its retail value, market value or insurance value.
ACTUALS is jargon used when speaking of an actual number experienced through some point in time as opposed to a number that is budgeted or projected into the future, e.g., year-to-date sales, expenses, product produced, etc.
ACTUARIAL METHOD means the method of allocating payments made on a debt between the amount financed and the finance or other charges where the payment is applied first to the accumulated finance or other charges and any remainder is subtracted from, or any deficiency is added to the unpaid balance of the amount financed.
ADDITIONAL PAID IN CAPITAL is the amounts paid for stock in excess of its par value; included are other amounts paid by stockholders and charged to equity accounts other than capital stock.
ADEQUATE DISCLOSURE is sufficient information in footnotes, as well as financial statements, indicative of a firm's financial status.
ADF, in invoicing, is After Deducting Freight.
AD HOCis being concerned with a particular end or purpose, e.g., a ad hoc committee established to handle a specific subject.
ADI, in invoicing, is After Date of Invoice.
ADJUNCT ACCOUNT is an account that accumulates either additions or subtractions to another account. Thus the original account may retain its identity. Examples include premiums on bonds payable, which is a contra account to bonds payable; and accumulated depreciation, which is an offset to the fixed asset.
ADJUSTED BASIS see BASIS.
ADJUSTED BOOK VALUE: Your MBA performs two types of adjusted book value analysis. Tangible Book Value and Economic Book Value (also known as Book Value at Market).
·
Tangible Book
Value is different than book value in that it deducts from asset value
intangible assets, which are assets that are not hard (e.g., goodwill, patents,
capitalized start-up expenses and deferred financing costs).
·
Economic Book
Value allows for a book value analysis that adjusts the assets to their market
value. This valuation allows valuation of goodwill, real estate, inventories
and other assets at their market value.
ADJUSTING ENTRIES are special accounting entries that must be made
when you close the books at the end of an accounting period. Adjusting entries
are necessary to update your accounts for items that are not recorded in your
daily transactions.ADJUSTMENT can be either: 1. an increase or decrease to an account resulting from ADJUSTING ENTRIES; or, 2. changing an account balance due to some event, e.g., adjustment of an account due to the return of merchandise for credit.
ADMINISTRATIVE/ADMINISTRATION COST see INDIRECT COST.
ADVERSE OPINION is expressed if the basis of accounting is unacceptable and distorts the financial reporting of the corporation. If auditors discover circumstances during the course of the audit that make them question whether they can issue an unqualified opinion, they should always discuss those circumstances with the client before issuing the opinion, in order to determine whether it is possible to rectify the problem.
ADVISING BANK is a bank in the exporter's country handling a letter of credit.
AFE, dependent upon usage, is an acronym for Authorization for Expenditure or Average Funds Employed.
AFFILIATE is a relationship between two companies when one company owns substantial interest, but less than a majority of the voting stock of another company, or when two companies are both subsidiaries of a third company.
AGENCY is the relationship between a principal and an agent wherein the agent is authorized to represent the principal in certain transactions.
AGENCY COSTS is the incremental costs of having an Agent make decisions for a principal.
AGGREGATE is the sum or total.
AGGREGATE THEORY is a theory of partnership taxation in which a partnership is considered as an aggregate of individual co-owners who have bound themselves together with the intention of sharing gains and loses; under this theory, the partnership itself has no existence separate and apart from its members.
AGI (Annual Gross Income) is annualized total income prior to exclusions and deductions.
AGING see ACCOUNT AGING.
AGING OF RECEIVABLES see ACCOUNT AGING.
AGREED UPON PROCEDURES are used when a client retains an external auditor to perform specific tests and procedures and report on the results. Examples might include special reviews of loan portfolio or internal control systems. In performing agreed-upon procedures, the auditor provides no opinion, certification, or assurance that the assertions being made in the financial statements are free from material misstatement. The users of reports based on agreed-upon procedures must draw their own conclusions on the results of the tests reported. For example, an external auditor could be asked to look at a certain number of corporation loan files and document which of the required forms are in the files. The auditor would report on the selection and the results of the procedures performed but would not provide a formal opinion with conclusions drawn from the results of the procedures.
AICPA is the American Institute [of] Certified Public Accountants.
AIR WAYBILL is a bill of lading and contract between the shipper and the airline for delivery of goods to a specified location, and sometimes with specified delivery date/time. Non-negotiable, but serves as receipt from the airline to prove that goods were received.
ALLOCATE is to distribute according to a plan or set apart for a special purpose. Examples: a. spread a cost over two or more accounting periods; b. charge a cost or revenue to a number of departments, products, processes or activities on a rational basis.
ALLOCATION is the act of distributing by allotting or apportioning; distribution according to a plan, e.g., allocating costs is the assignment of costs to departments or products over various time periods, products, operations, or investments. See ALLOCATE.
ALLONGE is a piece of paper attached to a negotiable instrument to allow space for writing endorsements.
ALL OTHER CURRENT ASSETS relates to any other current assets. Does not include prepaid items.
ALL OTHER CURRENT LIABILITIES includes any other current liabilities, including bank overdrafts and accrued expenses.
ALL OTHER EXPENSES (NET) includes miscellaneous other income and expenses (net), such as interest expense, miscellaneous expenses not included in general and administrative expenses, netted against recoveries, interest income, dividends received and miscellaneous income.
ALL OTHER NON-CURRENT ASSETS are prepaid items and any other non-current assets.
ALL OTHER NON-CURRENT LIABILITIES means any other non-current liabilities, including subordinated debt, and liability reserves.
ALLOWANCE, within Sales, is a concession granted to customers for unsatisfactory goods or services. Reduces sales because a portion of the sale has not been earned.
ALLOWANCE FOR BAD DEBTS is an account established to record a subtraction from ACCOUNTS RECEIVABLE, to allow for those accounts that will not be paid.
ALLOWANCE FOR DOUBTFUL ACCOUNTS see ALLOWANCE FOR BAD DEBTS.
ALLOWANCE FOR DOUBTFUL DEBTS see ALLOWANCE FOR BAD DEBTS.
ALLOWANCE FOR NOTES RECEIVABLE LOSSES is an account maintained at a level considered adequate to provide for probable losses. The provision is increased by amounts charged to earnings and reduced by net charge-offs. The level of allowance is based on management’s evaluation of the portfolio, which takes into account prevailing and anticipated business and economic conditions and the net realizable value of securities held.
ALLOWANCE FOR UNCOLLECTIBLE ACCOUNTS see ALLOWANCE FOR BAD DEBTS.
ALLOWANCE METHOD is the accepted way to account for bad debt. Bad debt expense may be based on the percent of credit sales for the period, an aging of the accounts receivable balance at the end of the period, or some other method, e.g., percent of accounts receivable.
ALPHA is the measurement of returns from an investment in excess of market returns. It represents the amount expected from fundamental causes, e.g. the growth rate in earnings per share. This contrasts with BETA, which is a measure of risk or volatility.
ALTERNATE PAYEE ENDORSEMENT, normally, it is when one payee endorses a draft over to another entity, then the new or alternate payee endorses the draft near the original payees endorsement (signature).
ALTMAN, EDWARD developed the "ALTMAN Z-SCORE" by examining 85 manufacturing companies. Later, additional "Z-Scores" were developed for private manufacturing companies (Z-Score - Model A) and another for general/service firms (Z-Score - Model B). VentureLine selects the "Z-Score" appropriate for each firm based upon the questionnaire input from the listing company. A "Z-Score" is only as valid as the data from which it was derived i.e. if a company has altered or falsified their financial records/books, a "Z-Score" derived from those "cooked books" is of highly suspect value.
- ORIGINAL Z-SCORE (For Public Manufacturer) If the Z-Score is 3.0 or above - banruptcy is not likely. If the Z-Score is 1.8 or less - bankruptcy is likely. A score between 1.8 and 3.0 is the gray area. Probabilities of bankruptcy within the above ranges are 95% for one year and 70% within two years. Obviously a higher Z-Score is desirable.
- MODEL A Z-SCORE (For Private Manufacturer) Model A is appropriated for a private manufacturing firm. Model A should not be applied to other companies. A Z-Score of 2.90 or above indicates that bankruptcy in not likely, buyt a Z-Score of 1.23 or below is a strong indicator that bankruptcy is likely. Probabilities of bankruptcy within the above ranges are 95% for one year and 70% within two years. Obviously a higher Z-Score is desirable.
- MODEL B Z-SCORE (For Private General Firm) Model B Z-Score is appropriate for a private general non-manufacturing firm. A Z-Score of 2.60 or above indicates that bankruptcy in not likely, buyt a Z-Score of 1.10 or below is a strong indicator that bankruptcy is likely. Probabilities of bankruptcy within the above ranges are 95% for one year and 70% within two years. A Z-Score between the two is the gray area. Obviously a higher Z-Score is desirable.
- If the Z-Score is 3.0 or above - bankruptcy is not likely.
- If the Z-Score is 1.8 or less - bankruptcy is likely.
- A Z-Score between 1.8 and 3.0 is the gray area, i.e., a high degree of caution should be used.
AMALGAMATION is a consolidation or merger, as of several corporations. In business, the distinction being that the surviving entity incorporates the asset base of others into its base.
AMORTIZATION 1. is the gradual reduction of a debt by means of equal periodic payments sufficient to meet current interest and liquidate the debt at maturity. When the debt involves real property, often the periodic payments include a sum sufficient to pay taxes and hazard insurance on the property. 2. is the process of spreading the cost of an intangible asset over the expected useful life of the asset. For example: a company pays $100,000 for a patent, they amortize the cost over the 16 year useful life of the patent. 3. the deduction of capital expenses over a specific period of time. Similar to depreciation, it is a method of measuring the "consumption" of the value of long-term assets like equipment or buildings.
ANGEL INVESTOR is a private wealthy individual that has no association with a venture capital firm, investment fund, etc. The "angel" invests his/her private money into what he/she believes to be promising opportunities, i.e., normally startup companies. Sometimes two or more "angels" will jointly invest into opportunitites to spread the risk.
ANNUALIZE is a statistical technique whereby figures covering a period of less than one year are extended to cover a 12-month period. The technique, to be accurate, must take seasonal variations into consideration.
ANNUAL REPORT is the requirement for all public companies to file an annual report with the Securities and Exchange Commission detailing the preceding year's financial results and plans for the upcoming year. Its regulatory version is called "Form 10 K." The report contains financial information concerning a company's assets, liabilities, earnings, profits, and other year-end statistics. The annual report is also the most widely-read shareholder communication.
ANNUITY, in finance, is a series of fixed payments, usually over a fixed number of years; or for the lifetime of a person, in which case it would be called a life-contingent annuity or simply life annuity.
ANOMALY, generally, is a deviation from the common rule. It is an irregularity that is difficult to explain using existing rules or theory. In securities, it is an unexplained or unexpected price or rate relationship that seems to offer an opportunity for an arbitrage-type profit, although not typically without risk. Examples include the tendency of small stocks to outperform large stocks, of stocks with low price-to-book value ratios to outperform stocks with high price-to-book value ratios, and of discount currency forward contracts to outperform premium currency forward contracts.
AP is Accounts Payable.
APIC is an acronym for Additional Paid-In-Capital (finance/business).
APPLIED RESEARCH is designed to solve practical problems of the modern world, rather than to acquire knowledge for knowledge's sake.
APPORTION is to divide and share out according to a plan.
APPRECIATION is the increase in the value of an asset in excess of its depreciable cost, which is due to economic, and other conditions, as distinguished from increases in value due to improvements or additions made to it.
APPROPRIATE / APPROPRIATED / APPROPRIATION is distribution of net income to various accounts and / or the allocation of retained earnings for a designated purpose, e.g. plant expansion.
AR is Accounts Receivable.
ARBITRAGE is the movements of funds to take advantage of differences in exchange or interest rates; such movements quickly eliminate any such differences.
ARGUMENT IN ACCOUNTING usually revolves around the premise that characterizes fair values of assets as being more relevant but less reliable than their historical costs, with fair value being ultimately more informative only if its increased relevance outweighs its reduced reliability.
ARM’S LENGTH TRANSACTION is a transaction that is conducted as though the parties were unrelated, thereby avoiding any semblance of conflict of interest.
ARR is an acronym for Accounting Rate of Return.
ARTICLES OF INCORPORATION is the primary legal document of a corporation; they serve as a corporation's constitution. The articles are filed with the state government to begin corporate existence. The articles contain basic information on the corporation as required by state law.
ARTICLES OF PARTNERSHIP is the contract creating a partnership.
ARTICULATION, in business, is the shape or manner in which things come together and a connection is made. In the spoken word, it is expressing in coherent verbal form.
ASB see ACCOUNTING STANDARDS BOARD.
ASEAN (Association of Southeast Asian Nations) is a trading block of countries in
AS-IS CONDITION is the transfer of title to a property in an existing condition with no warranties or representations.
ASK PRICE, in the context of the over-the-counter market, the term "ask" refers to the lowest price at which a market maker will sell a specified number of shares of a stock at any given time. The term "bid" refers to the highest price a market maker will pay to purchase the stock. The ask price (also known as the "offer" price) will almost always be higher than the bid price. Market makers make money on the difference between the bid price and the ask price. That difference is called the "spread".
ASSESSED VALUE is the estimated value of property used for tax purposes.
ASSESSMENT is a. proportionate share of a shared expense; or, b. amount of tax or other levied special payment due to a governmental municipality or association.
ASSET is anything owned by an individual or a business, which has commercial or exchange value. Assets may consist of specific property or claims against others, in contrast to obligations due others. (See also Liabilities).
ASSET AVAILABILITY is the stated condition or availability of an asset for usability. The subject asset is not available if it is already in use, at capacity, undergoing maintenance, broken, etc.
ASSET EARNING POWER is a common profitability measure used to determine the profitability of a business by taking its total earning before taxes and dividing that by total assets.
ASSET REVALUATION RESERVE is an accounting concept and represents a reassessment of the value of a capital asset as at a particular date. The reserve is considered a category of the equity of the entity. An asset is originally recorded in the accounts at its cost and depreciated periodically over its estimated useful life as a measure of the amount of the asset's value consumed in that period. In practice, the actual useful life of an asset can be miscalculated or an event can cause a change to the useful life. Consequently, assets occasionally need to be revalued in order to reflect a more close approximation to their "worth" in the accounts. When the asset is revalued, the offsetting entry (in a double entry accounting system) would be either made to the profit or loss accounts or to the equity of the entity.
ASSET REVERSION is asset recovery by the sponsoring employer through termination of a defined benefit pension fund and/or of assets in excess of amounts required to pay accrued benefits of a pension fund. In the
ASSET SALE is the sale of certain named assets of a corporation, partnership or sole proprietorship. Usually the seller retains ownership of the cash and cash equivalents (such as Accounts Receivable) and the liabilities of the entity. The seller then will pay the liabilities with the cash, any down payment and the cash equivalents as they become cash. Assets named are typically trade name, trade fixtures, inventory, leasehold rights, telephone number rights and goodwill. Assets sold can be tangible or intangible.
ASSETS HELD FOR SALE are those assets, primarily long-term assets, that an entity wishes to dispose of or liquidate through sale to others.
ASSET TURNOVER RATIO is a general measure of a firm's ability to generate sales in relation to total assets. It should be used only to compare firms within specific industry groups and in conjunction with other operating ratios to determine the effective employment of assets.
ASSIGNED VALUE is a value that serves as an agreed-upon reference for comparison; normally derived from or based upon experimental work of some national or international organization.
ASSOCIATE, in business, is a person brought together with a company or another person into a relationship in any of various intangible ways.
ASSUMPTION, generally, is one or more beliefs or unconfirmed facts that contribute to a conclusion. Specifically, it is the act of taking on the responsibility or assuming the liabilities of another.
ASSURANCE has been defined by the American Institute of Certified Public Accountants (AICPA) as "Independent Professional Services that improve information quality or its context". Such services are very broad and could include assessments of various industries, e.g., Internet security or quality of health facilities.
ATA (Accredited Tax Advisor), in the US, is a national credential conferred by Accreditation Council for Accountancy and Taxation to professionals who handle sophisticated tax planning issues, including ownership of closely held businesses, qualified retirement plans and complicated estates.
ATP is an acronym for After Tax Profit, Accredited Tax Preparer, and possibly more.
ATP (Accredited Tax Preparer), in the US, is a national credential conferred by Accreditation Council for Accountancy and Taxation to professionals who have a thorough knowledge behind the existing tax code and tax preparation of individuals, corporate and partnership tax returns.
ATTEST is to authenticate, affirm to be true, genuine, or correct, as in an official capacity.
ATTRITION a reduction in numbers usually as a result of resignation, retirement, or death.
AUDIT is the inspection of the accounting records and procedures of a business, government unit, or other reporting entity by a trained accountant for the purpose of verifying the accuracy and completeness of the records. It could be conducted by a member of the organization (internal audit) or by an outsider (independent audit). A CPA audit determines the overall validity of financial statements. A tax audit (IRS in the
AUDIT BUREAU OF CIRCULATION (ABC) is a third-party organization that verifies the circulation of print media through periodic audits.
AUDIT COMMITTEE, in a larger or more sophisticated corporation, the board may find it useful to appoint an audit committee whose oversight extends not only to external audits, but also to internal audits, internal controls, and external reporting. Ideally, an audit committee is composed of three to five non-management directors and, as needed, outsiders with accounting and financial expertise. In a smaller corporation the audit committee may be a single director with financial expertise and audit experience who takes the lead in exercising the board's audit oversight responsibility.
AUDIT EVIDENCE includes written and electronic information (such as checks, records of electronic fund transfers, invoices, contracts, and other information) that permits the auditor to reach conclusions through reasoning.
AUDIT FAILURE is an Instance where the auditor said that the financial statements were fairly stated when in fact, they were not.
AUDITING STANDARDS provide minimum guidance for the auditor that helps determine the extent of audit steps and procedures that should be applied to fulfill the audit objective. They are the criteria or yardsticks against which the quality of the audit results are evaluated.
AUDIT OPINION LETTER is a signed representation by an auditor as to the reliability and fairness of a set of financial statements. It is usually presented at the beginning of an audit report.
AUDITOR is an accountant usually certified by a national professional association of accountants, if one exists in the corporation’s country, or certified by another country's recognized national association of accountants. Corporations will often work with both internal auditors and external auditors.
AUDIT PLAN/PLANNING is developing an overall strategy for the expected conduct and scope of the audit. The nature, extent, and timing of planning varies with the size and complexity of the entity, experience with the entity, and knowledge of the entity's business.
AUDIT REPORT is a signed, written document which presents the purpose, scope, and results of the audit. Results of the audit may include findings, conclusions (opinions), and recommendations.
AUDIT RISK is a combination of the risk that material errors will occur in the accounting process and the risk the errors will not be discovered by audit tests. Audit risk includes uncertainties due to sampling (sampling risk) and to other factors (non-sampling risk).
AUDIT SCHEDULES are the information formats developed by the external auditors to guide the corporation in the preparation of particular information presented in a particular manner that facilitates the audit. These should always be completed by the corporation prior to the start of the audit.
AUDIT SCOPE refers to the activities covered by an internal audit. Audit scope includes, where appropriate: audit objectives; nature and extent of auditing procedures performed; Time period audited; and related activities not audited in order to delineate the boundaries of the audit.
AUDIT STRATEGY is a game plan to attack audit issues before they are raised. Reasons and justifications for all positions must be understood and the foundation laid for taking the position.
AUTHORIZATION OF STOCK is the provision in a corporate charter giving permission to issue stock.
AUTHORIZATION SCHEDULE is the guideline under which the subject activity is controlled and authorized. For example, expenditure spending may be controlled by amounts and the managerial level required authorizing or approving a preset trigger amount. As the amount increases over certain preset levels, higher managerial authority is required for approval.
AUTHORIZED CAPITAL STOCK is the maximum number of shares of common stock that can be issued under a company's Articles of Incorporation. Issued shares are normally less than the number of authorized shares.
AUTHORIZED STOCK see AUTHORIZED CAPITAL STOCK.
AUXILIARY JOURNAL is a journal in which accounting information is stored both before and after the transfer to the General Ledger.
AVAILABLE FOR SALE is a term that means exactly what is says, i.e. an asset is available for purchase and transfer of ownership upon reaching an agreed upon price.
AVAL is a term meaning inseparable from the financial instrument. This gives a guarantee and is abstracted from the performance of the underlying trade contract: Article 31 of the 1930 Geneva Convention of the Bills Of Exchange states that the aval can be written on the bill itself or on an allonge.
AVALIZOR is an institution or person who gives an aval.
AVERAGE AGE OF INVENTORY is calculated by the formula: 365 / inventory turnover.
AVERAGE COST is total cost for all units bought (or produced) divided by the number of units.
AVERAGE COST METHOD is using a weighted average cost for items in inventory rather than actual cost for each specific item.
AVERAGE SETTLEMENT PERIOD is calculated:
For Debtors = Trade Debtors X 365 days / Credit Sales
For Creditors = Trade Creditors X 365 days / Credit Purchases.
AVOIDABLE COST is the amount of expense that would not occur if a particular decision were to be implemented (e.g., if an employee is laid off at a company that is self-insured for unemployment compensation, the avoidable cost is total direct salary less payments for unemployment benefits plus savings in employee benefits).
BACKDOOR LISTING is a technique used by a company which failed to get listed on an exchange, whereby the company acquires and merges with a company already listed on that exchange.
BACKCHARGE is to charge a person or a firm an amount of money in order to make adjustments for a previous transaction.
BACKLOG is value of unfilled orders placed with a manufacturing company. Whether a firm's backlog is rising or falling is a clue to its future sales and earnings.
BAD DEBT is an open account balance or loan receivable that has proven to be uncollectible and is written off.
BALANCED SCORECARD (BSC) is a strategic management system based upon measuring key performance indicators across all aspects and areas of an enterprise: Financial, Customer, Internal Process, and Learning and Growth.
BALANCE OF PAYMENTS / BALANCE OF TRADE is the difference between a country's total export dollar value and its total import dollar value, generally or with respect to a particular trading partner. A positive balance means a net inflow of capital, while a negative means capital flows out of the country.
BALANCE SHEET is an itemized statement that lists the total assets and the total liabilities of a given business to portray its net worth at a given moment of time. The amounts shown on a balance sheet are generally the historic cost of items and not their current values.
BALANCE SHEET GEARING is the ratio of interest-bearing debt to equity.
BALLOON PAYMENT is a final loan payment that is considerably higher than prior regular payments, in order to pay off the loan.
BANCASSURANCE is a general term describing the broader financial services activities of banks and building societies, in particular their ‘insurance company’ activities.
BANK COLLECTION is the collection of a check by the bank on behalf of a depositor.
BANK GUARANTEE is an irrevocable commitment by a bank to pay a specified sum of money in the event that the party requesting the guarantee fails to perform the promise or discharge the liability to a third person in case of the requestor's default.
BANK RECONCILIATION is the verification of a bank statement balance and the depositor’s checkbook balance.
BANK STATEMENT is a statement reporting all transactions in the accounts held by the account holder.
BANKRUPTCY is a state of insolvency of an organization or individual, i.e. an inability to pay debts. In the
A) Chapter 7 is involuntary liquidation forced by creditor(s). Some companies are so far in debt that they can't continue their business operations. They are likely to "liquidate" and are forced to file under Chapter 7. The courts take over and administers through a court appointed trustee. Their assets are sold for cash by a court appointed trustee. Administrative and legal expenses are paid first, and the remainder goes to creditors;
B) Chapter 11 is voluntary by the debtor. Unless the court rules otherwise, the debtor stays in control of the enterprise. The U.S. Trustee, the bankruptcy arm of the Justice Department, will appoint one or more committees to represent the interests of creditors and stockholders in working with the company to develop a plan of reorganization to get out of debt.; and,
C) Chapter 13 bankruptcy, a debtor proposes a 3-5 year repayment plan to the creditors offering to pay off all or part of the debts from the debtors' future income. The amount to be repaid is determined by several factors including the debtors' disposable income. To file under this chapter you must have a "regular source of income" and have some disposable income. Like in a Chapter 7, corporations and partnerships may not file under this chapter.
BARRIERS TO ENTRY are obstacles to the entry of new firms into a market. Barriers to entry may take various forms. They may be technical barriers, legal barriers or barriers that arise from strong branding of the product.
BARS is an acronym for Base Accounts Receivable System.
BARTER SYSTEM see TRADE EXCHANGE.
BASE CAPITAL includes (1) shares that (a) are non-cumulative, non-retractable, non-redeemable and, if convertible, are only convertible into common shares, and (b) have been issued and paid for; base capital also includes (2) contributed surplus, and (3) retained earnings;
BASIC EARNINGS POWER (BEP) is useful for comparing firms in different tax situations and with different degrees of financial leverage. This ratio is often used as a measure of the effectiveness of operations. Basic Earning Power measures the basic profitability of Assets because it excludes consideration of interest and tax. This ratio should be examined in conjunction with turnover ratios to help pinpoint potential problems regarding asset management.
BASIC NET INCOME PER SHARE is always reported as net income per share on an undiluted basis. The calculation of diluted net income per share includes the effect of common stock equivalents such as outstanding stock options, while the calculation of basic net income per share does not.
BASIC TENETS OF ACCOUNTING are four in number: 1. Assets = Liabilities + Owner's Equity, 2. Debits = Credits, 3. Assets are on the left (debit side), and, 4. Liabilities and Equity are on the right (credit side).
BASIS, generally, is that figure or value that is the starting point in computing gain or loss, depreciation, depletion, and amortization of a company. Specifically, it is the financial interest that the Internal Revenue Service attributes to an owner of an investment property for the purpose of determining annual depreciation and gain or loss on the sale of the asset. If a property was acquired by purchase, the owner's basis is the cost of the property plus the value of any capital expenditures for improvements to the property, minus any depreciation allowable or actually taken. This new basis is called the ADJUSTED BASIS.
BASIS, in investments, is the cost or book value of an investment. The gain or loss on an investment is the sale price less the basis. Basis is often called "cost basis."
BASIS POINTS is 0.01% in yield. For example, in increasing from 5.00% to 5.05%, the yield increases by five basis points
BATCHING, in accounting, is the gathering and organizing of incoming invoices prior to processing.
BAY, in business / accounting, means Buy Another Yearly.
BBA can mean: Bachelor of Business Administration, Balanced Budget Act of 1997, Budget Activity Account, Budget By Account, British Bankers Association, Black Business Association, etc.
BCF is an acronym for Broadcast Cash Flow.
BCL is an acronym for, among others, Bank Comfort Letter or Bachelor of Canon/Civil Law.
BEHAVIOURAL ACCOUNTING is the explanation and prediction of human behavior in all possible accounting contexts, e.g., adequacy of disclosure, usefulness of financial statement data, attitudes about corporate reporting practices, materiality judgements, and decision effects of alternative accounting procedures.
BELOW THE LINE, in accounting, denotes credits or debits affecting balance sheet accounts rather than the income statement. Extraordinary items may also appear below the net profit line in the income statement, but accounting standards-setters have increasingly favored reflecting most such items in periodic net income.
BENCHMARK is a study to compare actual performance to a standard of typical competence; or, a standard for the basis of comparison as being above, below or comparable to.
BENEFICIAL OWNER is the person who enjoys the benefits of ownership even though title is in another name (often used in risk arbitrage).
BENEFICIARY is a person who benefits from the terms of a trust, pension or provident fund, or other deferred income plan, or an insurance policy. In banking, it is the person in whose favor a letter of credit is issued or a draft is drawn.
BEST PRACTICES are the generally understood operational characteristics of corporations which have been successful in terms of high repayment rates, significant outreach, and progress towards surplus generation.
BETA, in securitites, is a statistical measurement correlating a stock's price change with the movement of the stock market. The beta is an indicator or statistical measure of the relative volatility of a stock, fund, or other security in comparison with the market as a whole. The beta for the market is 1.00. Stocks with betas above 1.0 are more responsive to the market, but are also more risky investments. Stocks with a beta below 1.0 tend to move in the opposite direction of the market. For example, if the market moves 10%, a stock with a beta of 3.00 will move 30%; a stock with a beta of .5 will move 5%.
BID PRICE see ASK PRICE.
BIG BATH is a business strategy in which a company manipulates its income statement to make poor results look even worse. Strategy being that the following year will show significant improvement. Big bath is sometimes employed by new CEOs to make their first years results more impressive by employing big bath accounting to prior year results.
BIG 4 usually refers to the largest accounting firms: Deloitte & Touche, Ernst and Young, KPMG, and PricewaterhouseCoopers.
BILL is a : to enter in an accounting system : prepare a bill of (charges) b : to submit a bill of charges to c : to enter (as freight) in a waybill d : to issue a bill of lading to or for; e.g., "billable expenses" are those expenses for which reimbursement invoices are issued.
BILL AND HOLD see
BILL AND HOLD INVENTORY see
BILLINGS IN EXCESS OF COSTS see COST IN EXCESS OF BILLINGS.
BILL OF EXCHANGE see DRAFT.
BILL OF LADING is the contract between the owner of the goods and the cargo carrier to move the goods to a specified destination. A clean bill of lading is issued by the carrier verifying receipt of the merchandise in apparent good condition (without visually apparent damage or defect). Bills of lading can sometimes be made to cover the whole trip, or separate bills of lading can be prepared for each carrier. Ocean shipments generally require two, an Inland Bill of Lading covering land transportation to the port and an Ocean Bill of Lading covering the ship portion. Bills of lading are negotiable while cargo is in transit.
BILL OF MATERIALS (BOM) is a listing of all the assemblies, sub-assemblies, parts, and raw materials that are needed to produce one unit of a finished product. Each finished product has its own bill of materials.
BILLS PURCHASED, in trade finance, allows a seller to obtain financing and receive immediate funds in exchange for a sales document not drawn under a letter of credit. The bank will send the sales documents to the buyer's bank on behalf of the seller.
BLACK MARKETS are created when buyers and sellers meet to negotiate the exchange of a prohibited or illegal good. More generally, it is any unofficial market in which prices are inordinately high.
BLANKET AUTHORIZATION is direct authority to act without having to gain approval for each action. For example: "Blanket authorization was given to him for all his business travel".
BLIND TRUST is a trust where assets are not disclosed to their owner.
BLUE SKY LAW is a law providing for state regulation and supervision of the issuance of investment securities.
BMR, among others, is Base Mortgage Rate.
BOM see BILL OF MATERIALS.
BONA FIDE GUARANTY covers a specific element of a secured transaction, for example, the integrity of receivables or the accuracy of inventory count.
BOND is a commonly used form of long term debt.
BOND COVENANT are agreements within a bond that can either be negative or positive in the view of the bondholder, e.g., a negative bond covenant is a bond covenant that prevents certain activities unless agreed to by the bondholders.
BONDED is to: a. secure payment of duties and taxes on (goods) by giving a bond; or, b. convert into a debt secured by bonds; or, c. provide a bond for or cause to provide such a bond (e.g., to bond an employee) that guarantees any monetary loss caused by intentional acts by the bonded employee.
BONDED WAREHOUSE is a warehouse authorized by customs officials for the storage of goods on which payment of duty is deferred until the goods are removed.
BOND DISCOUNT is the excess of a bond face value over issued price.
BOND FUND see GLOBAL MUTUAL FUND.
BOND INDENTURE is the title specifying all the obligations of the issuing company to the bondholder.
BONDING is generally used by service companies as a guarantee to their clients that they have the necessary ability and financial tracking to meet their obligations. Bonds are also used to guarantee payment of duty for U.S. Customs entry.
BOND PREMIUM is the excess of the issue price over the face value of the bond.
BOND REFERENDUM see REFERENDUM.
BOND SINKING FUND is a provision to repay a bond.
BONUS is remuneration over and above regular salary.
BOOK(S) when used as a noun refers to journals or ledgers (for example: cash book). When used a verb it refers to the recording of an entry (for example: to book the sale).
BOOKBUILD is a particular way of conducting a float where the price at which shares are sold is not fixed, but rather is determined following a process in which interested investors bid for shares. This is quite a common way of determining the price paid for shares by institutional investors (Funds Managers).
BOOK COST, normally, is the cost at the time an asset is purchased or realized, i.e. the total amount paid to acquire an asset.
BOOK INCOME is the income reported within the financial statements of the taxable entity, i.e., taxable income normally is not aligned with the financial income (book income) reported within financial statements
BOOKING, in import / export, is an arrangement with a shipping company to load and carry a shipment.
BOOK INVENTORY is the acquistion cost of all inventory less liabilities associated wth the inventory. See BOOK VALUE.
BOOKKEEPING is the recording of business transactions.
BOOK OF ACCOUNTS see LEDGER.
BOOKS OF ACCOUNT are the financial records of a business. Usually refers to the lowest level of recorded data, before summaries are made.
BOOKS OF RECORD are all mandatory entries into those documents that track the activity, events, or decisions pertaining to the subject for which the records are maintained, e.g., board of director minutes, births or deaths, and marriage licenses.
BOOK-TO-MARKET is the ratio of the firm's book equity to market equity.
BOOK VALUE is an accounting term which usually refers to a business' historical cost of assets less liabilities. The book value of a stock is determined from a company's records by adding all assets (generally excluding such intangibles as goodwill), then deducting all debts and other liabilities, plus the liquidation price of any preferred stock issued. The sum arrived at is divided by the number of common shares outstanding and the result is the book value per common share. Book value of the assets of a company may have little or no significant relationship to market value.
- Tangible Book Value is different than Book Value in that it deducts from asset value intangible assets, which are assets that are not hard (e.g., goodwill, patents, capitalized start-up expenses and deferred financing costs).
- Economic Book Value allows for a Book Value analysis that adjusts the assets to their market value. This valuation allows valuation of goodwill, real estate, inventories and other assets at their market value.
BOTTOM LINE, in accounting/finance, is specifically net income after taxes. In general, it is an expression as to the end results of something, e.g. the net worth of a corporation on a balance sheet, sales generated from a marketing campaign, or final decision on most any subject (Often said: “give me the bottom line”).
BOTTOM UP is a concept of analyzing a subject, such as costs or revenue, starting from the lowest level working towards the top.
BOUNCED CHECK is a check written for an amount exceeding the checking account balance that is subsequently rejected for payment due to insufficient funds.
BOY is Beginning Of Year.
BR could be Backward Reporting or Bad Register.
BRAND IMAGE is the view held by consumers about a particular brand of good or service. The stronger the brand image the more inelastic the demand for the product is likely to be.
BRAND LOYALTY is a situation when a consumer is reluctant to switch from consumption of a favored good. The consumer is "loyal" to the brand.
BREACH OF CONTRACT is the failure to perform provisions of a contract.
BREAK-EVEN ANALYSIS is an analysis method used to determine the number of jobs or products that need to be sold to reach a break-even point in a business.
BREAK-EVEN EQUATION is the equation that determines BREAK-EVEN POINT. Let p = unit selling price, v = unit variable cost, FC = total fixed costs, x = sales in units. The equation: px = vx + FC.
BREAK-EVEN POINT is the volume point at which revenues and costs are equal; a combination of sales and costs that will yield a no profit/no loss operation.
BREAK-EVEN SALESsee BREAK-EVEN POINT.
BRIDGE LOAN (BRIDGING LOAN) is an equity loan secured to solve short-term financing problem.
BROKERAGE, dependent upon usage, is the business of a broker; charges a fee to arrange a contract between two parties, or, the place where a broker conducts his/her business.
BUDGET is an itemized listing of the amount of all estimated revenue which a given business anticipates receiving, along with a listing of the amount of all estimated costs and expenses that will be incurred in obtaining the above mentioned income during a given period of time. A budget is typically for one business cycle, such as a year, or for several cycles (such as a five year capital budget). Of the many kinds of budgets, a CASH BUDGET shows CASH FLOW, an EXPENSE BUDGET lists expected payments of money, and a CAPITAL BUDGET shows the anticipated payments for CAPITAL ASSETS. See FORECAST, PROJECTION.
BUDGETARY ACCOUNTING, contrary to financial accounting, looks forward: it measures the cost of planned acquisitions and the use of economic resources in the future.
BUDGETARY DEFICIT occurs when expenditures are greater than revenues.
BUDGET CONTROL is actions carried out according to a budget plan. Through the use of a budget as a standard, an organization ensures that managers are implementing its plans and objectives. Their actual performance is measured against budgeted performance.
BUDGET PERFORMANCE REPORT is the comparison of planned budget and actual performance.
BUFFER is anything that stands between two other things. For example, an inventory buffer would be additional inventory over and above committed or planned inventory. The inventory buffer will act as an inventory reserve to ensure that sufficient inventory is available when and if required, i.e., the buffer inventory stands between committed inventory and 'out-of-stock' status.
BURDEN RATE, when referring to personnel burden, is the sum of employer costs over and above salaries (including employer taxes, benefits, etc.). When referring to factory or manufacturing see OVERHEAD.
BURN RATE is the rate at which a new company uses up its venture capital to finance overhead before generating positive cash flow from operations. It is the rate of negative cash flow, usually quoted as a monthly rate.
BUSINESS ANALYST, in securities/investment industry, is a person with expertise in evaluating financial investments; a business analyst performs investment research and makes recommendations to institutional and retail investors to buy, sell, or hold; most analysts specialize in a single industry or business sector.
BUSINESS ENTITY is a selection of the legal form under which a business is to operate: sole proprietorship, general partnership, corporation, S corporation (in the
BUSINESS ENTITY PRINCIPLE is where the business is seen as an entity separate from its owner(s) that keeps and presents financial records and prepares the final accounts and financial statements. The accounting is kept for each entity as a whole (groups of companies must present consolidated accounts and consolidated financial statements).
BUSINESS MATRIX, often used in business incubators, is where separate business entities join forces to advance the development of a start-up, e.g.., one firm may offer offices, another marketing/sales assistance or manufacturing expertise, etc. Such a matrix may receive compensation in the form of equity from the start-up being assisted by that business matrix.
BUSINESS PLAN is a description of a business (normally over a 1-5 year period). A basic business plan includes: product(s) and/or service(s), the market, competitor analysis, the key people involved, financing needs, and the financial rewards if the business plan is implemented successfully. A well-prepared business plan plays two important roles, firstly, it is a useful management tool that can help management plot a course for the company, and secondly, it is a vital sales tool that will impress funding sources, e.g., venture capitalists or the board of directors, with management's planning ability and general competence. Other things being equal, a well prepared business plan will increase a company's chances of obtaining a financial commitment to fund the business.
BUSINESS PUBLICATIONS AUDIT (BPA) is similar to the Audit Bureau of Circulation; the BPA is a third-party organization that verifies the circulation of print media through periodic audits.
BUSINESS SEGMENT is a component of an enterprise that (a) provides a single product or service or a group of related products and services and (b) that is subject to risks and returns that are different from those of other business segments.
BUSINESS UNIT is equivalent to a wholly owned subsidiary except that it is not treated as a separate legal entity. It is an organization within a firm that could operate separately because it has all support functions contained within the business unit. The internal financial reporting from a business unit to the corporate office is basically identical to a separate legal entity.
BUSINESS VALUATION determines the price that a hypothetical buyer would pay for a business under a given set of circumstances.
BUYER'S MARKET is where the quantity of goods for sale exceeds the amount consumers are willing and able to buy at the current market price. It is characterized by low prices. For example, a market condition that occurs in real estate where more homes are for sale than there are interested buyers.
BVI is an acronym for
BYLAWS are the provisions of corporate policies.
BY-PRODUCT is a joint product with main activity, usually of lesser value.
CAGR see COMPOUND ANNUAL GROWTH RATE.
CALL can be 1. process of redeeming a bond or preferred stock issue before its normal maturity. A security with a call provision typically is issued at an interest rate higher than one without a call provision. Investors look at yield-to-call rather than yield-to-maturity; 2. right to buy 100 shares of stock at a specified price within a specified period; or, 3. option to buy (call) an asset at a specified price within a specified period.
CALLABLE BOND is a bond the issuer has the right to pay off at issuer's discretion.
CALL PREMIUM is a premium in price above the par value of a bond or share of preferred stock that must be paid to holders to redeem the bond or share of preferred stock before its scheduled maturity date.
C&C can mean: Cash and Carry or Collection & Classification.
C&F (COST & FREIGHT) includes all shipping costs but insurance. Generally used in statement of terms, stating cost and freight are paid by the exporter from his warehouse to a port in the importer's country. In this case, the buyer is responsible for insurance.
C&I (COST & INSURANCE), in a price that is quoted “C&I”, means that the cost of the product and insurance are included in the quoted price. In this case, the cost of shipping would be borne by the buyer.
CANDY DEAL is a slang term that refers to an illegal business practice to inflate revenue/sales numbers by selling product to distributors with a pledge to buy them back later, in addition to providing a percentage kickback to the distributor for assisting in falsifying the sale.
CAPITAL, in economics, can mean: factories, machines, and other man-made inputs into a production process. In finance, capital is money and other property of a corporation or other enterprise used in transacting the business.
CAPITAL ACCOUNT, in finance, is an account of the net value of a business at a specified date; in economics, it is that part of the balance of payments recording a nation's outflow and inflow of financial securities.
CAPITAL ASSET is a long-term asset that is not purchased or sold in the normal course of business. Generally, it includes fixed assets, e.g., land, buildings, furniture, equipment, fixtures and furniture.
CAPITAL BUDGET is the estimated amount planned to be expended for capital items in a given fiscal period. Capital items are fixed assets such as facilities and equipment, the cost of which is normally written off over a number of fiscal periods. The capital budget, however, is limited to the expenditures that will be made within the fiscal year comparable to the related operating budgets.
CAPITAL CONTRIBUTION is cash or property acquired by a corporation from a shareholder without the receipt of additional stock.
CAPITAL EMPLOYED is the value of the assets that contribute to a company's ability to generate revenue, i.e, fixed assets plus current assets minus current liabilities.
CAPITAL EXPENDITURE is the amount used during a particular period to acquire or improve long-term assets such as property, plant or equipment.
CAPITAL FUNDS is the total of capital debentures, if any, capital stock, if any, surplus, undivided profits, unallocated reserves, guaranty fund, and guaranty fund surplus.
CAPITAL GAIN is the excess of selling price over purchase price, which may be given special treatment for tax purposes provided the sale takes place more than a given number of months after purchase.
CAPITAL IMPROVEMENT, in real estate, is any permanent structure or other asset added to a property that adds to its value. In general, it is any value added activity or cost to a long-term or permanent asset that increases its value.
CAPITAL INFUSION often refers to the cross-subsidization of divisions within a firm. When one division is not doing well, it might benefit from an infusion of new funds from the more successful divisions. In the context of venture capital, it can also refer to funds received from a venture capitalist to either get the firm started or to save it from failing due to lack of cash.
CAPITAL INTENSIVE is used to describe industries or sectors of the economy that require large investments in capital assets to produce their goods, such as the automobile industry. These firms require large profit margins and/or low costs of borrowing to survive.
CAPITAL INVESTMENT see CAPITAL EXPENDITURE.
CAPITALIZATION is the statement of capital within the firm - either in the form of money, common stock, long-term debt, or in some combination of all three. It is possible to have too much capital (in which case the firm is overcapitalized) or too little capital (in which case the firm is undercapitalized).
CAPITALIZATION OF MAINTAINABLE EARNINGS is a valuation method; perhaps the most generally accepted method that involves capitalizing the future maintainable earnings by the application of a suitably chosen capitalization rate or multiple. The definition of earnings may be profit after tax ("PAT") or earnings before interest and tax ("EBIT"). This methodology, which in reality is a surrogate for the discounted cash flow method, requires consideration of several factors, including: a. an estimate of future maintainable earnings having regard to historical operating results and forecasts of future earnings; b. determination of an appropriate capitalization rate which will reflect the risks inherent in the business including sensitivity to industry risk factors, growth prospects, the general economic outlook and alternative investment opportunities; and c. a separate assessment of any surplus or unrelated assets and liabilities which are not essential to the continuing earning capacity of the business operations.
CAPITALIZATION RATE, also known as CAP RATE, is the rate of return a property will produce on the owner's investment. It is stated as a rate of interest or discount rate used to convert a series of future payments into a single 'present value'. In real estate, the rate includes annual capital recovery in addition to interest.
CAPITALIZE, in general business, it is to supply with capital, as of a business by using a combination of capital used by investors and debt capital provided by lenders; or, to consider expenditures as capital assets rather than expenses. Specifically, it is to: a) convert a schedule of income into a principal amount, called capitalized value, by dividing by a rate of interest; b) record capital outlays as additions to asset accounts, not as expenses; c) convert a lease obligation to an asset/liability form of expression called a capital lease, i.e., to record a leased asset as an owned asset and the lease obligation as borrowed funds; or d) turn something to one’s advantage economically, e.g., sell umbrellas on a rainy day.
CAPITALIZED COSTS are business expenses that are written off or deducted over a period of time through depreciation or amortization schedules.
CAPITAL LEASE is a lease obligation that has to be capitalized on the balance sheet. It is characterized by: it is non-cancelable; the life of lease is less than the life of the asset(s) being leased; and, the lessor does not pay for the upkeep, maintenance, or servicing costs of the asset(s) during the lease period.
CAPITAL LOSS is the excess of purchase price over selling price when the assets have been held for more than a certain period of time and which is given a special treatment for tax purposes.
CAPITAL MARKET is a market where equity or debt securities are traded.
CAPITAL OUTLAY see CAPITAL EXPENDITURE.
CAPITAL RATIONING is restrictions put of the amount planned for new expenditures.
CAPITAL REDUCTION means reducing a company's stated capital base.
CAPITAL REPLACEMENT, or economic depreciation, is the portion of the value of machinery and equipment, in addition to repairs, that is used up in the production of a particular commodity. It is based on the current value of the machinery. Capital replacement may be regarded as a discretionary expense in any particular year. It may be deferred when income is low but ultimately must be paid to maintain the capital stock so that over the long term, the operation remains in business.
CAPITAL RESERVE is a fund set aside for specific purposes, thereby cannot be distributed for other uses. See also REVENUE RESERVE.
CAPITAL SPARE is the parts within inventory that are purchased as spare parts for depreciable assets (e.g., capital equipment). As such, the capital spares within inventory are depreciable and should not be treated as normal inventory.
CAPITAL STOCK is the ownership shares of a corporation authorized by its articles of incorporation, including preferred and common stock.
CAPITAL STRUCTURE refers to the permanent long-term financing of a company. Capital structure normally includes common and preferred stock, long-term debt and retained earnings. It does not include accounts payable or short-term debt.
CAPITAL SURPLUS is an archaic term. See PREMIUM ON CAPITAL STOCK.
CAP RATE see CAPITALIZATION RATE.
CAPTIVE DISTRIBUTOR is one held under control of another but having the appearance of independence; especially: owned or controlled by another concern and operated for its needs rather than for an open market.
CARNET is a customs document which permits you to send or carry merchandise into a country duty and tax free for a short period, for use as samples or as display merchandise in a trade show, for example.
CARRYING VALUE, also known as "book value", it is a company's total assets minus intangible assets and liabilities, such as debt.
CASE-BASED REIMBURSEMENT, in healthcare, is a hospital payment system in which a hospital is reimbursed for each discharged inpatient at rates prospectively established for groups of cases with similar clinical profile and resource requirements.
CASH is any form of payment unconditionally accepted.
CASH & EQUIVALENTS means all cash, marketplace securities, and other near-cash items. Excludes sinking funds.
CASH BASIS OF ACCOUNTING is the accounting basis in which revenue and expenses are recorded in the period they are actually received or expended in cash. Use of the cash basis generally is not considered to be in conformity with generally accepted accounting principles (GAAP) and is therefore used only in selected situations, such as for very small businesses and (when permitted) for income tax reporting. See also Accrual Basis.
CASH BOOK is a book that records all payments and receipts of business transactions – whether by cash, check or credit card.
CASH CLEARING ACCOUNT represents a clearing account for voided and reissued imprest cash checks. It is also used for miscellaneous corrections of imprest cash checks.
CASH COVERAGE RATIO see CASH DEBT COVERAGE RATIO.
CASH COWS are products that produce a large amount of revenue or margin because they have a large share of an existing market which is only expanding slowly.
CASH DEBT COVERAGE RATIO is the ratio of net cash provided by operating activities to average total liabilities, called the cash debt coverage ratio, is a cash-basis measure of solvency. This ratio indicates a company’s ability to repay its liabilities from cash generated from operating activities without having to liquidate the assets used in operations.
CASH DISBURSEMENTS/PAYMENTS JOURNAL is the journal recording all disbursements (or payments).
CASH DISCOUNT is a refund of some fraction of the amount paid because the purchase price is paid by the buyer in cash, as opposed to making the purchase on credit or, sometimes, credit card or check.
CASH DIVIDEND is the payment of earnings to shareholders.
CASH DRAW see PROPRIETORS DRAW.
CASH EARNINGS is cash revenues minus cash expenses. This differs from earnings in that it does not include non-cash expenses such as depreciation.
CASH FLOW is earnings before depreciation and amortization.
CASH FLOW / CURRENT PORTION OF LONG TERM DEBT is a measure of the firm's ability to meet its obligations with internally generated cash.
CASH FLOW PROJECTION is a forecast of the cash (checks or money orders) a business anticipates receiving and disbursing during the course of a given span of time - frequently a month. It is useful in anticipating the cash portion of your business at specific times during the period projected.
CASH FLOW STATEMENT see STATEMENT OF CASH FLOWS.
CASH FROM FINANCING is the sum of all the individual financing activity cash flow line items.
CASH FROM INVESTING is the sum of all the individual investing activity cash flow line items.
CASH FLOW FROM OPERATIONS is the sum of all the individual operating activity cash flow line items, less cash realized from the sale of extraordinary items, e.g., fixed assets.
CASH IN ADVANCE is when full payment is due before the merchandise is shipped. Least risk to seller, most risk to buyer.
CASH RATIO is a refinement to the QUICK RATIO. It is the ratio of cash and marketable securities to current liabilities. The CASH RATIO indicates the extent to which liabilities could be liquidated immediately. Sometimes called LIQUIDITY RATIO.
CASH RECEIPTS see RECEIPTS.
CASH RECEIPTS JOURNAL is the journal for recording all cash receipts.
CAVEAT, generally, is a warning against certain acts; in law, is a formal notice filed with a court or officer to suspend a proceeding until filer is given a hearing.\
CD see CERTIFICATE OF DEPOSIT.
CEO is an acronym for Chief Executive Officer. The CEO is the principle individual responsible for the activities of a company.
CERTIFICATE OF DEPOSIT (CD) is a document written by a bank or other financial institution that is evidence of a deposit, with the issuer’s promise to return the deposit plus earnings at a specified interest rate within a specified time period.
CERTIFICATE OF INSPECTION is certification, generally by an independent third party, that the goods were in good condition at the time of shipment.
CERTIFICATE OF OBLIGATION is a bond issued by a city, without voter approval.
CERTIFICATE OF ORIGIN is a document that states where the goods were made. This document is legally required for many countries for the importation of merchandise.
CERTIFIED FINANCIAL PLANNER (CFP) is a financial planner who has received a license from the
CERTIFIED FINANCIAL STATEMENTS are financial statements that have undergone a formal audit by a certified public accountant and usually contain statements of certification by the CPA.
CERTIFIED PUBLIC ACCOUNTANT (CPA) is an accountant licensed to practice public accounting.
CFM, in finance / accounting, means Certified In Financial Management.
CFO is an acronym for Chief Financial Officer. The CFO is the officer in a corporation responsible for handling funds, signing checks, the keeping of financial records, and financial planning for the company.
C.G.A. means Certified General Accountant.
CHAIRPERSON OF THE BOARD is the head of the board of directors of a corporation, and generally considered as head of the firm.
CHANNEL COSTING is the fulfillment cost information pertaining to distribution channels.
CHARGEBACK, in the credit industry, occurs when a credit card processor “charges back” to the merchant the cost of returned items or incorrect orders that the customer claims were made to his or her credit card.
CHARGE OFF see BAD DEBT.
CHAPTER S or SUBCHAPTER S is a legal corporate entity organized under the United States Federal Tax Code that allows Subchapter S Corporations to distribute all income / loss proportionately to its shareholders, who then claim that income / loss on their personal income taxes; thereby avoiding the payment of corporate taxes.
CHARTER is the document of corporation organization.
CHART OF ACCOUNTS is a list of ledger account names and associated numbers arranged in the order in which they normally appear in the financial statements. The Chart of Accounts are customarily arranged in the following order: Assets, Liabilities, Owners' Equity (Stockholders' Equity for a corporation), Revenue, and Expenses.
CHATTEL MORTGAGE CONTRACT is a credit contract used for the purchase of equipment where the purchaser receives title of the equipment upon delivery but the creditor holds a mortgage claim against it.
CHECK is a draft drawn against a bank, payable upon demand to the person/entity named upon the draft.
CHECK REGISTER is the journal for recording payments by check.
CIA, in accounting, is an acronym for Certified Internal Auditor; or, Cash in Advance.
CIBT is an acronym for Cash Income Before Taxes.
CIF (COST, INSURANCE AND FREIGHT) is a shipment where all shipping costs are paid by the exporter, including insurance.
CK is Check.
CLAIM, in health care, is an itemized statement of healthcare services and their costs provided by a hospital, physician's office, or other provider facility. Claims are submitted to the insurer or managed care plan by either the plan member or the provider for payment of the costs incurred. In general law, a claim is: 1) to make a demand for money, for property, or for enforcement of a right provided by law. 2) the making of a demand (asserting a claim) for money due, for property, from damages or for enforcement of a right. If such a demand is not honored, it may result in a lawsuit. In order to enforce a right against a government agency (ranging for damages from a negligent bus driver to a shortage in payroll) a claim must be filed first. If rejected or ignored by the government, a lawsuit may be filed.
CLEARED ITEMS are accounts payable documents which have been paid.
CLEARING ACCOUNT, in banking, is a bank account used by a mortgage servicing company for the temporary, short-term deposit of mortgage payments that have been collected and are either awaiting transmittal to investors who bought the mortgages or awaiting deposit in escrow accounts. See CASH CLEARING ACCOUNT.
CLOSELY HELD is a description of a corporation whose voting stock is owned by a very small number of shareholders.
CLOSING ACCOUNT is the determining the balance of an account and posting an entry to offset such balance.
CLOSING ENTRY is a journal entry at the end of a period to transfer the net effect of revenue and expense items from the income statement to owners' equity.
C.M.A. means Certified Management Accountant.
CMI see COST MANAGEMENT INDEX.
CMO see COLLATERIALIZED MORTGAGE OBLIGATION.
CNF is Cost and Freight
COA, in accounting, means Chart Of Accounts.
COD is Cash On Delivery; which is exactly what it means.
CODING, in accounting, is the assignation of the proper account code to invoices.
COGM is Cost Of Goods Manufactured. See Cost of Goods Sold.
COGAS is Cost Of Goods Available for
COGS see COST OF GOODS SOLD
COGS (COST OF GOODS) RATIO = COGS / Total Sales.
COLLATERAL is assets used as security for the extension of a loan.
COLLATERIALIZED MORTGAGE OBLIGATION (CMO) or, since 1986, as a Real Estate Mortgage Investment Conduit (REMIC). CMOs and REMICs (terms which are often used interchangeably) are similar types of securities which allow cash flows to be directed so that different classes of securities with different maturities and coupons can be created. They may be collateralized by mortgage loans as well as securitized pools of loans.
COLLECTION PAPERS are those documents specified as necessary for payment to be made, such as the commercial invoice, certificate of inspection, and bill of lading.
COLLECTION PERIOD (Period End) is used to appraise accounts receivable (AR). This ratio measures the length of time it takes to convert your average sales into cash. This measurement defines the relationship between accounts receivable and cash flow. A longer average collection period requires a higher investment in accounts receivable. A higher investment in accounts receivable means less cash is available to cover cash outflows, such as paying bills. NOTE: Comparing the two COLLECTION PERIOD ratios (Period Average and Period End) suggests the direction in which AR collections are moving, thereby giving an indication as to potential impacts to cash flow.
COLLECTION PERIOD (Period Average) is used to appraise accounts receivable (AR). This ratio measures the length of time it takes to convert your average sales into cash. This measurement defines the relationship between accounts receivable and cash flow. A longer average collection period requires a higher investment in accounts receivable. A higher investment in accounts receivable means less cash is available to cover cash outflows, such as paying bills. NOTE: Comparing the two COLLECTION PERIOD ratios (Period Average and Period End) suggests the direction in which AR collections are moving, thereby giving an indication as to potential impacts to cash flow.
COLLECTIVE INVESTMENT SCHEME, globally, is any arrangement for pooling several investors' funds so that the pooled fund can obtain economies of scale and a spread of investments beyond the reach of individual investors. It is usually called an investment company in the
COMBINED FINANCIAL STATEMENT is a financial statement that merges the assets, liabilities, net worth, and operating figures of two or more affiliated companies. A combined statement is distinguished from a consolidated financial statement of a company and subsidiaries, which must reconcile investment and capital accounts.
COMMERCIAL BANK is a financial institution that provides commercial banking services. A commercial bank accepts deposits, gives business loans and provides other services to businesses.
COMMERCIAL ATTACHÉ is a business and trade expert on the staff of a consulate or embassy. They are responsible for promoting exports of their country's goods and are an excellent source of help.
COMMERCIAL LOAN is a short-term business loan usually issued for a term of up to six months.
COMMERCIAL PAPER is short-term obligations with maturities ranging from 2 to 270 days issued by corporations, banks, or other borrowers to investors who have temporarily idle cash on hand. Commercial paper is usually unsecured and discounted.
COMMISSION is remuneration proportional to sales volume.
COMMITMENT is the act of standing behind a policy whose value ends when the policy is concluded. For example: " We made a commitment to do this".
COMMITMENT BASED ACCOUNTING is where spending controls are enacted that ensures that no budget executor can exceed his annual appropriation.
COMMITTED COSTS are costs, usually fixed costs, which the management of an organization has a long-term responsibility to pay. Examples include rent on a long-term lease and depreciation on an asset with an extended life.
COMMON LAW is an unwritten body of law based on general custom in
COMMON SIZE ANALYSIS, as used in vertical analysis of financial statements, an item is used as a base value and all other accounts in the financial statement are compared to this base value. On the balance sheet, total assets equal 100% and each asset is stated as a percentage of total assets. Similarly, total liabilities and stockholder's equity are assigned 100%, with a given liability or equity account stated as a percentage of total liabilities and stockholder's equity. On the income statement, 100% is assigned to net sales, with all revenue and expense accounts then related to it in percentages. See COMMON SIZE PERCENTAGES.
COMMON SIZE PERCENTAGES - In the Income Statement, each "Common Size %" is the field amount expressed as a percent of "Net Revenues." In the Balance Sheet, each "Common Size %" is the amount in the category as a percent of "Total Assets. "RATIO ANALYSIS" as prepared by VentureLine presents several standard "Key Ratios" to compare this firm to any of several standards. This firm's ratios may be compared to industry standards, to a single other firm of similar (or different) type, or to this firm's past or anticipated performance. In this analysis VentureLine uses industry data based upon the SIC Code of that particular listing (when available).
COMMON-SIZE STATEMENT see COMMON SIZE ANALYSIS.
COMMON STOCK is the most frequently issued class of stock; usually it provides a voting right but is secondary to preferred stock in dividend and liquidation rights.
COMPANY is an organized group of people to perform an activity, business or industrial enterprise.
COMPANY KIT, normally, is a for sale commercially packaged self-instruction product containing written instructions, forms, software (sometimes), for establishing an enterprise.
COMPARABILITY is the quality or state of being similar or alike.
COMPENSATING BALANCES are the funds a business might be required to keep in a deposit or reserve account to help offset what the bank perceives as risk. The lender might require that an amount based on the business’ average account balance or a certain percentage of the face value of the loan be maintained in a deposit account.
COMPENSATING ERROR is the name given to the situation where one mistake cancels out the effect of a second mistake.
COMPILATION is the presentation of financial statement information by the entity without the accountant’s assurance as to conformity with Generally Accepted Accounting Principles (GAAP). In performing this accounting service, the accountant must conform to the AICPA Statements on Standards for Accounting and Review Services (SSARS).
COMPLETED CONTRACT METHOD OF ACCOUNTING is a method of revenue recognition for long-term contracts (i.e., contract which span more than one accounting period) whereby the total contract revenue and related cost of performance are recognized in the period in which the contract is completed. This method stands in contrast to the percentage-of-completion method of accounting and is most often used when significant uncertainty exists with respect to the total cost of performing the contract and, accordingly, the ultimate amount of profit to be recognized thereon.
COMPLIANCE AUDIT is the review of financial records to determine whether the entity is complying with specific procedures or rules.
COMP0SITE DEPRECIATION is the grouping of similar assets or dissimilar assets within the same class together for the purpose of computing a single depreciation rate to be applied to all assets within the group.
COMPOSITE FINANCIAL STATEMENT is an average or index of financial statements of multiple accounting periods or companies, e.g., industry averages.
COMPOUND ANNUAL GROWTH RATE (CAGR) is the year over year growth rate applied to an investment or other part of a company's activities over a multiple-year period. The formula for calculating CAGR is (Current Value/Base Value) ^ (1/# of years) - 1.
COMPOUND INTEREST is interest calculated from the total of original principal plus accrued interest.
COMPOUND INTEREST PRINCIPLE is where the interest is computed on principal plus interest earned in previous periods.
COMPOUND JOURNAL ENTRY is a journal entry that involves more than one debit or more than one credit or both.
COMPREHENSIVE INCOME is change in equity (net assets) of an entity during a period from transactions and other events and circumstances from non-owner sources. It includes all changes in equity during a period, except those resulting from investments by owners and distributions to owners.
COMPTROLLER is the misspelling of the word CONTROLLER caused by confusion in the root of the word in French and Latin. Comptroller is sometimes used within titles in the government, e.g. Comptroller of the Currency.
COMPULSORY LIQUIDATION is the winding-up of a company by a court. A petition must be presented both at the court and the registered office of the company. Those by whom it may be presented include: the company, the directors, a creditor, an official receiver, and the Secretary of State for Trade and Industry. The grounds on which a company may be wound up by the court include: a special resolution of the company that it be wound up by the court; that the company is unable to pay its debts; that the number of members is reduced below two; or that the court is of the opinion that it would be just and equitable for the company to be wound up. The court may appoint a provisional liquidator after the winding-up petition has been presented; it may also appoint a special manager to manage the company's property. On the grant of the order for winding-up, the official receiver becomes the liquidator and continues in office until some other person is appointed, either by the creditors or the members.
CONDITIONAL SALES CONTRACT is a credit contract used for the purchase of equipment where the purchaser doesn't receive title of the equipment until the amount specified in the contract has been paid in full.
CONSERVATISM PRINCIPLE provides that accounting for a business should be fair and reasonable. Accountants are required in their work to make evaluations and estimates, to deliver opinions, and to select procedures. They should do so in a way that neither overstates nor understates the affairs of the business or the results of operation.
CONSIGNMENT is when goods are offered for sale on behalf of another without the seller actually purchasing or taking title to the goods. Only when there is a subsequent sale does the owner receive any payment.
CONSISTENCY is using the same accounting procedures by an accounting entity from period to period. That means using similar measurement concepts and procedures for related items within the company’s financial statements for one period.
CONSISTENCY PRINCIPLE requires accountants to apply the same methods and procedures from period to period. When they change a method from one period to another they must explain the change clearly on the financial statements.
CONSOLIDATED CAPITAL is the value of all money and other assets, on a consolidated basis, used directly in business operations.
CONSOLIDATED ENTITY is a user-defined combination of several consolidation units, grouped together for consolidation and reporting purposes.
CONSOLIDATED FINANCIAL STATEMENTS is the end financial statement that accounts for all assets, liabilities and operating accounts of a parent and all subsidiaries.
CONSOLIDATED NEXUS is a consolidation of a connected series or group (usually contracts).
CONSOLIDATION is similar to refinancing, but there is no loan fee. It simplifies loan repayment by combining several types of federal education loans into one new loan. (In the case of Direct Loan consolidation, the interest rate may be lower than one or more of the underlying loans.)
CONSORTIUM is an association of companies for some definite purpose.
CONSTANT DOLLAR is when the dollar amount is adjusted for inflation.
CONSTRAINT is a limiting factor to business activity.
CONSULAR DECLARATION is a formal statement to the consul of a foreign country declaring the merchandise to be shipped.
CONSUMER PRICE INDEX (CPI) is the measure of change in consumer prices as determined by a monthly survey by the U.S. Bureau of Labor Statistics. Among the CPI components are the costs of food, housing, transportation, and electricity (i.e., the average cost of a "basket" of goods and services). Also known as the cost-of-living index.
CONSUMMATE is to bring to completion or fruition; conclude, e.g., consummate a business transaction.
CONTINGENT LIABILITY is a liability that is dependent upon uncertain events that may occur in the future, e.g., in corporate reports are pending lawsuits, judgments under appeal, disputed claims, and the like, representing potential financial liability.
CONTINUITY ASSUMPTION see GOING CONCERN CONCEPT.
CONTINUOUS BUDGET is a budget that rolls ahead each time period (e.g., month) without regard to the fiscal year, i.e., a twelve-month or other periodic forecast is always available; also called a ROLL FORWARD BUDGET.
CONTINUOUS INVENTORY see PERPETUAL INVENTORY.
CONTRA ACCOUNT 1. is the reduction to the gross cost of an asset to arrive at the net cost; also known as a valuation allowance; e.g., accumulated depreciation is a contra account to the original cost of a fixed asset to arrive at the book value; or, 2. reduction of a liability to arrive at its carrying value; e.g., bond discount, which is a reduction of bonds payable.
CONTRACT ALLOWANCE is the limit set within an agreement as to what is the maximum allowed of any given item covered under contract, e.g., home construction with a builder may have allowances or "limits" set in your contract that tell you how much the price of your house "allows" for things such as floor coverings, countertops, and cabinets.
CONTRACTEE is the person or entity who will receive the goods or services under the provisions of the contract.
CONTRACT LAW is that body of law which regulates the enforcement of contracts. Contract law has its origins thousands of years ago as the early civilizations began to trade with each other, a legal system was created to support and to facilitate that trade. The English and French developed similar contract law systems, both referring extensively to old Roman contract law principles such as consensus ad idem or caveat emptor. There are some minor differences on points of detail such as the English law requirement that every contract contain consideration. More and more states are changing their laws to eliminate consideration as a prerequisite to a valid contract thus contributing to the uniformity of law. Contract law is the basis of all commercial dealings from buying a bus ticket to trading on the stock market.
CONTRACTOR is the person or entity who will provide the goods or services under the provisions of the contract.
CONTRACT RATE OF INTEREST is the interest rate specified in a contract.
CONTRACT REVENUES are the revenues recognized under % of completion method.
CONTRACTUAL ALLOWANCE, in healthcare, is the difference between what hospitals bill and what they receive in payment from third party payers, most commonly government programs; also known as contractual adjustment.
CONTRIBUTED CAPITAL see PAID-IN-CAPITAL.
CONTRIBUTION MARGIN (CM) is the difference between sales and the variable costs of the product or service, also called marginal income. It is the amount of money available to cover fixed costs and generate profits.
CONTRIBUTION MARGIN RATIO is the computation showing CONTRIBUTION MARGIN as a percentage of sales.
CONTROL is the process of directing operations to achieve a goal.
CONTROL ACCOUNT is an account the shows totals of amounts entered in a subsidiary ledger as an accounts payable control account, it would show the total that is detailed in the accounts payable subsidiary ledger.
CONTROLLABLE COST see CONTROLLABLE EXPENSE.
CONTROLLABLE EXPENSE expenses that can be controlled or restrained by management. Some of the costs of doing business can be postponed or spread out over a longer period of time (e.g., personnel costs, travel & entertainment, marketing expense).
CONTROLLER is usually an experienced accountant who directs internal accounting processes and procedures, including cost accounting.
CONVENTION is an agreement, principle or statement expressed or implied that is used to solve given types of problems. Conventions allow a standardized approach to problem solving and behavior in certain situations. For example, placing debits on the right and credits on the left of an account is termed an accounting convention.
CONVERTIBLE is a corporate security (usually bonds, notes or preferred stock) that can be exchanged for another form of security (usually common stock).
CONVERTIBLE BOND is a bond that can be converted to other securities under certain conditions.
CONVERTIBLE CURRENCY is any national currency that can be easily exchanged for that of another country.
CONVERTIBLE DEBT is a debt instrument which can be exercised into the security of the debtor in accordance with the conditions set forth in the debt instrument.
CONVERTIBLE PREFERRED STOCK is preferred stock which can be converted into common stock at the option of the holder of the preferred stock.
COO is an acronym for Chief Operating Officer. The COO is responsible for the day-to-day management of a company. The COO usually reports to the CEO.
COOKIE JAR RESERVES is an overly aggressive accrual of operating expenses and the creation of liability accounts done in an effort to reduce future year operating expenses.
COOKING THE BOOKS is when a company fraudulently misrepresents the financial condition of a company by providing false or misleading information.
COOPERATIVE ADVERTISING is a joint advertising strategy under which costs are shared; e.g. by a manufacturer and another firm that distributes its products.
COPYRIGHT is a form of legal protection used to safeguard original literary works, performing arts, sound recordings, visual arts, original software code and renewals.
CORE PROCESS - A process is a set of related and interdependent activities that transform an input to a system to an output with added value to a customer. It is the transformation of people, money, materials or information that is the value-added work of the organization. The CORE PROCESSES are those by which the organization creates its most value-added and essential transformations for the customers.
CORPORATE GOVERNANCE is the system by which business corporations are directed and controlled. The corporate governance structure specifies the distribution of rights and responsibilities among different participants in the corporation, such as, the board, managers, shareholders and other stakeholders, and spells out the rules and procedures for making decisions on corporate affairs. By doing this, it also provides the structure through which the company objectives are set, and the means of attaining those objectives and monitoring performance.
CORPORATION is a type of business organization chartered by a state and given many of the legal rights as a separate entity.
CORPORATION TAX is the tax payable by corporations.
CORRECTING ENTRY, a type of ADJUSTING ENTRY, is required at the end of an accounting period if a mistake was made in the accounting records during the period. See REVERSING ENTRY.
CORRESPONDENT BANK is a bank having communications and business links with the seller's bank.
COST is the amount of money that must be paid to take ownership of something; expense or purchase price.
COST ACCOUNTING is a managerial accounting activity designed to help managers identify, measure, and control operating costs.
COST ALLOCATION is the assignment to each of several particular cost-centers of an equitable proportion of the costs of activities that serve all of them, i.e. shared cost pools.
COST AVOIDANCE is an action taken in the present designed to decrease costs in the future.
COST BASIS, in securities, is the purchase price after commissions or other expenses. It is used to calculate capital gains or losses when the security is eventually sold.
COST-BENEFIT ANALYSIS is the method of measuring the benefits anticipated from a decision by determining the cost of the decision, then deciding whether the benefit outweighs the cost of that decision.
COST DRIVER is any activity or series of activities that takes place within an organization and causes costs to be incurred. Cost drivers are used in a system of activity-based costing to charge costs to products or services. Cost drivers are applied to cost pools, which relate to common activities. Cost drivers are not restricted to departments or sections, as more than one activity may be identified within a department.
COST IN EXCESS OF BILLINGS, in percentage of completion method, is when the billings on uncompleted contracts are less than the income earned to date. These underbillings result in increased assets. Conversely, where billings are greater than the income earned on uncompleted contracts, a liability, billings in excess of costs, results.
COST MANAGEMENT INDEX (CMI) is a method for determining cost management benchmarks for public companies using published financial data. It is used to establish realistic cost reduction goals by conducting a definitive comparison of single company performance against others in that industry combined with a thorough internal expenditure analysis. This provides realistic parameters for cost cutting objectives as well as insight into which categories of products and services to target. The CMI equals cost of goods sold plus sales, general and administrative expenses, divided by your operating revenue (CMI = (COGS+SG&A)/Revenue). It is expressed as a percentage.
COST OBJECT is any activity or item for which a separate measurement of cost is desired.
COST OF CAPITAL/FUNDS is the rate of return that a business could earn if it so chose other investments with the equivalent risks. Also can be stated as opportunity cost of the funds used due to the investment decision.
COST OF DEBT is interest rate times 1 minus the marginal tax rate (because interest is a tax deduction). An increase in the tax rate decreases the cost of debt.
COST OF GOODS SOLD (COGS) is a figure representing the cost of buying raw material and producing finished goods. Included are precise factors, i.e. material and factory labor; as well as others that are variable, such as factory overhead.
COST-OF-LIVING LEASE is a lease where yearly increases are tied to the cost of living index.
COST REDUCTION is actions taken in the present designed to decrease costs in the present. See COST AVOIDANCE.
COST OF REVENUE see COST OF GOODS SOLD.
COST OF SALES see COST OF GOODS SOLD.
COST PER THOUSAND (CPM) is advertising terminology used in buying media. CPM refers to the cost it takes to reach a thousand people within your target market.
COST PRINCIPLE is the principle where a company is obliged to record its fixed assets at their actual purchase price or production cost.
COST SPLIT is the breakdown of the costs associated with producing a product, providing a service, ... The makeup is dependent upon what costs are being analyzed, e.g. in manufacturing a company would track the cost split between materials, direct labor, and production overhead.
COST SYNERGY is the savings in operating costs expected after two companies, who compliment each other's strengths, join.
COST UNIT is a functional cost unit which establishes standard cost per workload element of activity, based on calculated activity ratios converted to cost ratios.
COUPON BONDS are unregistered bonds for which owners receive periodic interest payments by clipping a coupon from the bond and sending it to the issuer as evidence of ownership.
COVERAGE OF FIXED CHARGES is computed by taking your net income, before taxes and fixed charges (debt repayment, long-term leases, preferred stock dividends etc.), and dividing by the amount of fixed charges. The resulting number shows your ability to meet your fixed obligations of all types — the higher the number, the better.
CP is an acronym with many possible meanings, e.g., Capacity Planning, Central Procurement, Change of Plan (insurance), Claims Procedure (insurance), Commercial Paper, Community Property, Consumer Products, Contingency Plan, Contract Price, Change Proposal, etc.
C.P.A. means Certified Public Accountant.
CPFF is Cost Plus Fixed Fee.
CPI see CONSUMER PRICE INDEX.
CPT is Cost Per Thousand.
CR, in accounting, is an acronym for Credit Record.
CRAT is an acronym for Charitable Remainder Annuity Trust.
CREATIVE ACCOUNTING is slang for the concept of maintaining accounts giving possibly illegal or dubious benefits to the entity for which the accounts are maintained.
CREDIT, in accounting, is an accounting entry system that either decreases assets or increases liabilities.
CREDIT CARD is a card authorizing purchases on credit at a predetermined interest rate and payment conditions.
CREDIT CARD RECEIPTS is sales revenue where payment has been made through the use of recognized/authorized credit cards versus cash or check receipts/payments.
CREDIT CONTROL is policies and procedures aimed at controlling the granting of credit.
CREDIT LINE is the maximum credit that a customer is allowed.
CREDIT MEMO is a document used to issue a vendor credit.
CREDIT NOTES are issued to indicate a positive action within an account. Credit notes are issued for reasons such as overpayment, duplicate payment, damaged goods, returned merchandise, etc.
CREDITOR DAYS is the number of days it takes the company to pay trade creditors. This ratio provides an indication of the amount of credit given to the business by its suppliers. The formula is trade creditors divided by sales multiplied by 365 days.
CREDITORS are the entities to which a debt is owed by another entity.
CREDITORS TURNOVER = Average creditors / (Credit Sales / 365).
CREDIT SALES are merchandise or services sold on the promise to pay later.
CROWN CORPORATION is a corporation that has been established by a nation’s government.
CRUT is an acronym for Charitable Remainder Unitrust.
CUMULATIVE PREFERRED STOCK is preferred stock which gives holder a right to dividends if they have not been paid in a given year.
CURRENCY TRANSLATION see FOREIGN CURRENCY TRANSLATION.
CURRENT ACCOUNT in a national economy it is a category in the balance of payments account that includes all transactions that either contribute to national income or involve the spending of national income.
CURRENT ASSETS are those assets of a company that are reasonably expected to be realized in cash, or sold, or consumed during the normal operating cycle of the business (usually one year). Such assets include cash, accounts receivable and money due usually within one year, short-term investments, US government bonds, inventories, and prepaid expenses.
CURRENT CASH DEBT RATIO measures ability to pay current liabilities in given year with cash derived from operating activities. Calculated using net cash from operating activities divided by average current liabilities.
CURRENT COST is the cost which would be incurred for replacement of an asset.
CURRENT COST ACCOUNTING is a system of accounting which adjusts for changing pricing.
CURRENT DEBT TO TOTAL DEBT shows Current Liabilities as a percent of Total Debt. Smaller firms carry proportionally higher level of current debt to total debt than larger firms.
CURRENT LIABILITIES are liabilities to be paid within one year of the balance sheet date.
CURRENT MATURITIES-L/T/D is that portion of long term obligations which is due within the next fiscal year.
CURRENT RATIO, a comparison of current assets to current liabilities, is a commonly used measure of short-run solvency, i.e., the immediate ability of a firm to pay its current debts as they come due. Current Ratio is particularly important to a company thinking of borrowing money or getting credit from their suppliers. Potential creditors use this ratio to measure a company's liquidity or ability to pay off short-term debts. Though acceptable ratios may vary from industry to industry below 1.00 is not atypical for high quality companies with easy access to capital markets to finance unexpected cash requirements. Smaller companies, however, should have higher current ratios to meet unexpected cash requirements. The rule of thumb Current Ratio for small companies is 2:1, indicating the need for a level of safety in the ability to cover unforeseen cash needs from current assets. Current Ratio is best compared to the industry.
CUSTODIAN BANK is the bank that acts a custodian to a mutual fund. Does not manage anything, just holds the cash and securities and does the clerical.
CUSTOMS are the authorities charged with collecting duty and controlling the entry of merchandise into a country.
CUSTOMS BROKER is an individual or firm licensed to process entry and clear goods into the country for another.
CUT-OFF RATE is the predetermined maximum rate and/or minimum rate at which the subject is still acceptable, but where a rate above the proscribed higher or below the proscribed lower rate is no longer acceptable.
CUT-OFF YIELD, in securities, is the yield at which or below which the bids are accepted.
CYCLE COUNT is a partial count of a single inventory location as opposed to a Complete Count, i.e., a complete count of a single inventory location. An organization should not wait to do a complete count; usually once a year. The best way to ensure that a minimum of 97% accuracy is maintained in inventory on an ongoing basis is to continually count your products. That is, count part of your inventory every day, and count each item several times per year. This process is called "cycle counting."
DAC, in accounting, is an acronym for Deferred Acquisition Costs.
DATE DRAFT is a payment option draft that matures in a specified number of days after the date issued.
DATE OF RECORD is the date which determines which shareholders receive dividends.
DAYS CASH ON HAND is calculated: Cash/([operating expense - depreciation expense]/365).
DAYS' INVENTORY shows the average length of time items are in inventory, i.e., how many days a business could continue selling using only its existing inventory. The goal, in most cases, is to demonstrate efficiency through having a high turnover rate and therefore a low days’ inventory. However, realize that this ratio can be unfavorable if either too high or too low. A company must balance the cost of carrying inventory with its unit and acquisition costs. The cost of carrying inventory can be 25% to 35%. These costs include warehousing, material handling, taxes, insurance, depreciation, interest and obsolescence.
DAYS SALES OUTSTANDING (DSO) is the average collection period on accounts receivable for sales revenue.
DBA (doing business as) is a legal entity (sole proprietorship, partnership, corporation) conducting business under any chosen name for which a business license has been issued.
DCAA is the Defense Contract Audit Agency.
DEBENTURE is a corporate IOU that is not backed by the company's assets (unsecured) and is therefore somewhat riskier than a bond.
DEBIT is a record of an indebtedness; specifically : an entry on the left-hand side of an account constituting an addition to an expense or asset account or a deduction from a revenue, net worth, or liability account.
DEBIT CARD is a banking card enhanced with automated teller machine (ATM) and point-of-sale (POS) features so that it can be used at merchant locations. A debit card is linked to an individual's checking account, allowing funds to be withdrawn at the ATM and point-of-sale without writing a check. Each financial institution creates an identity for its debit card to customize the product and differentiate it in the market. Debit cards can also be called deposit access cards.
DEBIT MEMORANDUM can be either a) a form or document given by the bank to a depositor to notify that the depositor's balance is being decreased due to some event other than the payment of depositor originated check, e.g. bank service charges; or b) a form of document used by a seller to notify a buyer that the seller is debiting (increasing) the amount of the buyer's accounts payable due to errors or other factors requiring adjustments.
DEBIT NOTES are issued to indicate a short payment.
DEBT COVENANT is one of many terms used to describe rules governing the loans that a company has outstanding. Other related phrases would be "loan terms" "credit agreement," "loan agreement."
DEBT FINANCING is raising money through selling bonds, notes, or mortgages or borrowing directly from financial institutions. You must repay borrowed money in full, usually in installments, with interest. A lender incurs risk and charges a corresponding rate of interest based on that risk. The lender usually assesses a variety of factors such as the strength of your business plan, management capabilities, financing, and your past personal credit history, to evaluate your company’s chances of success.
DEBTOR is the party against who one has a claim.
DEBTOR DAYS is a ratio used to work out how many days on average it takes a company to get paid for what it sells. It is calculated by dividing the figure for trade debtors shown in its accounts by its sales, and then multiplying by 365.
DEBT SERVICE COVERAGE is the ratio of cash flow available to pay for debt to the total amount of debt payments to be made (interest and principal payments).
DEBT RATIO measures the percent of total funds provided by creditors. Debt includes both current liabilities and long-term debt. Creditors prefer low debt ratios because the lower the ratio, the greater the cushion against creditor's losses in liquidation. Owners may seek high debt ratios, either to magnify earnings or because selling new stock would mean giving up control. Owners want control while "using someone else's money." Debt Ratio is best compared to industry data to determine if a company is possibly over or under leveraged. The right level of debt for a business depends on many factors. Some advantages of higher debt levels are:
- The deductibility of interest from business expenses can provide tax advantages.
· Returns on equity can be higher.
· Debt can provide a suitable source of capital to
start or expand a business.
Some disadvantages can be:
· Sufficient cash flow is required to service a higher
debt load. The need for this cash flow can place pressure on a business if
income streams are erratic.
· Susceptibility to interest rate increases.
· Directing cash flow to service debt may starve
expenditure in other areas such as development which can be detrimental to overall
survival of the business.
DEBT SERVICE RATIO is the measurement of debt payments to gross income.DEBT TO EQUITY measures the risk of the firm's capital structure in terms of amounts of capital contributed by creditors and that contributed by owners. It expresses the protection provided by owners for the creditors. In addition, low Debt/Equity ratio implies ability to borrow. While using debt implies risk (required interest payments must be paid), it also introduces the potential for increased benefits to the firm's owners. When debt is used successfully (operating earnings exceeding interest charges) the returns to shareholders are magnified through financial leverage. Depending on the industry, different ratios are acceptable. The company should be compared to the industry, but, generally, a 3:1 ratio is a general benchmark. Should a company have debt-to-equity ratio that exceeds this number; it will be a major impediment to obtaining additional financing. If the ratio is suspect and you find the company's working capital, and current / quick ratios drastically low, this is a sign of serious financial weakness.
DEBT TO TOTAL ASSETS RATIO measures the percentage of assets financed by all terms of debt, includes both current and long term debt.
DECISION THEORY is a body of knowledge and related analytical techniques of different degrees of formality designed to help a decision maker choose among a set of alternatives in light of their possible consequences.
DECLINING-BALANCE DEPRECIATION METHOD is an accelerated depreciation method in which an asset's book value is multiplied by a constant depreciation rate (such as double the straight-line percentage, in the case of double-declining-balance.). This depreciation method is allowed by the
DEDUCTIVE ACCOUNTING THEORY (mathematical method) assumes that optimal accounting standards and reporting rules can be derived by deduction much in the way that Pythagoras derived the rule for measuring the hypotenuse of a triangle based upon square root of the summed squares of the other two sides (assuming one angle is a perfect 90-degree angle).
DEFAULT, in finance, default is what occurs when a party is unwilling or unable to pay their debt obligations. This can occur with all debt obligations including bonds, debentures, mortgages, loans, and notes. Default can also occur with sovereign bonds, that is, governments can default on their payments to creditors. In corporate finance, a default is typically a prelude to bankruptcy. With most mortgages and loans the total amount owing becomes immediately payable on the first instance of a default of payment.
DEFEASANCE CLAUSE is the clause in a mortgage that permits the mortgagor to redeem his or her property upon the payment of the obligations to the mortgagee.
DEFERRAL see DEFERRED.
DEFERRED, in accounting, is any account where the asset or liability is not realized until a future date, e.g. annuities, charges, taxes, income, etc. The deferred item may be carried, dependent on type of deferral, as either an asset or liability.
DEFERRED ANNUITY is an annuity in which the income payments/withdrawals begin at some future date
DEFERRED ASSET is an amount owed to an entity that is not expected to be received by that entity within one year from the date of the balance sheet.
DEFERRED CREDITOR see DEFERRED INCOME.
DEFERRED DEVELOPMENT COSTS is the non-recognition of costs of development until such until some condition(s) is satisfied.
DEFERRED INCOME is that income for which the cash has been collected by the company, but have yet to be "earned". For example, a customer pays their annual software license upfront on the 1st Jan. As the company financial year-end is 31st May, the company would only be able to record five months of the income as turnover in the profit and loss account. The rest would be accrued in the balance sheet as a "deferred" creditor.
DEFERRED PAYMENT CREDIT is a type of a letter of credit where payment is made at a specified interval after collection papers are submitted.
DEFERRED REVENUE see DEFERRED INCOME.
DEFERRED TAX ASSETS have an effect of decreasing future income tax payments, which indicates that they are prepaid income taxes and meet definition of assets. Whereas deferred tax liabilities have an effect of increasing future year's income tax payments, which indicates that they are accrued income taxes and meet definition of liabilities.
DEFERRED TAXES refers to all deferred taxes.
DEFERRED TAX LIABILITIES have an effect of increasing future year's income tax payments, which indicates that they are accrued income taxes and meet definition of liabilities. Whereas deferred tax assets have an effect of decreasing future income tax payments, which indicates that they are prepaid income taxes and meet definition of assets.
DEFICIT is a debit balance in the Retained Earnings account resulting from accumulated losses.
DEFICIT BUDGET is where the estimates of expenses are greater than estimates of revenue.
DEFICIT SPENDING is an excess of government expenditures over government revenue, resulting in a shortfall that must be financed through borrowing.
DELINQUENCY RATIO is the ratio of past-due loans to total number of loans serviced.
DELTA, in securities trading, is the relationship between an option price and the underlying futures contract or stock price. In general usage, it is the difference between two empirical data points, e.g. the delta between 4 and 6 is 2.
DEMAND DEPOSIT is a bank deposit f rom which withdrawals may be made without notice.
DEMINIMUS, root is 'De minimis non curat lex' (Latin), a common law principle whereby judges will not sit in judgement of extremely minor transgressions of the law. It has been restated as "the law does not concern itself with trifles". It is commonly used to include a test of anyone judging conformance to accounting principles, regulations or rules.
DEMOGRAPHICS are the attributes such as income, age, and occupation that best describe your target market.
DEMUTUALIZATION refers to the demutualizing of an insurance company. The proceeds from such an event are normally distributed to the policyholders in the form of either cash, shares, or a combination thereof in the surviving entity.
DEPENDENT, generally, is a person who relies on another person for support (especially financial support); in U.S. tax law, it means a dependent as defined in tax code Section 152 which excludes those individuals who do not qualify for a dependent deduction on the employee’s tax return including domestic partners and parents.
DEPLETION is the process of cost allocation that assigns the original cost of a natural resource to the periods benefited. For example: a mining company purchases mineral rights to a deposit for $5 million for a period of ten years. The cost of the natural resource, $5 million, will be depleted over the ten years of the benefit; i.e., it is the physical exhaustion of a natural resource (e.g., timber, oil and coal).
DEPOSIT can mean a variety of things: a. a payment given as a guarantee that an obligation will be met; b. the act of putting money into a bank account; c. a partial payment made at the time of purchase with the balance to be paid later; or, d. money given as security for an article acquired for temporary use.
DEPOSITS IN TRANSIT is deposits made to a bank account that have not been credited to the bank statement.
DEPOSITORY ACCOUNT are those accounts where assets; e.g. cash or securities; are placed on deposit in favor of the depositor.
DEPRECIATED HISTORICAL COST (DHC) is he method of valuation of certain assets at the actual cost of their acquisition and subsequent enhancement less a reduction for depreciation to date.
DEPRECIATION is the amount of expense charged against earnings by a company to write off the cost of a plant or machine over its useful live, giving consideration to wear and tear, obsolescence, and salvage value. If the expense is assumed to be incurred in equal amounts in each business period over the life of the asset, the depreciation method used is straight line (SL). If the expense is assumed to be incurred in decreasing amounts in each business period over the life of the asset, the method used is said to be accelerated. Two commonly used variations of the accelerated method of depreciating an asset are the sum-of-years digits (SYD) and the double-declining balance (DDB) methods. Frequently, accelerated depreciation is chosen for a business' tax expense but straight line is chosen for its financial reporting purposes.
DEPRECIATION ALLOCATION is the allocation of the cost of capital expenditures so that revenue is matched
with expenses for items that will last more than one year (land is not depreciable). The methodolgy is to allocate plant and equipment cost to expense through the use of accelerated, straight line and units of production amortization methods; as well as the disposal of assets; and, repairs and betterments to assets.
DEPRECIATION CONVENTION is utilized to determine how much depreciation to charge the first year when an item is bought part way through the year. Three different conventions are used: 1. Half year convention - All property placed in service is considered to be placed in service half way through the year. During the first year, half of the "normal" depreciation is taken. At the end of the depreciation period, the other half of the "normal" depreciation is taken; 2. Mid-quarter convention - If the amount of depreciation claimed on new items during the last 3 months of a year exceeds 40% of the total depreciation claimed during the year, then the mid-quarter convention is used. The amount of depreciation of each item is figured for one year then multiplied by 87.5% if was placed in service during Jan. - March, 62.5% if it was placed in service during April - June, 37.5% for items placed in service during July-Sept, and 12.5% for items placed in service during Oct. - Dec.; or, 3. Mid-month convention - All property is considered to be placed in service during the midpoint of the month. This requires some calculations.
DEPRECIATION METHOD see DEPRECIATION.
DEPRECIATION RECAPTURE is a provision contained in the Internal Revenue Code that makes excess depreciation taken on real property subject to income tax upon the sale or disposition of the property.
DEPRECIATION RESERVE in the process of allocating the cost of a fixed asset over its effective service life in a systematic and rational manner (depreciation schedule), the value of each depreciable asset is reduced by its depreciation amount. To match this, the depreciation amounts are added to a "depreciation reserve" in the long-term liabilities.
DEPRECIATION REVERSAL is the reversal of a depreciaton amount in the depreciation reserve account.
DEPRECIATION SCHEDULE is the statement, over time, as to the schedule (timing and amounts) of depreciation of any long-term asset. A depreciation schedule is used for any type of depreciation applicable, i.e., either straight line or accelerated depreciation. See DEPRECIATION.
DERIVATIVE is a transaction or contract whose value depends on or, as the name implies, derives from the value of underlying assets such as stock, bonds, mortgages, market indices, or foreign currencies. One party with exposure to unwanted risk can pass some or all of the risk to a second party. The first party can assume a different risk from a second party, pay the second party to assume the risk, or, as is often the case, create a combination. Derivatives are normally used to control exposure or risk. See DERIVATIVE CONTRACT.
DERIVATIVE CONTRACT is, generally, a financial contract the value of which is derived from the values of one or more underlying assets, reference rates, or indices of asset values, or credit-related events. Derivative contracts include interest rate, foreign exchange rate, equity, precious metals, commodity, and credit contracts, and any other instruments that pose similar risks. See DERIVATIVE.
DERIVATIVE LIABILITIES are financial instruments under contracts that have one or more underlying and one or more notional amounts. See DERIVATIVE.
DEVALUATION, in economics, is the lowering in value of one currency in relation to other currencies.
DEVELOPMENT normally refers to a) improving a product or producing new types of products; or b) in real estate, process of placing improvements on or to a parcel of land.
DILUTED EARNINGS PER SHARE are earnings per share, including common stock, preferred stock, unexercised stock options, and some convertible debt. Diluted earnings per share are usually a more accurate reflection of the company's real earning power.
DILUTED SHARE see DILUTED EARNINGS PER SHARE.
DILUTION is the decrease, weakening, or loss in a financial statement related item. For example, share value may be diluted through the issuance of additional common shares.
DIO is Days Inventory Outstanding.
DIRECT ATTRIBUTION is the most precise method of costing an output. It seeks to capture accurately the volume and cost of resources used by particular activities. This can be expensive unless the information is already available because it requires detailed measurement of actual costs. Such direct measurement is seldom justifiable solely to improve the accuracy of a cost system, but many institutions use this method to obtain efficiency gains and cost savings.
DIRECT COST is that portion of cost that is directly expended in providing a product or service for sale and is included in the calculation of COST OF GOODS SOLD, e.g. labor and inventory (it can be traced to a given cost object in an economically feasible manner). Opposite of indirect cost.
DIRECT EXPENSE is that portion of expense that is directly expended in providing a product or service for sale and is included in the calculation of COST OF GOODS SOLD, e.g. labor and inventory.
DIRECT LABOR UTILIZATION RATE is total payroll charged directly to job numbers in the period divided by the total payroll (direct and indirect) expended in the period. Since payroll is by far the single largest cost to operate a firm, generally speaking, the higher the direct labor rate, the more efficiently economically managed is the firm.
DIRECTOR'S REPORT is written by the Directors of a company and forms part of the company's financial statements. This report must support and elaborate on the information contained in the Income Statement, Balance Sheet and Source and Application of Funds Statement.
DIRECTORS VALUATION is a valuation that is not an independent valuation.
DIRECT WRITE-OFF METHOD is a method of recognition of uncollectible accounts only when known to be such.
DISABILITY INSURANCE, in the
DISBURSEMENT is the paying out of money to satisfy a debt or an expense.
DISCLOSURE DOCUMENT PROGRAM, in the
DISCLOSURE NOTE see DISCLOSURE PRINCIPLE.
DISCLOSURE PRINCIPLE states that any and all information that affects the full understanding of a company's financial statements must be include with the financial statements. Some items may not affect the ledger accounts directly. These would be included in the form of accompanying notes. Examples of such items are outstanding lawsuits, tax disputes, and company takeovers.
DISCOUNT is a decrease in value (often due to interest to be earned) or decrease in price.
DISCOUNTED CASH FLOW is a valuation method best used to evaluate a business established for the purpose of fulfilling a specific project, in certain startup and other companies where cash flow is more important than net income, and when a certain time frame is set where an investor wishes to see his investment returned over a specific period of time. In discounted cash flow, the present value of liabilities is subtracted from the combined present value of cash flow and tangible assets, which determines the value of the business.
DISCOUNTED CASH FLOW METHOD is a budgeting method for project evaluation and selection.
DISCOUNTED EARNINGS determines the value of a business based upon the present value of projected future earnings, discounted by the required rate of return (capitalization rate). Usually, the question is how well earnings are projected.
DISCOUNTING is the selling of accounts receivable to a financial entity.
DISCONTINUED OPERATIONS is the sale, disposal, or planned sale in the near future of a business segment (product line or class of customer).
DISCOUNT RATE is the interest rate that the Federal Reserve of the U.S. Government charges a U.S. bank to borrow funds when a bank is temporarily short of funds. Collateral is necessary to borrow, and such borrowing is quite limited because the Fed views it as a privilege to be used to meet short-term liquidity needs, and not a device to increase earnings.
DISCREPANCY, in import / export, is a situation relating to official documents that are presented that do not conform to what is required within the Letter of Credit.
DISCRETIONARY means it is not mandatory, it is up to the individual or company.
DISCRETIONARY ACCRUAL is a non-mandatory expense/asset that is recorded within the accounting system that has yet to be realized. An example of this would be management bonus.
DISCRETIONARY COST can be increased or decreased at the discretion of the decision maker (e.g., advertising and business travel).
DISCRETIONARY INCOME means the amount of a company's income available for spending after the essentials have been met. See DISPOSABLE INCOME.
DISHONORED NOTE is a note on which a debtor has defaulted.
DISPOSABLE INCOME is the amount of an individual's income left after taxes which is available for spending and / or savings. See DISCRETIONARY INCOME.
DISSOLUTION is the legal termination of a business entity.
DISTRIBUTION COST is any cost incurred to fill an order for a product or service. It includes all money spent on warehousing, delivering and/or shipping products and services to customers.
DISTRIBUTIONS are payments from fund or corporate cash flow. May include dividends from earnings, capital gains from sale of portfolio holdings and return of capital. Fund distributions can be made by check or by investing in additional shares. Funds are required to distribute capital gains (if any) to shareholders at least once per year. Some corporations offer Dividend Reinvestment Plans (D.R.P.).
DIVIDEND is that portion of a corporation's earnings which is paid to the stockholders.
DIVIDEND CAPITALIZATION: Since most closely held companies do not pay dividends, when using dividend capitalization valuators must first determine dividend paying capacity of a business. Dividend paying capacity based on average net income and on average cash flow are used. To determine dividend paying capacity, near term capital needs, expansion plans, debt repayment, operation cushion, contractual requirements, past dividend paying history of a business and dividends of a comparable company should be investigated. After analyzing these factors, percent of average net income and of average cash flow that can be used for the payment of dividends can be estimated. What also must be determined is the dividend yield, which can best be determined by analyzing comparable companies. As with the price earnings ratio method, this usually produces a subjective result.
DIVIDEND COVER see DIVIDEND PAYOUT RATIO.
DIVIDEND PAYOUT RATIO is a measure of the percentage of earnings paid out in dividends; computed by dividing cash dividends by the net income available to each class of stock.
DIVIDENDS PER SHARE (DPS) ratio is very similar to the EPS: EPS shows what shareholders earned by way of profit for a period whereas DPS shows how much the shareholders were actually paid by way of dividends. The formula: Dividends per share = Dividends paid to equity shareholders / Average number of issued equity shares.
DIVIDEND YIELD is the annual rate of return, expressed as a percentage, on an investment.
DIVIDEND YIELD RATIO allows investors to compare the latest dividend they received with the current market value of the share as an indictor of the return they are earning on their shares. The formula for the dividend yield is: Dividend yield = Latest annual dividends / Current market share price.
DIVISION is a self sufficient unit within a company. A division contains all the functions necessary to operate indepently from the parent company.
DOCK RECEIPT is a document issued by the ocean carrier of a shipment acknowledging receipt of the goods to be shipped.
DOCTRINE is a. something that is taught; b. a principle or position or the body of principles in a branch of knowledge or system of beliefs; c. a principle of law established through past decisions; d. a statement of fundamental government policy especially in international relations.
DOCUMENTARY CREDIT is an arrangement by banks for settling international business transactions. A letter of credit is a form of documentary credit.
DOLLAR CONTROL SYSTEMS are systems used in inventory management that reveals the cost and gross profit margin on individual inventory items.
DOLLAR VALUE LIFO, in the
DOLLAR-WEIGHTED RATE OF RETURN is also called the internal rate of return; the interest rate that makes the present value of the cash flows from all the sub-periods in an evaluation period plus the terminal market value of the portfolio equal to the initial market value of the portfolio.
DOOMSDAY RATIO is related to the quick (acid test) ratio in that it is a conservative approach to debt coverage. The doomsday ratio only considers the cash on hand when evaluating if an entity can cover their current liabilities. The approach is that if the business were to go bankrupt today, would the business have enough cash on hand to cover current debts. The ratio is considered a good indicator of the cash cushion of safety. It may spot cash shortages, thereby assisting in avoiding a credit crisis. It is calculated: Cash divided by Current Liabilities.
DONATED CAPITAL is a gift of assets to a company, usually by state or local governments, to induce a business to relocate to their jurisdiction.
DOUBLE ACCOUNTING is the un-intentional, or sometimes fraudulently intentional, double counting of assets or liabilities, or any other datasets, which, in the end, give an inaccurate view of what the data really means. In accounting, this is usually caused by a multiplicity of entries of the same data which, in the end, causes confusion or financial reporting inaccuracies.
DOUBLE DECLINING BALANCE DEPRECIATION see DECLINING BALANCE DEPRECIATION.
DOUBLE-ENTRY ACCOUNTING is a system of recording transactions in a way that maintains the equality of the accounting equation. The accounting technique records each transaction as both a credit and a debit. Double-entry bookkeeping (DEB) or accounting was developed during the fifteenth century and was first recorded in 1494 as a system by the Italian mathematician Luca Pacioli.
DOW JONES INDUSTRIAL AVERAGE is an index that tracks the daily share value of 30 large
DOWNSTREAM / UPSTREAM SALES see UPSTREAM / DOWNSTREAM SALES.
DPO is Days Payables Outstanding.
DPS see DIVIDENDS PER SHARE.
Dr is an ancient Italian abbreviation for the Italian word ‘debare’; meaning ‘debit’ (not to be confused with the acronym DR with both letters in uppercase).
DR, in accounting, is an acronym for Debit Record.
DRAFT, in import / export, is a contract between buyer and seller that the buyer will pay a certain amount of money, within a specified period of time, for the goods purchased.
DRAFT, DEMAND OR SIGHT, in import / export, is a draft payable upon presentation to the drawee. It may be used when the exporter wishes to retain control of the shipment for credit or title retention reasons. The buyer must pay the bank before receiving the documents to take custody of the goods. A COD shipment is similar.
DRAW see PROPRIETORS DRAW.
DRAWDOWN is the magnitude of a decline in account value, either in percentage or currency terms.
DRAWEE is the buyer of a draft instrument.
DRAWING ACCOUNT see PROPRIETORS DRAW.
DROP SHIP is where the seller/retailer of a product ships the product directly from the manufacturer to the customer without requiring inventory carrying by the seller/retailer.
DSO, in accounting, is an acronym that usually means 'Days Sales Outstanding.'
DUE DILIGENCE usually refers to an internal audit of a target firm by an acquiring firm.
DUMPING is the selling of merchandise in a foreign country at, or, below cost in order to seize market share.
DUN is when you importune (beg or are insistent upon) a debtor for payment: a dunning letter.
DUN & BRADSTREET (D&B) is a
DURATION DRIVERS represent the amount of time required to perform an activity.
DUTY is a tax imposed by a customs authority on imported goods. Often used interchangeably with the term "tariff."
EA is Enrolled Agent (IRS designation).
E&O INSURANCE is an errors and omissions, or E&O, liability policy (often called malpractice insurance) covers liability for negligent acts, errors and omissions committed by professionals, including physicians, accountants, lawyers, etc.
E&OE is a British acronym that stands for "Errors and Omissions Excepted". E&OE is a legal disclaimer that notifies the reader that, without prejudice, that the content and/or validity of the subject data may change without notice.
E&P is Earnings and Profits.
EARNED INCOME is that income realized by the provisioning of goods and services.
EARNING ASSET is an asset which provides income (e,g, rental property).
EARNING POWER is earnings before interest and taxes (EBIT) divided by total assets.
EARNING QUALITY is best determined through the inverse relationship between the amount of time elapsed between revenue recognition and cash collection.
EARNINGS is a term that refers to the financial capacity of a corporation to make distributions to shareholders other than return of capital, e.g., dividends. See also RETAINED EARNINGS.
EARNINGS MANAGEMENT occurs when managers use judgment in financial reporting and in structuring transactions to alter financial reports to either mislead some stakeholders about the underlying economic performance of the company, or to influence contractual outcomes that depend on reported accounting numbers.
EARNINGS PER SHARE (EPS) is earnings before extraordinary gains and losses, less preferred-share dividends, divided by all common shares outstanding at the most recent fiscal year end. Net income, or earnings, refers to the company's after-tax profits before extraordinary gains or extraordinary losses for the most recent annual period.
EARNINGS RETENTION is the proportion of net income that is not paid in dividends. A firm earning $80 million after taxes and paying dividends of $20 million has a retention rate of $60 million/$80 million, or 75%. A high retention rate makes it more likely a firm's income and dividends will grow in future years.
EBITDA means Earnings Before Interest, Taxes, Depreciation and Amortization, but after all product / service, sales and overhead (SG&A) costs are accounted for. Sometimes referred to as Operational Cash Flow.
EBITDARM is an acronym for Earnings Before Interest, Taxes, Depreciation, Amortization, Rent and Management fees.
E.C. (EUROPEAN COMMUNITY or EUROPEAN COMMON MARKET) is a trading block of countries in
ECONOMETRICS literally means 'economic measurement'. It is the branch of economics that applies statistical methods to the empirical study of economic theories and relationships. It is a combination of mathematical economics, statistics, economic statistics and economic theory.
ECONOMICALLY FEASIBLE means that the benefit of tracing the cost (greater accuracy) outweighs the cost of doing so.
ECONOMIC BOOK VALUE allows for a book value analysis that adjusts the assets to their market value. This valuation allows valuation of goodwill, real estate, inventories and other assets at their market value.
ECONOMIC ENTITY accounting concept that provides context or “point of view” for the economic events (i.e., transactions) captured by the financial statements. In short, it answers the questions, “Whose asset is it?”; “Whose liability is it?”
ECONOMIC EVENT is the transfer of control of an economic resource from one party to another party.
ECONOMIC EXPOSURE, in foreign exchange, is the extent to which the value of the firm, as measured by the present value of all expected future cash flows, will change when exchange rates change.
ECONOMIC ORDER QUANTITY is the order quantity that minimizes total inventory costs. A total inventory cost is the sum of ordering, carrying and stock-out costs.
ECONOMIC PROFITS is the difference between the total revenue and the total opportunity costs.
ECONOMIC SUBSTANCE refers to the application of income tax laws, i.e., the substance of the transaction, rather than its form, determines the tax consequences, with few exceptions. The "form" of a transaction is only the label the interested parties attach to their arrangement. For instance, an arrangement might be called a compensation agreement, loan, lease or sale. Documents may support the form, but the courts are not concerned with these labels or papers that purport to govern the transaction -- they focus on its substance. The "substance over form" analysis is used to dissect self-serving transactions between parties, including loans and payments to family members; transactions between related corporations and their shareholders, partnerships and their partners; and between trusts and their beneficiaries. For instance, sale of a home by a parent to a child may be recharacterized by the court as a gift, if the child never pays for it. Related-party transactions provide fertile territory for self-dealing, with the tax benefit as the real motivating purpose, disguised by the form of the transaction. In contrast, arm's-length transactions with independent third parties are far less vulnerable.
ECONOMIC VALUE (EV) is the value of an asset deriving from its ability to generate income.
ECONOMIC VALUE ADDED (EVA) measures the difference between the return on a companies capital and the cost of that capital. A positive EVA indicates that value has been created for shareholders; a negative EVA signifies value destruction.
ECONOMIES OF SCALE is based upon the theory that the more you produce of a good, the less that it costs for each additional unit, i.e., efficiency. Specifically, it is the reduction of the costs of production of goods due to increasing the size of the producing entity and the share of the total market for the good/product.
EF&L is Errors, Fines and Losses.
EFFECTIVE DATE OF INTEREST is the market rate at time of a debt issue.
EFFECTIVE INTEREST RATE is the cost of credit on a yearly basis expressed as a percentage. Includes up-front costs paid to obtain the loan, and is, therefore, usually a higher amount than the interest rate stipulated in the note.
EFFECTIVE TAX RATE is the net rate a taxpayer pays on income that includes all forms of taxes. It is calculated by dividing the total tax paid by taxable income.
EFFICIENCY is the ratio of the output to the input of any system.
EFFICIENT MARKET THEORY is the hypothesis that market prices reflect the knowledge and expectations of all investors. Within this theory, investors who adhere to it believe it to be highly improbable that market movement can be predicted, i.e., using darts to chose stocks are just as effective as stock or market analysis.
EFT see Electronic Funds Transfer.
ELECTRONIC FUNDS TRANSFER is a payment executed through computers.
EMC (EXPORT MANAGEMENT COMPANY) is a private company that serves as the export agent for manufacturers, being paid by commission or retainer. Merchandise is not normally purchased by the EMC.
ENCUMBERED is when an asset is owned by one party subject to the legal claims of another party. One example is a homeowner that owns a home that is subject to (encumbered by) the claims of the mortgage holder.
ENCUMBRANCE is a) a right or interest in land owned by someone other than the owner of the land itself; examples include easements, leases, mortgages, and restrictive covenants; or, b) in government accounting, an encumbrance is an anticipated expenditure, or funds restricted for anticipated expenditures, such as for outstanding purchase orders.
ENDING INVENTORY is inventory at the end of the accounting period.
ENDOWMENT is a permanent fund where gifts to the fund are held in perpetuity and where earnings are used in accordance with the donor’s specified wishes.
ENGINEERED COSTS are those costs having a clear linkage to output, e.g., direct materials costs.
ENTERPRISE RESOURCE PLANNING (ERP) is an information system or process that integrates all operational data and related applications for an entire enterprise. ERP systems permit organizations to manage resources across the enterprise.
ENTERPRISE VALUE (EV) is a measure of a company's value.
ENTERPRISE ZONE is a depressed neighborhood, usually in an urban area, where businesses are given tax incentives and are not subject to some government regulations. These advantages are designed to attract new business in the zone.
ENTITY, in business, is a separate or self-contained existence that provides goods or services.
ENTITY ASSUMPTION is the assumption that financial statements are prepared for an entity that is separate and distinct from its owners.
ENTITY CONCEPT is the concept that financial accounting and reporting relates only to the activities of a specific business entity and not to the activities of the owners of that entity.
ENTREPRENEUR is the person who assumes the financial risk of the initiation, operation and management of a given business or undertaking. He/She is primarily a financial and/or professional risk taker almost to the extreme.
EOM is End of Month.
EOY is End Of Year.
EOZ is Environmental Opportunity Zones.
EPS see EARNINGS PER SHARE.
EPU see EQUIVALENT UNIT OF PRODUCTION.
EQUIPMENT LOAN is a loan used for the purchase of capital equipment.
EQUITY is, normally, ownership or percentage of ownership in a company or items of value.
EQUITY ACCOUNTING is the practice of showing in a company's accounts the share of undistributed profits of another company in which it holds equity ownership (usually below 50%). The share of profit shown is usually equal to its share of the equity in the other company. The profit may not actually be paid over, but the equity holding company has a right to this share of the undistributed profit.
EQUITY CAPITAL is a form of financing where equity in a business is sold to private investors.
EQUITY FINANCING is a method of an entity obtaining funds by issuing either common or preferred stock, or both. Receipts can be through cash, services, or property. It is in the entities best interest to issue shares when the market price for the stock is at its highest.
EQUITY FUNDING see EQUITY CAPITAL.
EQUITY METHOD is a method of accounting for investments in associated companies.
EQUITY MULTIPLIER (EM) shows the amount of assets owned by the firm for each equivalent monetary unit owner claims held by stockholders, i.e., the equity multiplier measures how many dollars of assets an institution supports with each dollar of capital. If a firm is totally financed by equity, the equity multiplier will equal 1.00, while the larger the number the more highly leveraged is the firm. EM compares assets with equity: large values indicate a large amount of debt financing relative to equity. EM, thus, measures financial leverage and represents both profit and risk measurement. EM affects a firm’s profit because it has a multiplier impact on Return on Assets (ROA) to determine the firm’s Return on Equity (ROE). EM is also a risk measure because it reflects how many assets can go into default before a company becomes insolvent. The EM ratio is best compared to industry averages.
EQUITY SHARE CAPITAL is capital raised by an entity through the sale of common shares.
EQUITY OFFERING see EQUITY CAPITAL.
EQUITY-TO-ASSET RATIO expresses the proportion of total assets financed by the owner’s equity capital. It is the reciprocal of the debt-to-asset ratio.
EQUIVALENT UNIT OF PRODUCTION (EPU) is based on the idea that if 100 units are all 40% complete, then 40 whole units could have been completed.
ERISA, in the
ERP can mean either Enterprise Resource Planning or Early Retirement Program. See
ERROR OF COMISSION is an error that occurs as a result of an action taken. In accounting, the error occurs when one or both of the double entries are made in the correct class of account but the wrong account within that class.
ERROR OF OMISSION is an error which occurs as a result of an action not taken. In accounting, the error occurs when both the entries required for a transaction are completely omitted from the books.
ERROR OF ORIGINAL ENTRY, in accounting, occurs when the double entry is made but using an incorrect figure.
ERROR OF PRINCIPLE, in accounting, occurs when one or both of the entries are made in the wrong class or category of account.
ESCHEAT is the reversion of property to the state (government) in the absence of legal heirs or claimants.
ESCROW ACCOUNT see TRUST ACCOUNT.
ESTATE is the entire group of assets owned by an individual at the time of his or her death. The estate includes all funds, personal effects, interests in business enterprises, titles to property-real estate and chattels, and evidences of ownership such as stocks, bonds and mortgages owned, notes receivable, etc. All claims against an estate must be duly filed with the Executor or Administrator of the estate, and approved by the court of law under which the will is being probated or the line of heritage is being determined before the indebtedness may be satisfied.
ESTATE TAXES are the Federal taxes levied on the transfer of property from the deceased to his or her heirs, legatees or devisees.
ETC (EXPORT TRADING COMPANY) is a private company that usually purchases items from domestic manufacturers, then sells them to foreign markets. The difference between an EMC and an ETC is sometimes insignificant, i.e., an EMC may occasionally take title of goods, while an ETC may sometimes work strictly on commission without purchasing the goods. The difference is what the company normally does.
EV (economic value) is the value of an asset deriving from its ability to generate income.
EVA see ECONOMIC VALUE ADDED.
EVENT RISK is the risk that the ability of an issuer to make interest and principal payments will change because of rare, discontinuous, and very large, unanticipated changes in the market environment such as (1) a natural or industrial accident or some regulatory change or (2) a takeover or corporate restructuring.
EXCEPTIONAL ITEMS are material items which derive from events or transactions that fall within the ordinary activities of the reporting entity and which individually or, if of a similar type, in aggregate, need to be disclosed by virtue of their size or incidence if the financial statements are to give a true and fair view.
EXCESS OF REVENUE OVER EXPENSES in the not-for-profit sector. There is a common misconception that not-for-profit organizations are not allowed to have a financial cushion as they are “not-for-profit”. In this context it is useful to remember that not-for-profit organizations are also “not-for-loss” organizations. An organization cannot sustain losses over the long term without ceasing to operate or going bankrupt. Excess of revenue over expenses is the planned financial position that there will always be a sufficient amount of funds on hand to continue to run the not-for-profit entity for some period without additional funding; usually 3-4 months.
EXCHANGE RATE is the rate at which one currency can be traded for another.
EXCHANGE RATE RISK, in foreign exchange, is the variability of a firm’s value due to uncertain changes in the rate of exchange.
EXCISE TAX is a tax imposed by federal, state, and local governments on an act, occupation, privilege, manufacture, sale, or consumption that is not deductible (e.g., tobacco, gasoline and spirits). This term is in increasing usage to describe almost every tax other than income tax and property tax.
EXECUTOR is a legal entity, frequently an individual, known before death to a testator, who is named in the testator's will to carry out the desires of the deceased after his death as designated in the will. Executors must be approved by the court of law probating the will. An executor pays all indebtedness as claimed by creditors of the estate, with the approval of the court of law, and then carries out or executes the will according to the terms set forth by the testator.
EX-FACTORY is where a seller's responsibility ends when the buyer at point of origin, i.e., factory, accepts merchandise. This can also be written as Ex-Warehouse, Ex-works, etc.
EXISTING USE VALUE (EUV) is the price at which a property can be sold on the open market assuming that it can only be used for the existing use for the foreseeable future.
EXPECTED ANNUAL CAPACITY is the planned activity levels or output for a given year taking into account efficiency and idle capacity.
EXPECTED VALUE OF PERFECT INFORMATION (EVPI) is the difference between the expected value with (additional) perfect information and the expected value with current information. The expected value of perfect information is the maximum amount a decision maker should pay for additional information that gives a perfect signal as to the state of nature.
EXPENDABLE TRUST FUND is a governmental fiduciary fund held in a trustee capacity by a governmental agency that accounts for assets and activities restricted to a specific purpose in accordance to formal intent. The principal of the fund can be expended towards only the activity specified, e.g., Unemployment Compensation Fund, Employee Benefits Fund, etc.
EXPENDITURE is a cost incurred in the normal course of business to generate revenues. See expenses.
EXPENSE is the amount of assets or services used during a period.
EXPENSES are the daily costs incurred in running and maintaining a business. See expenditure.
EXPIRED EXPENSE is an expense having come to an end or become void after passage of a period of time.
EXPLORATORY RESEARCH is a method used when gathering primary information for a market survey where targeted consumers / customers are asked very general questions geared toward eliciting a lengthy answer.
EXPORT BROKER is an entity that brings together foreign buyers with domestic manufacturers for a fee, generally providing little other services. An EMC, who is also a middleman, often provides extensive services to complete the transaction as well.
EXPORT DECLARATION is the official paperwork required of exporters so trade transactions and goods can be tracked.
EXPORT LICENSE is the governmentally issued legal permit to export merchandise. In the
EXPOSURE, in foreign exchange, refers to the degree to which a company is affected by exchange rate changes.
EXPROPRIATION is the taking of property or rights by governmental authority such as eminent domain, possibly including an emergency situation, such as taking a person's truck or bulldozer to build a levee during a flood. In such a case just compensation eventually must be paid to the owner, who can make a claim against the taker.
EXTERNAL AUDIT is an audit conducted by an individual of firm that is independent of the company being audited. These independent auditors audit the books of a company generally once per year (see INTERIM AUDIT) after the completion of the company's fiscal year. Their role is to give an opinion of the financials statement's reflection of the status and operations of the company being audited. Based on what they witness during the audit they will also produce, for management and board utilization, a management letter. Although a financial statement audit is the most common type of external audit, external auditors may also conduct special purpose audits which might include; performing specific tests and procedures and reporting on the results, a less intensive review, and compilations.
EXTERNAL AUDITOR is an auditor, usually working for an audit firm, that is completely independent of the company it is auditing. External auditors should always be certified by a professional association of accountants, and should be selected by, and report to, the corporation’s board of directors.
EXTRAORDINARY ITEMS are material items that are unusual in nature and occur infrequently. Both characteristics must exist for an item to be classified as an extraordinary item on the income statement.
FACTORING is the practice of buying debt at a discount, e.g., if somebody owes you $10,000 payable within a year, a factoring lender may pay you $9,000 for the debt. You receive $9,000 cash quickly, but at the cost of the $1,000 discount.
FACTORY OVERHEAD is the costs of operating a factory which cannot be assigned directly to a specific department or product.
FAIR LABOR STANDARDS ACT is a
FAIR MARKET VALUE is the price at which a willing seller will sell and a willing buyer will buy, in an arms- length transaction, when neither is under compulsion to sell or buy and both have reasonable knowledge of relevant facts.
FAIR VALUE, under GAAP, is the amount at which an asset could be bought or sold in a current transaction between willing parties, other than in liquidation. On the other side of the balance sheet, the fair value of a liability is the amount at which that liability could be incurred or settled in a current transaction between willing parties, other than in liquidation.
F.A.S. (FREE ALONG SIDE), e.g. “F.A.S. New York”, means that, for instance, if goods are shipped from the State of Nevada in the U.S. to Madrid, Spain, no charges for shipment are made to the importer until the goods are "free alongside the vessel" in New York. After this point, charges may be applied to the importer.
FASB see Financial Accounting Standards Board.
FBWT, in finance, is Fund Balance With Treasury.
FCIA (FOREIGN CREDIT INSURANCE ACT) is an EximBank program that offers credit insurance against losses due to political conflict or buyer default.
FEDERAL UNEMPLOYMENT TAX ACT (FUTA) is a U.S, federal law providing guidelines for the unemployment compensation system. A Federal tax is paid by all liable employers to fund the administration of Federal and State unemployment insurance programs and the extended benefits program. FUTA provides for payments of unemployment compensation to workers who have lost their jobs. Most employers pay both a federal and a state unemployment tax.
FEE ABSOLUTE see FEE SIMPLE.
FEE SIMPLE is absolute ownership of real property; owner is entitled to the entire property. This includes unencumbered right of disposition during his/her life and upon death the real property passes to his/her heirs. Also known as FEE SIMPLE ABSOLUTE and FEE ABSOLUTE.
FEE SIMPLE ABSOLUTE see FEE SIMPLE.
FF&E is Furniture, Fixtures & Equipment (in real estate).
FFO - FUNDS FROM OPERATIONS is used by real estate and other investment trusts to present the cash flow from trust operations i.e., earnings plus depreciation and amortization.
FGI see FINISHED GOODS INVENTORY.
FICA (FEDERAL INSURANCE CONTRIBUTIONS ACT) is the
FICTITIOUS NAME is often referred to as a DBA, "Doing Business As," a fictitious name is frequently used by sole proprietors or partnerships to provide a name, other than those of the owners or partners, under which the business will operate.
FIDUCIARY is a person or business (for example, a bank or stock brokerage) who has the power and obligation to act for another (often called the beneficiary) under circumstances which require total trust, good faith and honesty.
FIFO (first-in, first-out) is an inventory cost flow whereby the first goods purchased are assumed to be the first goods sold so that the ending inventory consists of the most recently purchased goods.
FINANCE CHARGE is the total dollar amount your loan will cost you. It includes all interest payments for the life of the loan, any interest paid at closing, your origination fee and any other charges paid to the lender and/or broker. In real estate, appraisal, credit report and title search fees are normally not included in the finance charge calculation.
FINANCIAL ANALYSIS is analysis of a company's financial statement, usually by accountants or financial analysts.
FINANCIAL ACCOUNTING is the area of accounting concerned with reporting financial information to interested external parties.
FINANCIAL ACCOUNTING STANDARDS BOARD (FASB) is a professional organization which develops accounting principles.
FINANCIAL GUARANTEE INSURANCE is insurance created to cover losses from specified financial transactions.
FINANCIAL INCOME is that income that is contained within the financial statements of an entity. Financial income normally is not in alignment with taxable income reported in income tax returns. See TAXABLE INCOME.
FINANCIAL LEVERAGE is the use of debt to increase the expected return on equity. Financial leverage is measured by the ratio of debt to debt plus equity.
FINANCIAL RATIO is the result of dividing one financial statement item by another. Ratios help analysts interpret financial statements by focusing on specific relationships.
FINANCIAL RATIO ANALYSIS is: a. an easy and valuable way to interpret and understand the numbers found in your financial statements. Understanding the relationships between the numbers can help you answer critical questions about your business -- and if you monitor the ratios on a regular basis you'll gain insight into how effectively you are managing your business. And: b. lenders also like to evaluate risk by using several sets of ratios; ratios of assets to liabilities, and ratios of lender-investor dollars to owner-investor dollars. Recognize that ratios are indicators and that only you can tell the full story about your business. So the more adept you are at explaining your financial ratios to your investor/lender, the better she/he will understand your business as he/she makes a investment/credit decision.
FINANCIAL REPORTING RELEASE (FRR), in the
FINANCIAL RESULTS usually refers to the summary financial statements provided in compliance to the GAAP guidelines. They can cover any period(s), but usually cover either: single month, quarter, or annual periods.
FINANCIALS see FINANCIAL STATEMENT.
FINANCIAL SCHEDULE, contained in an audited annual report, summarizes the audited financial position of the audited entity. Other application of the term is the scheduling of amounts, not necessarily by date, of major financial events by any given category as to projected receipts, payments, costs, etc.
FINANCIAL STATEMENT is a written report which quantitatively describes the financial health of a company. This includes an income statement and a balance sheet, and often also includes a cash flow statement. Financial statements are usually compiled on a quarterly and annual basis.
FINANCIAL STATEMENT ANALYSIS is analysis of a company's financial statement, usually by accountants or financial analysts. Usually includes indepth financial ratio analysis comparisons over time periods.
FINANCIAL VIABILITY is the ability of an entity to continue to achieve its operating objectives and fulfill its mission over the long term.
FINANCING MARGIN RATIO (FMR) is the margin to be maintained between the debit balance and the actual security value as stipulated in the Facility Letter or any other margin as stipulated by a lending bank from time to time as the FMR.
FINISHED GOODS INVENTORY is that portion of goods in inventory which have completed manufacture and are available for sale.
FISCAL is belonging to the public treasury; or, pertaining to public finance and financial transactions.
FISCALIST is an economist who prefers that the government affect the economy by raising and lowering taxation and/or government spending.
FISCAL LEVERAGE is the ability of a government to affect economic conditions and/or actions of others through fiscalist policies.
FISCAL YEAR is the declared accounting year for a company, but it is not necessarily in conformance to a calendar year (January through December). However, it does cover twelve months, 52 weeks, 365 days. For example, the
FIXED ASSET is a long-term tangible asset that is not expected to be converted into cash in the current or upcoming fiscal year, e.g., buildings, real estate, production equipment, and furniture. Sometimes called PLANT.
FIXED ASSETS are those assets of a permanent nature required for the normal conduct of a business, and which will not normally be converted into cash during the ensuring fiscal period. For example, furniture, fixtures, land, and buildings are all fixed assets. However, accounts receivable and inventory are not. Sometimes called PLANT.
FIXED ASSETS (NET) is all property, plant, leasehold improvements and equipment, net of accumulated depreciation or depletion.
FIXED ASSETS (NET) / NET WORTH measures liquidity by comparing "fixed" assets with "fixed" capital. A lower ratio indicates proportionately smaller investment and a better "cushion" for creditors in case of liquidation. This may be important if the fixed assets are not easily used in other businesses. The presence of substantial leased fixed assets (not shown on the balance sheet) may deceptively lower this ratio. Therefore smaller is better, i.e., greater than .75 (75%) should merit caution.
FIXED ASSET TURNOVER measures management's ability to generate revenues from investments in fixed assets. FAT considers only the firm's investment in property, plant and equipment and is extremely important in high asset firms such as manufactures and telecommunications companies. Generally, the higher this ratio:
·
the smaller the investment required to
generate sales, thus the more profitable the firm.
·
indicates the firm has less money tied
up in fixed assets for each dollar of sales revenue.
A declining ratio may indicate that the firm
has over-invested in plant, equipment, or other fixed assets.FIXED BUDGET is a budget that is not adjusted for changes in the volume of service. See FLEXIBLE BUDGET.
FIXED CHARGE is those expenses incurred each time a batch of product is produced. Primarily consists of ordering cost for the raw material, engineering costs for machine setup and preparation for the production run, and work order processing cost; also known as SETUP COST.
FIXED CHARGE RATIO is calculated: total fixed costs/total expenses.
FIXED COST is a cost that does not vary depending on production or sales levels, such as rent, property tax, insurance, or interest expense.
FIXED COSTS are operating expenses that are incurred to provide facilities and organization that are kept in readiness to do business without regard to actual volumes of production and sales. Fixed costs remain relatively constant until changed by managerial decision. Within general limits they do not vary with business volume. Examples of fixed costs consist of rent, property taxes, and interest expense.
FIXED FEE is a set price for the completion of a project. It is easier for the customer to budget, but provides higher risk for the contractor due to cost overruns.
FIXED OVERHEAD is those costs like rent, utilities, basic telephone, loan payments, etc., that stay the same whether sales go up or down. Variable overhead, on the other hand, are those costs which vary directly with production.
FIXED EXPENSES in the operation of a business are those expenses that remain the same regardless of production or sales volume, i.e. do not fluctuate with sales volume. Contrast with VARIABLE EXPENSES.
FLASH REPORT provides highlights of key information promptly to the responsible managerial accountant; also called EXCEPTION REPORT.
FLAT INTEREST refers to charging interest on the full original loan amount, rather than on the declining balance. With group based loans, for example, a common "interest rate" is "3% per month, flat, for 4 months". This means that a $100 principal amount lent is multiplied by 3%, and then by 4 months to come up with $12 in interest. Thus, $112 would be repaid over 4 months in equal installments.
FLAT LEASE is a lease where the cost is fixed for a specific period of time.
FLAT RATE is a per unit price that remains constant regardless of the volume purchased.
FLEXIBLE BUDGET is based upon different levels of activity. It is a very useful tool for comparing actual costs experienced to the cost allowable for the activity level achieved, i.e. it is dynamic in nature as compared to static. A series of budgets can be readily developed to fit any activity level. Flexible budgeting distinguishes between fixed and variable cost, thereby allowing for a budget that can be automatically adjusted to the level of activity actually attained.
FLOAT is 1. the time between the deposit of checks in a bank and when the amount is truly accessible; 2. the amount of funds represented by checks that have been written but not yet presented for payment. Some entities will 'play the float' by writing checks although there are insufficient funds actually on deposit to cover the checks; and, 3. to issue new securities through an underwriter.
FLP is Family Limited Partnership.
FMR see FINANCING MARGIN RATIO.
FOOTING, in accounting, is the sum of a column of figures.
F.O.B. (FREE ON BOARD) is a transportation term that indicates that the price for goods includes delivery at the seller’s expense to a specified point and no further. The FOB term is used with an identified physical location to determine 1) the responsibility and basis for payment of freight charges, and 2) the point a twhich title for the shipment passes from seller to buyer.The FOB location terms, Origin and Destination, may be qualified by modifiers. The modifier determines the payment of the transportation charges. Modifiers denote nothing about the title of the goods or filing of claims. The most three common modifiers are: Collect, Prepaid & Add, and Prepaid & Allow. Collect: The carrier collects the transportation charges from the buyer. Prepaid & Add: The seller prepays the transportation charges, but adds the charges to the invoice for reimbursement from the buyer .Prepaid & Allow: The seller prepays the transportation charges and they are already included in the contract price.
F.O.B. DESTINATION is where the seller retains title and control of goods until they are delivered and the contract of carriage has been completed. The seller selects the carrier and is responsible for the risk of transportation.
FOB POINT OF ORIGIN is where the supplier is responsible for all shipping costs to the point of having the goods loaded unto the vessel for shipment to its destination. The purchaser, from that point forward, is responsible for all further shipping costs to the point of destination, e.g., insurance, transportation, etc.
FOLIO, dependent upon application, is a. a book (or manuscript) consisting of large sheets of paper folded in the middle to make two leaves or four pages; or, b. a sheet of any written or printed material (especially in a manuscript or book); or, c. the system of numbering pages; or, d. in investments, an unstructured basket of common stock that may represent a stock index, a sector or theme, or even an actively-managed portfolio at inception, but which may be modified by an investor or an advisor to meet the tax and spending needs of its owner. The rationale for the folio is to take advantage of diversification and the ability to realize tax losses in a separately managed account. In general, an investor will have to devote a fair amount of time to the folio or engage the services of a specialized advisor.
FOOTING is the sum of a column of figures.
F.O.R. (FREE ON RAILROAD) is where goods will be delivered by the exporter to a railway station. The importer is responsible from this point on.
FORECAST is to estimate or calculate expected business results in advance. To plan the business course for the future. A document that sets down the plan. See BUSINESS PLAN, PROJECTION, BUDGET.
FOREIGN CURRENCY TRANSLATION is the process of restating foreign currency accounts of subsidiaries into the reporting currency of the parent company in order to prepare consolidated financial statements in the native currency of the parent company.
FOREIGN SALES AGENT or REPRESENTATIVE is an entity that works to sell your merchandise in a foreign country. Equivalent to the “Manufacturer's Representative” in the
FORENSIC ACCOUNTING provides for an accounting analysis that is suitable to a court of law which will form the basis for discussion, debate and ultimately dispute resolution. Forensic accounting encompasses investigative accounting and litigation support. Forensic accountants utilize accounting, auditing and investigative skills when conducting an investigation. Equally critical is the ability to respond immediately and to communicate financial information clearly and concisely in a courtroom setting.
FORM 1065 (Schedule K-1) is the domestic partnership income tax return form used in the
FORM 1120 is the income tax return form used by corporations in the
FORESEEABLE is what may be reasonably anticipated.
FORWARD LOOKING STATEMENTS, within the meaning of the
are statements made that are not historic and are thereby predictive. You can identify forward-looking statements by use of the words “believe”, “expect”, “anticipate”, “intend”, “estimate”, “assume”, “project” and other similar expressions that predict or indicate future events and trends or that do not relate to historical matters. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements.
FORWARD PREMIUM is when a currency trade forward price is higher than its spot price.
FP, among others, means Fixed Price.
FRANCHISE is a legal arrangement giving rights to sell a product or service.
FRAUD is intentional deception resulting in injury to another person or entity
FREE CASH FLOW is net income plus non-cash charges to income, specifically depreciation and amortization less capital expenditures, to sustain the basic business.
FREE TRADE AGREEMENT is an agreement between countries that will result, over an agreed period of time, in an elimination of duties for goods flowing between the signatories.
FREE TRADE ZONE (FTZ) is an area, usually a port of entry, designated by the country for duty-free entry of goods. As long as the goods do not go into the country from the FTZ, no duty is assessed. While in the FTZ, goods may be processed, packaged, serviced or displayed.
FREIGHT FORWARDER is an individual or firm that provides for the packing and shipping of merchandise. Generally they also assist with export and other documentation.
FRIENDLY TAKEOVER consists of a straight buyout of a company, and happens all the time. The shareholders receive cash or (more commonly) an agreed-upon number of shares of the acquiring company's stock.
FREQUENCY, in advertising, is the number of times you hope to reach your target audience through your advertising campaign.
FRF is an acronym for French Francs.
FRR see FINANCIAL REPORTING RELEASE.
FRS 19, in the
A.
Deferred tax is provided on timing differences relating to:
- accelerated capital
allowances and depreciation
- accruals for and payments of pension and other post retirement benefits
- the elimination of unrealized intra group profits
- unrelieved tax losses
- “fair value revaluations” that are taken annually to the profit and loss account
- other short-term timing differences
- accruals for and payments of pension and other post retirement benefits
- the elimination of unrealized intra group profits
- unrelieved tax losses
- “fair value revaluations” that are taken annually to the profit and loss account
- other short-term timing differences
B.
Deferred tax is not provided on timing differences relating to:
- other fixed asset
revaluations, where there is no intention to sell
- gains that are rolled over
- unremitted overseas earnings, where there is no intention to remit.
The FRS 19 Standard also includes further,
detailed measurement and disclosure rules.- gains that are rolled over
- unremitted overseas earnings, where there is no intention to remit.
FSA has several possible meanings, e.g. Flexible Spending Account (employee benefit offered by some companies) or Funding Standard Account.
FULL CHARGE BOOKKEEPER is someone who can do it all - including compiling the data into the General Ledger and preparing financial statements.
FULL COSTING see ABSORPTION COSTING.
FULL COST RECOVERY is adjusting fees/prices for goods/services to where all cost of operations and maintenance are covered for supplying the given goods or services.
FULL DISCLOSURE, generally, is the requirement to disclose all relevant or material facts to a transaction.
FULLY DEPRECIATED is when an asset has already been charged with the maximum amount of depreciation allowed by the taxing authority for accounting purposes.
FUND is a pool of money normally set apart for a purpose, for example, a pension fund to provide pensions.
FUND ACCOUNTING is a method of accounting and presentation whereby assets and liabilities are grouped according to the purpose for which they are to be used. Generally used by government entities and not-for-profits.
FUNDAMENTAL ANALYSIS is a method used to evaluate the worth of a security by studying the financial data of the issuer. Performing fundamental analysis will teach you a lot about a company, but virtually nothing about how it will perform in the stock market. Apply this analysis on two competing companies or in comparisone to its industry and it becomes clearer which the best investment choice is. See FUNDAMENTALS.
FUNDAMENTALS are factors which are “fundamental” to the working of a company’s business, its profitability, operating costs, product prices, technical innovations, etc. Company analysis taking into account these fundamental factors facilitates share valuation. See FUNDAMENTAL ANALYSIS.
FUNDED DEPRECIATION ACCOUNT is a reserve setup to cover the replacement cost of those capital assets covered within the depreciation schedule.
FUND MANAGEMENT is the professional, in many cases regulated, caretaker of client assets for a fee. Dependent upon type of fund, the fund may be authorized to put assets within the fund at risk in the pursuit of profits for the asset owners (clients).
FUNDS FLOW is the funds generated from operations; normally expressed as 'cash flow from operations' or 'working capital from operations'.
FUTA see FEDERAL UNEMPLOYMENT TAX ACT.
FUTURE VALUE is the amount of money that an investment made today (the present value) will grow to by some future date. Since money has time value, we naturally expect the future value to be greater than the present value. The difference between the two depends on the number of compounding periods involved and the going interest rate.
FX ACCOUNT (Foreign Exchange Account) is a trading account usually based in foreign currencies.
FYE is For Year Ending.
GAAP see GENERALLY ACCEPTED ACCOUNTING PRINCIPLES.
G&A usually refers to the indirect overhead costs contained within the General and Administrative expense / cost categories (see also SG&A).
GAI is Guaranteed Annual Income.
GAO see GENERAL ACCOUNTING OFFICE.
GARBAGE IN, GARBAGE OUT (GIGO) is an often used computer and software industry saying meaning that if the data going into a system is suspect, the resulting data output will be suspect.
GASB stands for Government Accounting Standards Board.The GASB is a nonprofit organization responsible for establishing and improving accounting and financial reporting standards for governmental units.
GATT (GENERAL AGREEMENT ON TARIFFS AND TRADE) is a multilateral treaty that aims to reduce trade barriers and increase trade. The GATT was an interim treaty process that has now culminated in the World Trade Organization (WTO).
GBP is United Kingdom Pound Sterling (Currency Code).
GDP see GROSS DOMESTIC PRODUCT.
GEARING is the proportion of the capital employed of a company that is financed by lenders rather than shareholders.
GEARING RATIO measures the percentage of capital employed that is financed by debt and long term financing. The higher the gearing, the higher the dependence on borrowing and long term financing. Whereas, the lower the gearing ratio, the higher the dependence on equity financing. Traditionally, the higher the level of gearing, the higher the level of financial risk due to the increased volatility of profits. Financial manager face a difficult dilemma. Most businesses require long term debt in order to finance growth, as equity financing is rarely sufficient, on the other hand, the introduction of debt and gearing increases financial risk. A high gearing ratio is positive; a large amount of debt will give higher return on capital employed but the company dependent on equity financing alone is unable to sustain growth. Gearing can be quite high for small businesses trying to become established, but in general they should not be higher than 50%. Shareholders benefit from gearing to the extent that return on the borrowed money exceeds the interest cost so that the market value of their shares rise.
GENERAL ACCOUNTING involves the basic principles, concepts and accounting practice, recording, financial statement preparation, and the use of accounting information in management.
GENERAL ACCOUNTING OFFICE (GAO) is the organization in the U.S. Congress that investigates the performance of the federal government. GAO evaluates the use of public funds and the performance of federal programs, while also providing analytical, investigative and legal services in order to support to Congress in its policy formulation and decision making processes. Most GAO reports are initiated at the request of Congress, while some are initiated by the agency itself or are required by law.
GENERAL EXPENSE is expense not directly connected with any single department.
GENERAL JOURNAL is the most basic of journals. It is a chronological list of transactions. It has a very specific format for recording each transaction. Each transaction is recorded separately and consists of: 1.) a date; 2.) any and all accounts to receive a debit entry are listed first with an amount in the appropriate column, then; 3.) any and all accounts to receive a credit entry are indented and listed next with an amount in the appropriate column; 4.) a clear description of the transaction. At least one line is then skipped to visually separate recorded transactions.
GENERAL LEDGER is the record of all account entries.
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (GAAP) is a recognized common set of accounting principles, standards, and procedures. GAAP is a combination of accepted methods of doing accounting and policy board set authoritative standards.
GENERALLY ACCEPTED AUDITING STANDARDS (GAAS), in the
GENERAL LEDGER is the accounting records that show all the financial statement accounts of a business.
GENERAL PARTNERSHIP is one or more partners who are jointly and severally responsible or liable for the debts of the partnership.
GEOGRAPHICAL SEGMENT is a component of an enterprise that (a) provides products and services within a particular economic environment and (b) that is subject to risks and returns that are different from those of components operating in other economic environments.
GFOA is Government Finance Officers' Association.
GILT is a bond issued by the
GLOBAL CUSTODY is a term used within the investment banking industry in defining securities/monetary instruments that are traded internationally by Global Custodians. Those securities would be held in "Global Custody". Chase Bank originated the concept of providing Global Custody trading services for institutional investors trading in foreign markets in 1974. Banks recognized as Global Custodians provide their customers with Global Custody services in respect to securities traded and settled not only in the country in which the Global Custodian is located but also in numerous other countries throughout the world.
GLOBAL DEPOSITORY RECEIPTS are receipts evidencing ownership in the underlying shares of a foreign company. Generally,
GLOBAL MUTUAL FUND, also Bond Fund, is a mutual fund that can invest in stocks and bonds throughout the world. Such funds typically have a portion of their assets in American markets as well as Europe,
GMP is either Good Manufacturing Practice(s) or Gross Maximum Price.
GMROI is an acronym for Gross Margin Return On Investment (retail).
GNP see GROSS NATIONAL PRODUCT.
GOAL is the milestone the organization aims to achieve that evolves from the strategic issues. They transform strategic issues into specific performance targets that impact the entire organization. They can be qualitative or quantitative. Dependent upon usage, GOALS are general in nature, while OBJECTIVES are specific, measurable and time-based. In some organizations, the meanings for GOAL and OBJECTIVE are reversed.
GOING CONCERN refers to the liquidity of a concern. If the concern is illiquid, the viability of that concern being able to continue to operate is in doubt.
GOING CONCERN CONCEPT is the underlying assumption that any accountant makes when he prepares a set of accounts. That the business under consideration will remain in existence for the foreseeable future.
GOING CONCERN PRINCIPLE assumes that the accounting entity will maintain proper accounting records from the date of its establishment to the date of its liquidation.
GOING PUBLIC refers to those activities that relate to offering a private company's shares to the general investing public including registering with the SEC.
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