NAGBOR is Net Adjusted Gross Box Office Receipts.
NASD is National Association of Securities Dealers.
NASDAQ is a computerized system established by the NASD to facilitate trading by providing broker/dealers with current bid and ask price quotes on over-the-counter stocks and some listed stocks. Unlike the Amex and the NYSE, the NASDAQ (once an acronym for the National Association of securities Dealers Automated Quotation system) does not have a physical trading floor that brings together buyers and sellers. Instead, all trading on the NASDAQ exchange is done over a network of computers and telephones. Also, theNASDAQ does not employ market specialists to buy unfilled orders like the NYSE does. The NASDAQ began when brokers started informally trading via telephone; the network was later formalized and linked by computer in the early 1970s. In 1998 the parent company of the NASDAQ purchased the Amex, although the two continue to operate separately. Orders for stock are sent out electronically on the NASDAQ, where market makers list their buy and sell prices. Once a price is agreed upon, the transaction is executed electronically.
NATURAL ACCOUNTS in the Chart of Accounts are user defined accounts for the activities associated with the accounting entity that capture data at the transaction level. Natural accounts exist for a range of Assets, Liabilities, Equity accounts, Revenues, and Expenses.
NATURAL BUSINESS YEAR is a fiscal year based on the cycle of the given business rather than a calendar year. The year ends with inventories and activities at a low level, e.g., after winter shipments for a ski manufacturer.
NATURAL CLASSIFICATION of costs focuses on the nature of the cost item. In this classification structure, the total operating costs of an activity can be classified into manufacturing costs and commercial costs. Manufacturing costs include all direct materials and direct labor, as well as, factory overhead. Such factory overhead costs include indirect materials (such as factory supplies & lubricants), indirect labor (such as supervision and inspection) and other indirect costs (such as rent, insurance, and utilities). Commercial expenses include marketing expenses (such as advertising, printing, and sales salaries) and administrative (general and administrative (G&A)) expenses (such as administrative office salaries, rent, and legal expenses).
NCD is Negotiable Certificate of Deposit.
NEAR-CASH ASSETS are non-cash assets that can be readily exchanged for cash within a relatively short period (e.g., short-term CD's and money market funds).
NEBT is Net Earning Before Taxes.
NEGATIVE AMORTIZATION is a loan repayment schedule in which the outstanding principal balance of the loan increases, rather than amortizing, because the scheduled monthly payments do not cover the full amount required to amortize the loan. The unpaid Interest is added to the outstanding principal, to be repaid later.
NEGATIVE CASH FLOW is where expenditures required to maintain an investment exceed income received on the investment, i.e. spending in a business is greater than earnings.
NEGATIVE CONTRIBUTOR is any item, activity, or cost that offsets attainment of positive results, e.g., a rise in unemployment and its effect upon the economy.
NEGATIVE GOODWILL arises where the net assets at the date of acquisition, fairly valued, exceed the cost of acquisition. It is reflected on the balance sheet net of other intangible assets. Negative goodwill is recognized as income as follows:
- To the extent that negative goodwill relates to expected future losses and expenses, it is recognized in the income statement when the future losses and expenses are recognized.
- The amount of negative goodwill relating to identifiable non-monetary assets (not exceeding the fair values of such acquired assets), is recognized as income on a systematic basis over the remaining useful lives of the identifiable acquired
depreciable/amortizable assets with a maximum of 20 years.
- The amount of the negative goodwill in excess of the fair values of the acquired identifiable non-monetary assets is recognized as income immediately.
- The amount of the negative goodwill relating to monetary assets is recognized as income immediately
NOTE: Intangible assets are not revalued.
NEGATIVE PLEDGE CLAUSE is a covenant or promise in an indenture agreement that states the corporation will not pledge any of its assets if doing so would result in less security to the debt holders covered under the indenture agreement. Also called covenant of equal coverage.
NEGATIVE WORKING CAPITAL is when current liabilities exceed current assets.
NEGLIGENCE is the omission to do something which a reasonable man, guided by those ordinary considerations which ordinarily regulate human affairs, would do, or the doing of something which a reasonable and prudent man would not do.
NEGOTIABLE INSTRUMENT can be a check, promissory note, bill of exchange, security or any document representing money payable which can be transferred to another by handing it over (delivery) and/or endorsing it (signing one's name on the back either with no instructions or directing it to another). A negotiable instrument is a contract and subject to the rules governing contract law. However, a negotiable instrument may be distinguished from an ordinary contract by the fact that a negotiable instrument may be written in a way that makes it transferable. This quality of negotiation can generally allow the instrument to be used as a substitute for money by holders in due course, despite the defensive claims between the original parties who drafted the negotiable instrument. In order to be negotiable, the bill or note must be payable to order, or to bearer. Some promissory notes contain a clause(s) making them non-negotiable.
NET, in general, is the figure remaining after all relevant deductions have been made from the starting, or gross, amount.
NET ACCOUNTS RECEIVABLE is equal to total accounts receivable, minusan estimate for amounts the company believes it will never collect.
NET ASSETS is the difference between total assets and current liabilities including noncapitalized long-term liabilities.
NET ASSETS BASIS is a simple division of net asset attributable to the class of shareholders with the number of shares, i.e. the per share value of net assets.
NET ASSET VALUE (NAV) in securities, except money market funds which always have a NAV of $1.00, represents the market value or price of one fund share. It is calculated by the total value of the fund's portfolio less liabilities divided by the number of shares; or, in corporate valuations, it is a measure of the shareholders’ aggregate wealth in the company, which is defined as the actual or hypothetical market value of the company’s assets less its liabilities.
NETBACK is linkage of the price of crude oil to the market price of products refined from it.
NET BOOK VALUE is the current book value of an asset or liability; i.e., its original book value net of any accounting adjustments such as depreciation.
NET CASH FLOW equals cash receipts minus cash payments over a given period of time; or equivalently, net profit plus amounts charged off for depreciation, depletion, and amortization. also called cash flow. Net cash flow is a measure of a company's financial health.
NET CHANGE IN CASH is calculated by adding cash from operating, investing, and financing activities and foreign exchange effects from the Statement of Cash Flows.
NET CONTRIBUTION is the amount remaining after all relevant deductions have been made to the gross amount, e.g., Net Contribution to Margin.
NET CURRENT ASSETS see WORKING CAPITAL.
NET DEBT is: debt + short term loans less cash on hand.
NET EARNINGS see NET PROFIT.
NET INCOME is the difference between a businesses total revenue and its total expenses. This caption and amount is usually found at the bottom of a company's Profit and Loss statement. Same as Net Profit.
NET INTEREST INCOME see NET INTEREST MARGIN.
NET INTEREST MARGIN is the interest income earned on assets less interest expense paid on liabilities and capital. NET INTEREST MARGIN is the gross margin for financial institutions.
NET LEASES, typically, there are three net leases: net lease, double-net lease, and triple-net lease. A net lease is a base rent plus an additional charge for taxes. A double-net lease is a base rent plus an additional charge for taxes and insurance. A triple-net lease is base rent plus an additional charge for taxes, insurance, and common area expenses.
NET MARGIN see NET PROFIT MARGIN.
NET OF TAXES means the effect of applicable taxes (usually income taxes) has been considered in determining the overall effect of an item on the financial statements. The phrase is used when a company has items that must be disclosed in a separate section. Each such item should be reported net of the applicable taxes.
NET OPERATING INCOME (NOI) is income after deducting for operating expenses but before deducting for income taxes and interest.
NET OPERATING LOSS (NOL) is experienced by a business when business deductions exceed business income for the fiscal year. For income tax purposes, a net operating loss can be used to offset income in a prior year, or a taxpayer can elect to forego the carry back and carry the net operating loss forward.
NET OPERATION PROFIT AFTER TAXES (NOPAT) is a profitability measure that omits the cost of debt financing (i.e. it omits interest payments, along with their associated tax break). NOPAT is primarily used in the calculation of EVA. It is calculated: NOPAT = operating income x (1 - Tax Rate).
NET PATIENT REVENUE (NPR), in hospitals, is gross inpatient revenue plus gross outpatient revenue minus related deductions from revenue.
NET PRESENT VALUE (NPV) is a method used in evaluating investments, whereby the net present value of all cash outflows (such as the cost of the investment) and cash inflows (returns) is calculated using a given discount rate, usually REQUIRED RATE OF RETURN. An investment is acceptable if the NPV is positive. In capital budgeting, the discount rate used is called the HURDLE RATE and is usually equal to the INCREMENTAL COST OF CAPITAL.
NET PROFIT is the company's total earnings, reflecting revenues adjusted for costs of doing business, depreciation, interest, taxes and other expenses. Same as Net Income.
NET PROFIT MARGIN (NPM After Tax) measures profitability as a percentage of revenues after consideration of all revenue and expense, including interest expenses, non-operating items, and income taxes. For a business to be viable in the long term profits must be generated; making the net profit margin ratio one of the key performance indicators for any business. It is important to analyze the ratio over time. A variation in the ratio from year-to-year may be due to abnormal conditions or expenses which need to be addressed. A decline in the ratio over time may indicate a margin squeeze suggesting that productivity improvements may need to be initiated. In some cases, the costs of such improvements may lead to a further drop in the ratio or even losses before increased profitability is achieved.
NET PROFIT MARGIN (NPM Pre-Tax) incorporates all of the expenses associated with ordinary business (excluding taxes) thus is a measure of the overall operating efficiency of the firm prior to any tax considerations which may mask performance. For a business to be viable in the long term profits must be generated; making the net profit margin ratio one of the key performance indicators for any business. It is important to analyze the ratio over time. A variation in the ratio from year-to-year may be due to abnormal conditions or expenses which need to be addressed. A decline in the ratio over time may indicate a margin squeeze suggesting that productivity improvements may need to be initiated. In some cases, the costs of such improvements may lead to a further drop in the ratio or even losses before increased profitability is achieved.
NET PURCHASES are those items purchased less returns, discounts and allowances on those purchases.
NET RECEIVABLES are a company's accounts receivable (money owed to the company) minus any provisions for bad debts.
NET REVENUE is GROSS REVENUE less discounts, allowances, sales returns, freight out, etc.
NET SALES TO GROSS SALES shows the percent of all transactions that may be considered as "good" net transactions. Differences may arise from returns, bad product, or other sales concessions.
NET 10, 30, etc. usually refers to payment terms on an invoice, e.g. 'Net 10 2%, 30', would mean that if a purchaser pays the invoice within 10 days a 2% reduction in invoice amount may be enjoyed, but full invoice amount is due within 30 days.
NETTING can be the settling of mutual obligations at the net value of a contract as opposed to its gross dollar value; or, the reduction of transfers of funds between subsidiaries or separate companies to a net amount.
NET-TO-NET LEASE is where a tenant pays a basic rental amount typically based on the square footage of the leased property plus all or a portion of the charges associated with the property including but not limited to property taxes, utilities, insurance, assessments and property maintenance.
NET WORTH is the difference between Total Liabilities and Total Assets. Minority interest is included here.
NEUTRALITY, in an economic model, is where money is said to be neutral in the model if changes in the level of nominal money have no effect on the real equilibrium.
NEXUS, dependent upon usage, is a. the means of connection between things linked in series; or, b. a connected series or group; or, c. is the sufficient presence within the jurisdiction of a taxing authority. The taxable income of a multistate corporation may be apportioned to a specific state only if the corporation has a sufficient nexus in the state. The nexus for state sales tax requires a physical presence in the state, whereas the nexus for state income tax purposes requires more than just solicitations of sales.
NFP ACCOUNTING STANDARDS are established by the Financial Accounting Standards Board (FASB) or the Government Accounting Standards Board (GASB). Additionally, the American Institute of Certified Public Accountants (AICPA) influences the accounting for nonprofit organizations with its industry and accounting guides and Statements of Position (SOPs).
NIAT is Net Income After Taxes.
NIM is Net Interest Margin.
NOMINAL means small payment, or value.
NOMINAL ACCOUNTS are those accounts that are closed out each period: revenue accounts, expense accounts, and dividend or withdrawals accounts.
NOMINAL DOLLARS are dollars that have not been adjusted for inflation.
NOMINAL CAPITAL is total face value of authorized issuable capital.
NOMINAL INTEREST RATE is the stated, or named, interest rate in a note or contract; the nominal interest rate may differ from the true or effective interest rate. See EFFECTIVE INTEREST RATE.
NOMINAL LEDGER is the account book showing expenditure on nominal accounts i.e. named business accounts such as postage, printing, etc.
NOMINAL VALUE is the par, or face, value of something e.g. a share issue.
NON-CASH EXPENSE is that expense which is recognized within the financial statements without actual cash being disbursed (e.g., depreciation, amortization, and write-offs).
NON-CASH FINANCING & INVESTING is where information about transactions and other events that do not result in any cash flows during the financial year but affect assets and liabilities that are recognized must be disclosed in the financial report where the transactions and other events: a. involve parties external to the entity; and b. relate to the financing or investing activities of the entity.
NON-CURRENT ASSETS includes PPE (property, plant and equipment) as opposed to current assets which includes cash, cash equivalents (e.g. securities, short-term notes, etc.), inventory and accounts receivable.
NON-DISCRETIONARY means it is mandatory, not up to the individual or company.
NON-DISCRETIONARY ACCRUAL is a mandatory expense/asset that is recorded within the accounting system that has yet to be realized. An example of this would be payroll taxes.
NON-EQUITY SHARE is a share in an entity that a. evidences indebtedness of the entity to the holder of the share, and b. does not represent an equity interest in the entity.
NON-EXPENDABLE PROPERTY is durable (e.g., equipment and furniture), lasting for a year or longer, and generally has a high dollar value. Non-expendable property must be accounted for throughout its useful life.
NON-EXPENSE CASH DISBURSEMENT is spending not shown on the income statement, i.e., the expenditure of cash on something that does not appear on the profit-and-loss statement, for example, spending on a fixed asset or discharging part or the entire principal in a debt.
NON-FIXED ASSET is normally equipment and furnishings with an original purchase value less than some pre-determined value (e.g., <$1,000 in acquisition cost assets are considered to be non-fixed assets). These items are not assigned asset inventory tags. Typical examples of non-fixed asset items are calculators, typewriters, chairs, desks, filing cabinets, shelving units and small tools.
NON-FIXED INCOME refers to any income that is not fixed, e.g. wages, profits realized on the sale of assets and/or securities. See FIXED INCOME.
NON-INTEREST BEARING BOND is a bond issued at a discount from its par value and not paying any interest to the holder. The interest earned is determined by the difference between the redemption price and the purchased price. U.S. Treasury bills are an example of non-interest bearing bonds.
NON-INTEREST INCOME, in securities, is comprised of service fees and trading and other income, excluding gains/losses on securities transactions.
NON-MONETARY ASSET see MONETARY ASSET.
NON-PERFORMING ASSET is an asset not effectual in the production of income. For example, in banking, commercial loans 90 days past due and consumer loans 180 days past due are classified as non-performing.
NON-PROFESSIONAL SUBSCRIBER means any natural person who is neither: (a) registered or qualified in any capacity with the SEC, the Commodities Futures Trading Commission, any state securities agency, any securities exchange or association, or any commodities or futures contract market or association; (b) engaged as an "investment advisor" as that term is defined in Section 201 (11) of the Investment Advisors Act of 1940 (whether or not registered or qualified under that Act); nor, (c) employed by a bank or other organization exempt from registration under federal or state securities laws to perform functions that would require registration or qualification if such functions were performed for an organization not so exempt. See PROFESSIONAL SUBSCRIBER.
NONPROFIT ORGANIZATION is one that has committed legally not to distribute any net earnings (profits) to individuals with control over it such as members, officers, directors, or trustees. It may pay them for services rendered and goods provided. Also known as NOT-FOR-PROFIT ORGANIZATION.
NONRECURRING is an income statement item that is infrequent in occurrence or unusual in nature.
NON-TRADE DEBT is that debt where invoices are issued to individuals not suppliers (trade).
NO-PAR VALUE CAPITAL STOCK are shares designated in the charter that do not have a par or assigned value printed on the issued stock certificate.
NOPAT see NET OPERATION PROFIT AFTER TAXES.
NOPLAT is Net Operating Profit Less Adjusted Taxes.
NORMAL BALANCE, in accounting, is the side of an account, whether debit or credit, to which increases to the account are recorded.
NORMALIZED EARNINGS is earnings that have been adjusted in order to take into account the effect of cycles in the economy.
NORMAL LOSS takes into account the nature of many process operations is such that the output volume is frequently less than the input volume. Because process operations are repetitive, the level of ‘losses’ of materials/product that could reasonably be expected under efficient operating conditions may be established. This is referred to as a ‘normal’ loss; one that is an inevitable consequence of the process operation under efficient operation conditions and is thus considered unavoidable. Losses greater (ABNORMAL LOSS) or less (ABNORMAL GAIN) than normal are referred to as ‘abnormal’ and result from reduced or greater efficiency.
NORMAL PROFIT is the opportunity cost of using entrepreneurial abilities in the production of a good, or the profit that could have been received by entrepreneurship in another business venture. Like the opportunity costs of other resources, normal profit is deducted from revenue to determine economic profit. It is, however, never included as an accounting cost when accounting profit is computed.
NORMAL RATE OF RETURN, for individuals, is the average rate of return on all investments, i.e. the average of all returns yields the normal rate of return. For capital investments for businesses, it is the profit relative to capital investment.
NORMAL SPOILAGE consists of defective units that arise as part of regular operations. If normal spoilage arises from the requirements of a specific job, the cost of the spoiled units is charged to the job.
NORMATIVE ACCOUNTING THEORY is where theorists tend to advocate their opinions on accounting based upon subjective opinion, deductive logic, and inductive methods. In the final analysis, nearly all standards are based upon normative theory. Generally conclude that some accounting rule is better or worse than its alternatives. Normative theorists tend to rely heavily upon anecdotal evidence (e.g., examples of fraud) that generally fails to meet tests of academic rigor. For example, the Wizard reported that Montgomery Ward would fail. However, the Wizard always reports that every company will fail or lose its self identity in a pattern of acquisitions and mergers. Eventually, he will always be correct.
NOSTRO ACCOUNT is an account held by a bank in a foreign country in the currency of that country e.g., a German bank with an account in
NOTARIAL is relating to or done by a notary public.
NOTARY PUBLIC is a certifier of legal documents, i.e., somebody who is legally authorized to certify the authenticity of signatures and documents. Also called notary.
NOTE see PROMISSORY NOTE.
NOTES PAYABLE are all note obligations, including bank and commercial paper. Does not include trade notes payable.
NOTES RECEIVABLE is a debt due from borrowers evidenced by a written promise of payment. Note receivable, an entry on the asset side of many corporate balance sheets, indicates the dollar amount of loans due to be repaid by borrowers.
NOTES TO THE FINANCIAL STATEMENTS is a detailed set of notes immediately following the financial statements contained in the annual report that expands upon and/or explains in some depth the information contained in the financial statements.
NOT-FOR-PROFIT ACCOUNTING is the adherence to NFP ACCOUNTING STANDARDS. These standards are established by the Financial Accounting Standards Board (FASB) or the Government Accounting Standards Board (GASB). Additionally, the American Institute of Certified Public Accountants (AICPA) influences the accounting for nonprofit organizations with its industry and accounting guides and Statements of Position (SOPs).
NOT-FOR-PROFIT ORGANIZATION see NONPROFIT ORGANIZATION.
NPPE is Net Property, Plant and Equipment.
NPR see NET PATIENT REVENUE.
NPV is an acronym for Net Present Value.
NRGT (Non-Resettable Grand Total) is a concept used in retail point of sale (POS) terminals that does not allow the Grand Total to be reset, but does allow adjustments to be entered, e.g., errors, overwring, etc. Improved security and control is provided for independent retail and chain operations with a Non-Resettable Grand Total (NRGT). Updated by all sales, this valuable audit figure may be selected by programmability to print on the Daily Business Report.
NRV, in accounting, is Net Reserve Value.
NSF is Not Sufficient Funds (return check reason code).
NTA can mean either Net Tangible Assets or Net Total Assets.
NWC is Net Working Capital.
NZIAS is New Zealand International Accounting Standards.
NZICA stands for New Zealand Institute of Chartered Accountants.
NZIRFS is New Zealand International Financial Reporting Standards.
OAC is On Approved Credit.
O&M is an acronym for either Operations & Maintenance or Operations & Management.
OASDI is Old-Age, Survivors, and Disability Insurance (US Social Security).
OBJECT CODE designates the type of expense or revenue to be charged to an account.
OBJECT COST is the total cost of producing an item: direct cost (labor & material) + overhead cost = Total Object Cost.
OBJECTIVE is a statement that is written in terms of specific measurable time-based and verifiable outcomes that challenge the organization to be more responsive to the environment to achieve the desired goals. 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.
OBJECTIVITY PRINCIPLE states that accounting will be recorded on the basis of objective evidence. Objective evidence means that different people looking at the evidence will arrive at the same values for the transaction. Simply put, this means that accounting entries will be based on fact and not on personal opinion or feelings.
OBLIGATE is to cause to be indebted or grateful. To de-obligate would be to enable the debt to be forgiven or expunged.
OBLIGATION, in business, is a legal duty to pay or do something.
OBLIGATION BOND is a bond signed by a mortgagor (borrower) for an amount greater than the loan amount. Such a bond creates a personal obligation on the part of the borrower and assures the lender of recourse in case of nonpayment of property taxes and insurance or past due interest on the mortgage.
OCBOA is Other Comprehensive Basis of Accounting.
OCI see OTHER COMPREHENSIVE INCOME.
OCCUPANCY COST is any cost or charge incurred by a tenant pursuant to its lease, such as rent, operating expense increases, parking charges, moving expenses, remodeling costs, etc.
OCF see OPERATING CASH FLOW.
OCOGS is Operating Cost of Goods Sold.
OCOR see OPPORTUNITY COST OF REVENUE.
OCSE is Office of Child Support Enforcement.
OEI is Outside Equity Interest.
OEM is an acronym for Original Equipment Manufacturer.
OFA is Oracle Flexible Architecture or Oracle Financial Accounting.
OFF-BALANCE SHEET is not fully documented accounting transactions that can potentially incur risks of loss that are not fully transparent to investors.
OFF-BALANCE SHEET ASSET is an item representing a resource of the entity or something that is projected to have future economic value. It is a positive indicator of the entities financial position even though it is not contained within the balance sheet.
OFF-BALANCE SHEET FINANCING a. is a form of borrowing in which the obligation is not recorded on the borrower’s financial statements. Off-balance sheet financing can employ several different techniques, which include development arrangements, leasing, product financing arrangements or recourse sales of receivables. Off-balance sheet financing will raise concerns regarding the lenders’ overall risk, but it improves their debt to equity ratio, which enhances their borrowing capacity. As a result, loans are often easy to arrange and are given lower interest rates because of the improved debt structure on the balance sheet. Off-balance sheet financing is a technique often used by multinational businesses in order to secure additional loans on the worldwide loan market; and, b. is a method of obtaining funds through a long-term non-cancelable lease that is accounted for as an operating lease. The lease does not meet the criteria of a 'capital lease'. This being the case, the present value of the lease obligation in not included in the lessee's balance sheet.
OFF-BALANCE SHEET LIABIILITY is an item not reported within the body of a financial statement as a liability that may require future payment or services, e.g., litigation, renegotiated claims within a government contract, and guarantees of future performance.
OFF-BOOK PARTNERSHIP is a type of blind trust. It offers some advantages over the traditional methods of capital procurement. In some cases there is a fatal lack of transparency (e.g. Enron) that allows off-book partners to hide debts, pump profits, launder money and enrich insiders, but ultimately bankrupting the company and stripping assets from its employees’ pension funds. See BLIND TRUST.
OFFER PRICE see ASK PRICE.
OFF-FRONT PAYMENT see UP-FRONT PAYMENT.
OFFICIAL INTEREST RATE, normally, is the rate of interest charged by the government or traders within the money market, e.g., federal funds rate and bank repurchase agreement (repo rate).
OFF-PEAK is not in the period of most frequent or heaviest use: lower rates for telephone calls made during off-peak hours; travelers who take advantage of off-peak fares.
OFFSET is: a. In banking, the deduction by a debtor from a claim or demand of a debt or obligation. Such an offset is based upon a counterclaim against the party making the original claim. Example: Seller makes a claim or files a lawsuit asking for $20,000 from Debtor as the final payment in purchase of a restaurant; as part of his defense Debtor claims an offset of $10,000 for alleged funds owed by Seller for repairs Debtor made on property owned by Seller, thus reducing the claim of Seller to $10,000; b. in accounting, the amount equaling or counterbalancing another amount on the opposite side of the same ledger or the ledger of another account; c. in securities, the elimination of a long or short position by making an opposite transaction. See also OFFSET ACCOUNT.
OFFSET ACCOUNT is an account that is setup for elimination of a long or short position by making an opposite transaction.
OFFSETTING ENTRY see OFFSET.
OFFSOURCE, slang, is to outsource to an offshore location to primarily save on the cost of labor. See OUTSOURCE.
OFF THE BOOKS is a term associated with transactions which do not appear in any of the financial records kept by a business. Strictly speaking, ‘off the books’ implies cash payments received for assets (products and services) which are not officially recorded in the accounting system of the business.
OMAD is Output Message Accountability Data. In SAP transactions, it is the
OMITTED is to leave undone or leave out, i.e. to prevent from being included or considered or accepted.
ON ACCOUNT is a partial payment made towards satisfaction of a debt.
ONE-OFF is a happening that occurs only once and is not repeated, e.g. a one-off sale is a sales event that will occur only once.
ONEROUS CONTRACT is one in which the unavoidable costs of meeting the obligations under the contract exceed the economic benefits to be received under the contract.
ONE-SHOTS is slang for governmental expenditures done on a one time appropriation.
ONE-WRITE SYSTEM (also known as PEGBOARD SYSTEM) is a useful system for small and home-based businesses. It captures information at the time the transaction takes place. These One-Write Systems are efficient because they eliminate the need for recopying the data and are compatible with electronic data processing if you should decide to computerize. Many small businesses rely totally on the One-Write System for simplicity and versatility. With only two pieces of paper, a check and a ledger, you get all the benefits of sound bookkeeping: accuracy, money distribution, check control, audit trail, running bank balance, and instant review.
OPEN ACCOUNT is a non-guaranteed payment arrangement, e.g. similar to department store credit. Goods are purchased and delivered without payment. Future payment for delivered goods is dependent on the good faith of the purchaser.
OPEN ALLOTMENT is where there is no restriction as to an amount that may be taken from that which is being allotted.
OPEN-BOOK CREDIT is a form of trade credit in which sellers ship merchandise on faith that payment will be forthcoming.
OPEN INFLATION means that prices are rising on consumer goods and services.
OPENING BALANCE is the balance of an account at the start of an accounting period.
OPEN ITEM is a contractual or scheduled commitment that is not yet reflected in Financial Accounting but will lead to actual expenditures in the future, e.g. a purchase order that is not shipped in full will list those unshipped items as open items within the shipping invoice.
OPEN MARKET VALUE (OMV) is an opinion of the best price at which the sale of an interest in an asset would have been completed unconditionally for cash consideration on the date of valuation, assuming:
(a) a willing seller;
(b) that, prior to the date of valuation, there had been a reasonable period (having regard to the nature of the asset and state of the market) for the proper marketing of the interest, for the agreement of price and terms and for the completion of the sale;
(c) that the state of the market, level of values and other circumstances were, on any earlier assumed date of exchange of contracts, the same as on the date of valuation;
(d) that no account is taken of any additional bid by a purchaser with a special interest; and
(e) that both parties to the transaction had acted knowledgeably, prudently and without compulsion.
OPEN TO BUY is the dollar amount budgeted by a business for inventory purchases for a specific time period.
OPERATING ALLOWANCE is an advance/reimbursement against certain costs/expenses and/or a reduction in amount payable to cover those certain costs/expenses.
OPERATING ASSETS are long-term, or non-current, assets acquired for use in the business rather than for resale; includes property, plant, and equipment; intangible assets; and natural resources.
OPERATING BUDGET focuses on the budgeted income statement and its supporting components and schedules:
1. SALES AND COLLECTIONS BUDGET represents one of the first steps in the budgeting process, as items such as inventory levels and operating expenses are driven off of the Sales and Collections Budget. Effective sales budgeting is a key factor in building a useful and representative financial model for a business. Regardless of the nature of your business (for example, whether it is product or service-based).
2. COST OF GOODS SOLD BUDGET decomposes, or breaks down, the components of a business’s cost of goods sold (in some cases referred to as the cost of revenues). This budget breaks out each separate factor underlying the cost of goods sold for a business.
3. INVENTORY AND PURCHASES BUDGET represents what a business plans to buy and how much inventory it intends to hold over a given timeframe, is based on three factors: a business’s desired ending inventory, cost of goods sold, and beginning inventory. A business’s desired ending inventory will drive that business’ budgeted purchases over a given period of time. A larger desired ending inventory will typically lead to a larger Purchases Budget and vice-versa. While the Purchases Budget, a component of the Inventory and Purchases Budget, represents an estimate of future purchases, this is an accrual-based accounting figure, and it is the Disbursements for Purchases Budget (another component of the Inventory and Purchases Budget) that drives a company’s cash flows.
4. OPERATING EXPENSES BUDGET forecasts all of the elements of a business’ operating expenses, such as salaries, rent, depreciation, and others. Some of these expenses are fixed and some are variable (in other words, based on another metric, such as revenues). While the Operating Expenses Budget represents an estimate of future expenses, this is an accrual-based accounting figure, and it is the Disbursements for Operating Expenses Budget, a component of the Operating Expenses Budget, that drives a company’s cash flows.
OPERATING CASH FLOW (OCF) is the amount used to represent the money moving through a company as a result of its operations, as distinct from its purely financial transactions.
OPERATING CASH FLOW RATIO is a measure of how well current liabilities are covered by the cash flow generated from a company's operations. It is calculated: OCF = Cash Flow From Operations / Current Liabilities.
OPERATING COST is the expense of maintaining property (e.g., paying property taxes and utilities and insurance); it does not include depreciation or the cost of financing or income taxes. Also known as OPERATING EXPENSE.
OPERATING EXPENDITURES is the amount used during a particular period directly in support of day-to-day operations such as wages, maintenance, office supplies, etc.
OPERATING EXPENSES is all selling and general & administrative expenses. Includes depreciation, but not interest expense.
OPERATING EXPENSES BUDGET forecasts all of the elements of a business’ operating expenses, such as salaries, rent, depreciation, and others. Some of these expenses are fixed and some are variable (in other words, based on another metric, such as revenues). While the Operating Expenses Budget represents an estimate of future expenses, this is an accrual-based accounting figure, and it is the Disbursements for Operating Expenses Budget, a component of the Operating Expenses Budget, that drives a company’s cash flows.
OPERATING EXPENSE TO SALES reports the operating expenses as a percent of Net Revenues. This then is a measure of the total overhead employed in the firm per Net Sales Revenue Dollar; thereby giving an indication of the efficiency of the cost structure of the company. It gives an indication of the ability of a business to convert income into profit. Generally, businesses with low ratios will generate more profit than others. In general business operations with larger and more stable cash flows can sustain higher ratios than smaller and less stable operations. Scale and income stability are important considerations though it is up to the management of a business to monitor costs in an appropriate manner whatever its size.
OPERATING EXPOSURE, in foreign exchange, is currency fluctuations combined with price level changes that can alter the amounts and riskiness of a firm’s future revenues and costs. It is typified by evaluating real exchange gains or losses. It is prospective and long-term in nature.
OPERATING INCOME is revenue less cost of goods sold and related operating expenses that are applied to the day-to-day operating activities of the company. It excludes financial related items (i.e., interest income, dividend income, and interest expense), extraordinary items, and taxes.
OPERATING INTEREST is the legal right to assets used to produce revenue, e.g., produce oil or gas from a well, accompanied by the responsibilities to pay production costs and assume the risks.
OPERATING LEASE is a short-term, cancelable lease.
OPERATING LEVERAGE is fixed operating costs divided by total (fixed plus variable) operating costs.
OPERATING MARGIN is the ratio of operating income to sales revenue.
OPERATING PROFIT is Gross Profit minus Operating Expenses.
OPERATING PROFIT TO SALES is a useful ratio when evaluating value of a firm. It discounts the effect of varying tax rates and benefits to give a more accurate indication of the return associated with the firm.
OPERATING RATIO measures a firm's operating efficiency; calculated: company operating expenses divided
by its operating revenues.
OPERATING REVENUE is that revenue realized from the day-to-day operations of the entity, e.g., sales revenue.
OPERATING RISK is the inherent or fundamental risk of a firm; without regard to financial risk. It is the risk that is created by operating leverage. Sometimes called business risk.
OPERATING TRANSFER specifically identifies the transfer of resources from one fund/account to another made to support the normal level of operations of the receiving fund/account.
OPERATION AGREEMENT, within an LLC, is similar to the constitution of a corporation. It is drafted primarily because an LLC only has a basic Articles of Organization that is very general in nature. An Operation Agreement has much more specificity as to the formation and operation of the LLC organization.
OPERATIONAL GEARING is the higher the proportion of fixed costs relative to variable operating costs, the higher the operational gearing. This results in greater business risk. A retailer has high fixed costs relative to variable costs, so has a lot of business risk. See GEARING and FINANCIAL GEARING.
OPPORTUNISM is a condition of self-interest seeking with guile whereby one party has information that the other party does not.
OPPORTUNISTIC BEHAVIOUR occurs where one party takes advantage of his superior knowledge, in order to further his/her interests, by failing to disclose such information to the other party. This would occur, for example, if a supplier of widgets had information about a product which was deliberately withheld from the potential buyer, in the knowledge that such information would negatively affect the price of the product or the willingness of the buyer to purchase it.
OPPORTUNITY COST is widely used in business planning in evaluating capital investment. A company measures the projected return against the anticipated return it would receive on a highest yielding alternative investment that contains a similar risk profile.
OPPORTUNITY COST OF REVENUE (OCOR) is where revenue/money held now may be invested to produce more money - thus we consider opportunity cost a return or more revenue.
OPPORTUNITY LOSS see OPPORTUNITY COST.
OPTIMAL PRICE is the profit maximizing price. It can be determined through various methods, but generally it is the demand price for the full capacity output of any given product.
OPTIMISM is a general disposition to expect the best in all things.
OPTION is the formal reservation of the right to buy or sell property / assets at a certain price and / or within a given time in the future.
OPTIONALITY TEST is part of the NAIC security insurer provisional exemption rules: A. Optionality Test: for corporate and municipal issues, principal and interest must be paid in US dollars, contract terms state that principal is repayable in full and the principal repayment schedule is fixed. Further the principal is set at closing, fixed in US dollars and coupon payments cannot be less than zero in any period. B. Optionality Test: for Asset-Backed/Residential Mortgage-Backed securities, the principal and interest must be paid in US dollars, and the coupon payment cannot be less than zero in any payment period. In addition, with the exception for credit enhancements, the timing and amount of cash flows to pay the obligation must depend on the timing and amount of cash flow from the assets underlying the bond. If the bond is prepaid immediately, the insurer must receive at least 98% of the purchase price.
ORDER ENTRY, normally, is a computerized relational database that, at a minimum, generates, schedules and maintains estimates, sales orders and backlogs. Invoices may also be created automatically if linked to Accounts Receivable. More advanced order entry systems are usually fully integrated with the accounting system.
ORDER INTAKE is all orders which were legally concluded during the respective accounting period under review and have also come into effect.
ORDER OF LIQUIDITY is when items on a balance sheet are listed in order of liquidity. After cash, the other current assets are listed in order of liquidity or nearness to cash (i.e. Accounts Receivable first, then Inventory…).
ORDER OF MAGNITUDE is a number assigned to the ratio of two quantities; two quantities are of the same order of magnitude if one is less than 10 times as large as the other; the number of magnitudes that the quantities differ is specified to within a power of 10.
ORDER OF PERMANENCE is where fixed assets are entered in the balance sheet in descending order of permanence (i.e. land first, then buildings, then equipment ...).
ORDINARY ASSET is a non-capital asset used for business purposes. See CAPITAL ASSET.
ORDINARY COURSE OF BUSINESS is the actions or results that would logically be expected in the regular or planned operating activities of a business as opposed to extra-ordinary transactions or activities, e.g. trade liabilities, capital asset procurement or revenue and its sources.
ORDINARY INCOME is the income derived from the regular operating activities of a business or individual, but exclusive of capital gains. Net income from a business, along with personal wages, interest, and dividends are examples of ordinary income.
ORDINARY SHARES see COMMON STOCK.
ORGANIZATIONAL COSTS see ORGANIZATION COST.
ORGANIZATIONAL CULTURE is the set of beliefs, values, and norms, together with symbols like dramatized events and personalities that represents the unique character of an organization, and provides the context for action in it and by it.
ORGANIZATION COST is amounts spent to begin a business entity, e.g., business filing fees, franchise acquisition, and legal fees. In the
ORIGINAL EQUIPMENT MANUFACTURER is a company that builds components or systems that are used in systems or products sold by another company using the purchasing company's brand. Sometimes referred to as "private label."
ORIGINAL ISSUE DISCOUNT is when a long-term debt instrument is issued at a price that is lower than its stated redemption value; the difference is called Original Issue Discount (OID).
OSHA (OCCUPATIONAL SAFETY AND HEALTH ACT) is a federal law in the
OTC see OVER THE COUNTER.
OTHER COMPREHENSIVE INCOME (OCI) is part of total comprehensive income but is generally excluded from net income. Prior to SFAS 130, these three items—foreign currency translation adjustments, minimum pension liability adjustments, and unrealized gains or losses on available-for-sale investments—were disclosed as separate components of stockholders’ equity on the balance sheet. Under SFAS 130, they are to be reported as OCI. Furthermore, they must be reported separately, as FASB decided that information about each component is more important than information about the aggregate. Later, net unrealized losses on SFAS 133 derivatives were also included in the definition of OCI. The intent of SFAS 130 was that “if used with related disclosures and other information in financial statements, the information provided by reporting comprehensive income would assist investors, creditors, and other financial statement users in assessing an enterprise’s economic activities and its timing and magnitude of future cash flows.”
OTHER INCOME is income from activities that are not undertaken in the ordinary course of an entity's business.
OUT-OF-P0CKET are expenses requiring an outlay of cash in a given time period, e.g., payroll, advertising and other operating expenses, but not depreciation.
OUT-OF-THE-MONEY OPTION is an option that has no intrinsic value; for example, an option whose strike price, in the case of a put, is lower than the stocks current price, or in the case of a call, is higher. An investor who buys an out-of-the-money option is speculating that the option will rise in value and become in-the-money. See IN-THE-MONEY OPTION.
OUTPUT VAT is VAT on a company's sales. See also VALUE ADDED TAX (VAT).
OUTSOURCE is to obtain goods or services from an outside supplier; i.e., to contract work outside of your budget and control. (An example would be companies outsourcing a percentage of their direct labor in order to maintain a flexible workforce.).
OUTSTANDING is the amount owed as a debt, example: outstanding bills.
OUTSTANDING SHARES is the number of shares that are currently owned by all investors. It also includes restricted shares (shares owned by officers and insiders of the company) as well as shares held by the public. Shares that the company has repurchased or retired are not considered outstanding stock.
OUTTURN is what is produced in a given time period.
OVERAGE is that amount, as in money or goods, that is actually on hand and exceeds the desired or listed amount in records or books. Also known as SURPLUS.
OVER-APPLIED FACTORY OVERHEAD is the amount of factory overhead applied in excess of the actual factory overhead incurred for a production period.
OVER-BILLING is invoicing in excess of agreed upon pricing or exaggerating the amount of services or goods provided (sometimes illegally).
OVERDRAFT is, a. a draft in excess of the credit balance within an account; or b. a facility (usually at a bank or other financial institution) enabling an account holder to borrow up to an agreed amount and often for an agreed time.
OVERHAUL is to rebuild, make repairs or adjustments to, e.g. an overhaul expense would be the expenditures incurred in making the subject item(s) acceptable once again.
OVERHEAD is the costs associated with providing and maintaining a manufacturing or working environment. For example: renting the building, heating and lighting the work area, supervision costs and maintenance of the facilities. Includes indirect labor and indirect material.
OVERHEAD ABSORPTION is the term used for describing the transfer of value from a fixed asset such as a building or machine to the final product. In this way the indirect costs of the entity can be assigned to the products or services supplied.
OVERHEAD BUDGET shows the expected cost of all production costs other than direct materials and direct labor. Budgeted variable overhead costs are based on a budgeted variable overhead rate multiplied by budgeted activity. Budgeted fixed overhead costs remain unchanged as the activity level changes within the relevant range. See OPERATING BUDGET.
OVERHEAD RATE is calculated by totaling all your expenses for one year, excluding labor and materials, and then divide this number by your total cost of labor and materials.
OVERLEVERAGED is a balance sheet condition where the entity is incapable of servicing its debt load (interest payments) with available capital sources. Simply put, the entity is carrying too much debt.
OVER THE COUNTER (OTC) is a
OVERTRADING, in securities, is: a. excessive buying and selling by a broker in a discretionary account, or, b. practice of a member of an underwriting group inducing a brokerage client to buy a portion of a new issue by purchasing other securities from the client at a premium. In finance, it is when a firm expands sales beyond a level that can be financed with normal working capital.
OVERSTATED is when something is represented as greater than is true or reasonable.
OWNED RECEIVABLES is receivables carried on the balance sheet of the institution. See MANAGED RECEIVABLES.
OWNERS DRAW see PROPRIETORS DRAW.
OWNERS EQUITY see SHAREHOLDER'S EQUITY.
OWNER'S EQUITY RATIO see RETURN ON STOCKHOLDERS EQUITY.
OWN WORK CAPITALIZED represents the value of work performed for own purposes and capitalized as part of fixed assets.
PACKING CREDIT is any loan or advance granted or any other credit provided by a bank to an exporter for financing the purchase, processing, manufacturing or packing of goods prior to shipment, on the basis of letter of credit opened in his favor or in favor of some other person, by an overseas buyer or a confirmed and irrevocable order for the export of goods from the producing country or any other evidence of an order for export from that country having been placed on the exporter or some other person, unless lodgment of export orders or letter of credit with the bank has been waived.
PACKING LIST is a statement of the contents of a container, usually put into the container so that the quantity of merchandise may be counted by the person who opens the container. Also known as a packing slip.
PACKING SLIP see PACKING LIST.
PAID-IN-CAPITAL is capital received from investors for stock, equal to capital stock plus paid-in capital, NOT that capital received from earnings or donations. Also called contributed capital.
PAID IN SURPLUS see PAID IN CAPITAL.
PAID-UP CAPITAL is the total amount paid by shareholders for their shares of capital stock.
P&A, dependent upon usage, can be: Parts & Accessories, Pay & Allowances, Personnel & Administration, or Price & Availability.
P&L see PROFIT AND LOSS STATEMENT.
PAPER is: a. amount received, by a seller of real estate, in the form of a mortgage or note rather than cash; b. a short-term debt security; c. customer buy and sell orders coming to a trading pit; d. money market instruments, commercial paper.
PAPER GAIN (LOSS) is an unrealized capital gain (loss) in an investment or portfolio.
PARENT COMPANY is a company of which others are subsidiaries.
PARENT ENTITY see PARENT COMPANY.
PARETO PRINCIPLE/LAW see 80-20 RULE.
PARI PASSU is to do or apply something at an equal pace or rate. In finance, it is used in reference to two class of securities or obligations that have equal entitlement to payment.
PARTNERSHIP is an unincorporated business that has more than one owner. It is different from a sole proprietorship in that a sole proprietorship can have only one owner.
PAR VALUE is a. the maturity value or face value, i.e., the amount that an issuer agrees to pay at the maturity date; b. the official exchange rate between two countries' currencies; or, c. the value of a security that is set by the company issuing it; unrelated to market value.
PAS could mean: Personal Accounting System, Personnel Accounting System, or Personnel Accounting Symbol.
PASSIVE ACTIVITY is defined in the US Tax Code as one or more trades, business or rental activity, that the taxpayer does not materially participate in managing or running. All income and losses from passive activities are grouped together on an income tax return and, generally, loss deductions are limited or suspended until the passive activity that generated them is disposed of in its entirety.
PASS-THROUGH GRANTS as defined under GASB Statement 24 are grants "received by a recipient government to transfer to or spend on behalf of a secondary recipient" and should be recognized as revenues and expenditures/expenses in a governmental, proprietary or trust fund. The only exception to this requirement is if the recipient government serves only as a cash conduit (i.e., has no administrative or direct financial involvement in the program) in which case the grant should be reported in a GAAP agency fund.
PATENT is a legal form of protection that provides a person or legal entity with exclusive rights to exclude others from making, using, or selling a concept or invention for the duration of the patent. There are three types of patents available: design, plant, and utility.
PAYABLE is an amount awaiting payment to be made, e.g. interest payable or taxes payable.
PAYABLES TURNOVER is calculated: Payables Turnover = Purchases / Payables.
PAYABLE TO SHAREHOLDERS normally refers to distribution of dividends to shareholders and / or repayment of notes held by shareholders.
PAYBACK PERIOD, in capital budgeting, is the length of time needed to recoup the cost of CAPITAL INVESTMENT. The payback period is the ratio of the initial investment (cash outlay, regardless of the source of the cash) to the annual cash inflows for the recovery period. The major shortcoming for the payback period method is that it does not take into account cash flows after the payback period and is therefore not a measure of the profitability of an investment project. For this reason, analysts generally prefer the DISCOUNTED CASH FLOW methods of capital budgeting; primarily, the INTERNAL RATE OF RETURN and the NET PRESENT VALUE methods.
PAY CYCLE is a set of rules that defines the criteria by which scheduled payments are selected for payment creation, e.g., payroll may be on a weekly, bi-weekly, or monthly pay cycle.
PAYMENT is the satisfaction of a debt or claim; primarily money paid to fulfill an obligation.
PAYMENT DUE DATE is the date on which a payment is due and payable.
PAYMENT ON ACCOUNT see ON ACCOUNT.
PAYOUT RATIO is dividends paid divided by company earnings over some period of time, expressed as a percentage.
PAYROLL, dependent upon usage, can mean a. the total amount of money paid in wages; b. a list of employees and their salaries; or, c. the department that determines the amounts of wage or salary due to each employee.
PAYROLL BURDEN, in the
PAYROLL VARIANCE is the difference between actual salaries and “unloaded” labor expenditures. The largest contributing factor to payroll variance is usually employees not submitting project oriented timesheets, or supervisors failing to approve those submitted timesheets. The effect being wages being paid without direct assignment of labor charges to those areas or projects to which the labor hours were expended. Thereby causing a variance between recorded labor costs and actual payroll, e.g., project costs are not recorded, reimbursable costs are not billed, and program and project managers are unable to accurately monitor their budgets or do projections.
PBC LIST (PROVIDED BY CLIENT LIST) is a request by external auditors of items that will be required from the client by the auditor prior to the commencement of fieldwork. Such PBC lists are preliminary and will likely be expanded once the audit commences.
PBT see PROFIT BEFORE TAXES.
PC is an acronym for Professional Corporation (business legal entity).
PDI can mean Personal Disposable Income or Past Due Interest.
PEACHTREE is commercial accounting software developed and owned by Sage Software.
PEAK is the period of maximal use or demand or activity; for example, at peak commute hours, street traffic can be unbelievable. See OFF-PEAK.
PEGBOARD SYSTEM see ONE-WRITE SYSTEM.
PEG RATIO compares earnings growth and the Price Earnings Ratio. The PEG Ratio (formula) is the current Price Earnings Ratio divided by the expected long-term growth rate (per the earnings per share).
PENDING usually refers to either: 1. Not yet decided; or, 2. Being in continuance.
PENSION is a regular payment to a person that is intended to allow them to subsist without working, e.g. a retirement fund for employees paid for or contributed to by an employer as part of a package of compensation for the employees' work.
PENSION FUND is a fund reserved to pay workers' pensions when they retire from service. Also known as SUPERANNUATION FUND.
PENSION MAXIMIZATION is a controversial strategy, often espoused by life insurance agents, of using insurance to augment a company benefit plan. Under this arrangement, a retiree takes pension payments for his or her own life only and buys life insurance to provide for a surviving spouse. Also known as pension max.
PEP see PERSONAL EQUITY PLAN.
P/E RATIO (PRICE/EARNINGS RATIO) is a stock analysis statistic in which the current price of a stock (today's last sale price) is divided by the reported actual (or sometimes projected, which would be forecast) earnings per share of the issuing firm; it is also called the "multiple".
PER CAPITA INCOME is the mean income computed for every man, woman, and child in a particular group. It is derived by dividing the total income of a particular group by the total population in that group.
PERCENTAGE DESIGN, in construction, is the percentage expended for design and construction management services in proportion to total construction.
PERCENTAGE LEASE is a type of lease where the landlord charges a base rent plus an additional percentage of any profits realized by the business tenant.
PERCENTAGE OF COMPLETION METHOD OF ACCOUNTING is instituted if your revenues exceed $10,000,000 (3-year average) or your contracts will not be completed within a two-year period, you are generally required to use the percentage of completion accounting for contracts. There are many advantages to using to percentage of completion method including:
- It is the best measurement of income.
- Percentage of completion normally needs to be computed for financial statement purposes eliminating confusing timing differences from tax to financial statements.
- There is no increase in alternative minimum taxable income.
- Losses can be recognized on contracts before the job is complete.
- It is useful in leveling taxable income, permitting use of lower tax brackets each year.
- When using the percentage of completion method, it is important to carefully compute the percent complete, for it may have a great impact on your taxable income.
- Estimated costs to complete the contract, a component of calculating the percent to complete, determine what your taxable income will be. Also, carefully reviewing the over-head allocation may result in lower tax.
PER DIEM is a. one every day (e.g., save 10 man-hours per diem); or, b. payment of daily expenses and/or fees of an employee or an agent.
PERFORMANCE BUDGET is a budget format that relates the input of resources and the output of services for each organizational unit individually. Sometimes used synonymously with program budget.
PERFORMANCE INDICATORS are those empirical data points that indicate how well, or poorly, an entity is performing against preset goals and objectives. Normally, in business or strategic planning, a company will set targets over a specified period that the business believes are attainable and track performance over time to those targets or objectives.
PERFORMING ASSET is an asset that provides a dependable annual financial return; for example, production machinery or, in transportation, an airliner.
PERIOD COST is an expense that is not inventoriable; it is charged against sales revenues in the period in which the revenue is earned (e.g., SG&A is a period cost). Also called period expense.
PERIODICITY CONCEPT is the concept that each accounting period has an economic activity associated with it, and that the activity can be measured, accounted for, and reported upon.
PERIODIC VALUATION allows for the determination on future dates the value of assets, portfolios, etc. with the idea of setting a new standard cost or value to those assets. Such revaluations, up or down, are then posted as the new standard cost or value. See REVALUATION.
PERMANENCE is the quality or state of being permanent; primarily judged by durability and useful life. See ORDER OF PERMANENCE.
PERMANENT ACCOUNTS see REAL ACCOUNTS.
PERPETUAL INVENTORY is an inventory accounting system whereby book inventory is kept in continuous agreement with stock on hand. A daily record is maintained of the dollar amount and physical quantity. There are periodic physical inventories taken to reconcile at short intervals.
PERPETUAL SUCCESSION is one of the legal distinctions between a business and a company. A company has perpetual succession meaning that a change in the membership does not affect the existence of the company whereas a business does not enjoy this perpetual succession. For example, in the case of a partnership, which is one form of business registration, a change in the membership affects the partnership.
PERPETUAL VALUATION see MARKET VALUE.
PERPETUITY, in finance, is an annuity payable forever.
PERSISTENT EARNINGS is the level of earnings, from accounting to accounting period, that are continually recurring.
PERSONAL ACCOUNTS represents money due to or due from a person or group of persons. For example, Accounts Payable - Suppliers is a personal account since this amount is payable to a supplier/suppliers.
PERSONAL EQUITY is that portion of equity ownership that is held to ones own benefit or invested as an integral part of the assets of a legal entity.
PERSONAL EQUITY PLAN (PEP) was an investment plan in the
PERSONAL LOAN is a short-term loan that is extended based on the personal integrity of the borrower.
PERSONAL PROPERTY means property of any kind except real property. It may be tangible (having physical existence) or intangible (having no physical existence, such as patents, inventions, and copyrights).
PERVASIVENESS OF ESTIMATES means that the estimates have to be complete, of high quality and in depth, i.e., they have to adequately cover the whole accounting entity.
PETTY CASH, normally, is an account and location where tangible cash is stored for usage in purchasing or the reimbursing of inexpensive out-of-pocket expenditures.
PHANTOM PROFIT is hypothetical profit, i.e., no cash flow is generated. Appreciation on any asset, e.g. stock, is considered phantom profit unless or until the asset is sold, thereby generating cash flow.
PHYSICAL INVENTORY is the counting of all merchandise or equipment on hand.
PHYSICAL STOCK-TAKE see PHYSICAL INVENTORY.
PICPA is Pennsylvania Institute of Certified Public Accountants or Philippine Institute of Certified Public Accountants.
PIERCING THE CORPORATE VEIL is a legal concept through which a corporation's shareholders, who generally are shielded from liability for the corporation's activities, can be held responsible for certain actions.
PIGGYBACK, dependent upon usage, can mean: 1. On the back or shoulder or astraddle on the hip; 2. Two lenders participating in the same loan (piggyback loan); 3. Unauthorized access to a data processing system via an authorized user's legitimate connection (piggyback entry); 4. Haul by railroad car; 5. SEC registration of existing holdings of shares in a corporation combined with an offering of new public shares (piggyback registration); 6. Rights that entitle an investor to register and sell his or her stock whenever the company conducts a public offering (piggyback rights).
PINK PEARL is a type of a pencil-lead eraser that auditing companies use.
PIPE (Private Investment in Public Equity) refers to any private placement of securities of an already-public company that is made to selected accredited investors (usually to selected institutional accredited investors) wherein investors enter into a purchase agreement committing them to purchase securities and, usually, requiring the issuer to file a resale registration statement covering the resale from time to time of the securities the investors purchased in the private placement. PIPE transactions may involve the sale of common stock, convertible preferred stock, convertible debentures, warrants, or other equity or equity-like securities of an already-public company. There are a number of common PIPE transactions, including:
- the sale of common stock at a fixed price;
- the sale of common stock at a fixed price, together with fixed price warrants;
- the sale of common stock at a fixed price, together with resettable or variable priced warrants;
- the sale of common stock at a variable price;
- the sale of convertible preferred stock or convertible debt; and
- a venture-style private placement for an already-public company.
PISCAN DOCUMENT, a precursor of double entry bookkeeping, dates from the early 12th century. Records indicate that primitive bookkeeping with sequential transactions using Roman numerals was presented in paragraph form. Some of the record fragments are from an unknown Florentine banking firm dated from 1211. It was not yet double entry bookkeeping, but advancing in that direction. Other fragments include the Castra Gualfred and the Borghesia Company from 1259-67; Gentile de' Sassetti and Sons, 1274-1310; and Bene Bencivenni, 1277-96. The most complete records are from Rinieri Fini & Brothers, 1296-1305, and Giovanni Farolfi & Co., 1299-1300.
PITI is an acronym for Principal, Interest, Taxes and Insurance when dealing with property mortgages.
PLACEMENT is bank depositing Eurodollars with (selling Eurodollars to) another bank is said to be making a placement.
PLANT ASSET is a non-current physical asset applicable to manufacturing activities.
PLEDGE is a. the transfer or assignment of assets as collateral to secure payment of a debt obligation as when securities are pledged to a lender for a loan secured by the owner of the securities. When securities a pledged, the lender frequently requires the physical transfer of the collateral to preclude possibility of using the same asset for additional pledging; b. the deposit or placing of personal property as security for a debt or other obligation with a person called a pledgee. The pledgee has the implied power to sell the property if the debt is not paid. If the debt is paid, the right to possession returns to the pledgor; or, c. a written or oral agreement to contribute cash or other assets.
PLEDGE BOND see PLEDGED REVENUES.
PLEDGED ACCOUNTS RECEIVABLE is short-term borrowing from financial institutions where the loan is secured by accounts receivable. The lender may physically take the accounts receivable but typically has recourse to the borrower; also called discounting of accounts receivable.
PLEDGED ASSET is an asset that is transferred to a lender as security for debt. The lender of the debt takes possession of the pledged asset, but does not have ownership unless default occurs.
PLEDGED REVENUES is funds generated from revenues and obligated to debt service or to meet other obligations specified by the bond contract.
PLS see Profit and Loss Sharing.
PLUG is a variable that handles financial slack in the financial plan.
PLUG NUMBER see COST OF GOODS SOLD.
PNL is Profit and Loss (statement/analysis; business/accounting). See also PROFIT AND LOSS STATEMENT.
POINT OF is a positional determinant or modifier in that it is either the starting or ending position, e.g. point of sales, point of delivery, point of collection, or point of completed production.
POINTS are additional fee paid to a lender. Points are generally stated as a percent of the total amount borrowed and are in essence prepaid interest. Points paid can be deducted over the life of the loan.
POISON PILL is where the targeted company defends itself by making its stock less attractive to an acquirer.
POLITICAL COSTS HYPOTHESIS predicts that firms with low agency and political costs and effective shareholders' monitoring will distribute cash dividend and those with moderate agency and political costs may use stock dividends in lieu of cash dividends to separate themselves from firms having high agency and political costs. This indicates that cash dividend firms will face better long-term stock market valuation of their shares than stock dividend firms.
POOL is: 1. a group of people organized for a specific purpose or any communal combination of funds; 2. in capital budgeting, the concept that investment projects are financed out of a pool of bonds, preferred stock, and common stock, and a weighted-average cost; 3. in insurance, a group of insurers who share premiums; and 4. in investments, the combination of funds for the benefit of a common project, or a group of investors who use their combined influence to manipulate prices.
POOLING-OF-INTERESTS, in the US, is the method of accounting used in a business combination in which the acquiring company has issued voting common stock in exchange for voting common stock of the acquired company. The features of the method are that the acquired company's net assets are brought forward at book value, retained earnings and paid-in capital are brought forward, the net income is recognized for the full financial year regardless of the date of acquisition, and the expenses of pooling are immediately charged against earnings. In order to use the method there are a number of criteria to be met concerning the prior independence of the companies and the nature and timing of the acquisition. See POOLING OF INTEREST METHOD.
POOLING OF INTEREST METHOD is an accounting method for reporting acquisitions accomplished through the use of equity. The combined assets of the merged entity are consolidated using book value, as opposed to the PURCHASE METHOD, which uses market value. The merging entities` financial results are combined as though the two entities have always been a single entity. See POOLING-OF-INTERESTS.
POP see PROOF OF POSTING and the below.
POP is an acronym for, among others, Point Of Presence or Post Office Protocol (Internet e-mail protocol).
PORTFOLIO is a term for describing all the investments that an entity owns. A diversified portfolio contains a variety of investments.
POSITIVE ACCOUNTING THEORY is where theorists tend to explain why some accounting practices are more popular than others (e.g., because they increase management compensation). They tend to support their conclusions with inductive theory and empirical evidence as opposed to deductive methods. Generally avoid advocacy of one accounting rule as being better or worse than its alternatives. Positivists are inspired by anecdotal evidence, but anecdotal evidence is never permitted without more rigorous and controlled scientific investigation.
POST it the transfer of accounting entries from a journal of original entry into a ledger book, in chronological order according to when they were generated.
POST DATE is placing on a document or a check a date that follows the date of the initiation or execution of the document. For example, a post dated check cannot be cashed until the date written on the check.
POSTING, in bookkeeping, is to list on the company's records, such as to list the detail of sales and purchases on the accounts receivable or payable records.
POSTULATE, in logic, is a proposition that is accepted as true in order to provide a basis for logical reasoning.
PPE can mean either Property, Plant, and Equipment, or Pay Period Ending.
PPI see PRODUCER PRICE INDEX.
PPV is Purchase Price Variance.
PR is an acronym for, among others, 'public relations', 'payroll' and 'purchase request'.
PRACTICAL CAPACITY is where the cost of production is based on the 'practical capacity' of production facilities. Therefore, the proportion of overheads allocated to a unit of production is not to be increased as consequence of idle capacity of the plant.
PREDICTOR RATIOS: Most ratios are descriptive in nature; that is, they describe the firm as it is now. As you might expect, Predictor Ratios provide suggestions about likely future conditions for the firm. VentureLine provides two industry standard Predictor Ratios:
1. Altman Z-Score - a valid predictor or bankruptcy, and,
2. Sustainable Growth Rate - shows the degree to which a concern can grow using their retained earnings to fund growth.
PREEMPTIVE RIGHT is the right of a current stockholder to maintain the percentage ownership interest in the company by buying new shares on a pro rata basis before they are issued to the public.
PREFERRED BIDDER is the bidder who is selected by the vendor, usually to some predetermined criteria, as being the party to whom it intends to sell the business, or award a contract, subject to the completion of negotiations and legal arrangements.
PREFERENCE SHARE see PREFERRED STOCK.
PREFERENCE SHARE CAPITAL is capital raised by an entity through the sale of preferred shares.
PREFERRED CREDITOR is a creditor whose account takes legal preference for payment over the claims of others.
PREFERRED STOCK, usually, non-voting capital stock that pays dividends at a specified rate and has preference over common stock in the payment of dividends and the liquidation of assets.
PREMIUM ON CAPITAL STOCK is excess received over the par value of stock issued. The premium account is shown under the paid-in capital section of stockholder's equity because it resulted from the issuance of stock. It is not an income statement account since the company earns profit by selling goods and services to outsiders, not by issuing shares of stock to owners.
PRE-OPERATING COSTS are costs that are deferred until the related assets are ready for revenue service at which time the costs are charged to operations.
PREPAID EXPENSES are amounts that are paid in advance to a vender or creditor for goods and services. Typically, insurance premiums are paid in advance of the coverage contained in the policy. Prepaid Expenses is a Current Asset for your business. This is because you have paid for something and someone owes you the service or the goods for which you prepaid.
PREPAYMENT is the payment of all or part of a debt prior to its due date.
PRESCRIBED SECURITY generally means any bond, debenture, stock, stock certificate, treasury bill or other like security, or any coupon, warrant or other document for the payment of money in respect of such a security, issued by a government authority.
PRESENT VALUE is the discounted value of a payment or stream of payments to be received in the future, taking into consideration a specific interest or discount rate. Present Value represents a series of future cash flows expressed in today's dollars. A given amount of money is almost always more valuable sooner than later, so present values are generally smaller than corresponding future values.
PRE-TAX INCOME/PROFIT see PROFIT BEFORE TAXES.
PRICE is the property of having material worth. Price is usually indicated by the amount of money something would bring if or when sold.
PRICE CEILING is a government-imposed limit on how high a price can be charged on a product.
PRICE EARNINGS MULTIPLE: The price-earnings ratio (P/E) is simply the price of a company's share of common stock in the public market divided by its earnings per share. Multiply this multiple by the net income and you will have a value for the business. If the business has no income, there is no valuation. If the common stock in not publicly traded, valuation of the stock is purely subjective. This may not be the best method, but can provide a benchmark valuation.
PRICE EARNING RATIO see PRICE EARNINGS MULTIPLE.
PRICE ELASTICITY is the degree to which customers respond to price changes (calculation: % change in quantity divided by % change in price). A value greater than 1 = customers exhibit a good sensitivity to price. A value less than 1 = customers are insensitive to price. Price Elasticity is if a small change in price is accompanied by a large change in quantity demanded, the product is said to be elastic (or responsive to price changes). A product is inelastic if a large change in price is accompanied by a small amount of change in demand.
PRICE FIXING is an illegal practice where competing companies agree, informally or formally, to jointly restrict or control prices within a specified range.
PRICE MIX is the value of the product determined by the producers. Price mix includes the decisions as to: Price level to be adopted; discount to be offered; and, terms of credit to be allowed to customers.
PRICE TO BOOK is a financial ratio that is derived by dividing a stock’s capitalization by its book value. Also called Market-to-Book.
PRICE TO CASH FLOW is a measure of the market's expectations of a firm's future financial health. It is calculated by dividing the price per share by cash flow per share.
PRICE TO EARNINGS RATIO (P/E) is a performance benchmark that can be used as a comparison against other companies or within the stock's own historical performance. For instance, if a stock has historically run at a P/E of 35 and the current P/E is 12, you may want to explore the reasons for the drastic change. If you believe that the ratio is too low, you may want to buy the stock. You will generally find a P/E ratio based on either the prior reporting year's earnings, or the earnings of the prior four quarters added together (LTM or Latest Twelve Months)
PRICE TO REVENUE is a financial ratio derived by dividing current stock price by revenue per share (adjusted for stock splits).
PRICE TO SALES see PRICE TO REVENUE.
PRIMARY DEALER is a designation given by the Federal Reserve System to commercial banks or broker/dealers who meet specific criteria, including capital requirements and participation in Treasury auctions. A primary dealer is entitled and obligated to purchase and sell government securities with the Federal Reserve directly. They serve as the conduits for Federal Reserve open market activities. There are approximately 30-40 such dealers.
PRIMARY MARKET is the first sale of a newly issued security. Those securities are purchased in the primary market. All subsequent trading of those securities is done in the secondary market.
PRIME BROKERS are providers of back-office administration and stock lending for hedge funds.
PRIME COST is equal to the sum of DIRECT MATERIAL plus DIRECT LABOR.
PRIME RATE is the interest rate that banks charge to their preferred customers. Changes in the prime rate influence changes in other rates; mortgage interest rates for example.
PRINCIPAL is: a. a person who has controlling authority (e.g. the CEO or owner of a company) or is in a leading position (part owners of a legal entity); or, b. a matter or thing of primary importance, e.g. is the amount of a loan, excluding interest, or the amount you invest, excluding income.
PRINCIPLES-BASED ACCOUNTING provides for few exact rules and little implementation guidance. Instead, general principles are put forward and companies must ensure that their financial statements fairly and accurately represent these principles. Proponents argue that this type of system does not allow for less than ethical financial engineering, where complex transactions are undertaken in order to get around following specific rules-based accounting standards. Critics believe a principles-based system allows too much leeway for companies, because they generally do not have to follow specific rules, only wide-arching principles. See also RULES-BASED ACCOUNTING.
PRIOR PERIOD refers to accounting periods that have occurred in the past. See also ACCOUNTING PERIOD.
PRIVATE CORPORATION is a corporation that ownership is held by the private sector, i.e. individuals or companies.
PRIVATE EQUITY is equity securities of unlisted (non-publicly traded) companies. Private equities are generally illiquid and thought of as a long-term investment. Private equity investments are not subject to the same high level of government regulation as stock offerings to the general public. Private equity is also far less liquid than publicly traded stock.
PRIVATE LEDGER see LEDGER.
PRIVATE PLACEMENT is investments in companies that are privately owned; i.e, they are companies that are not traded on a public stock exchange (e.g., NYSE, NASDAQ, and AMEX).
PRIVATE PLACEMENT (DEBT) is the sale of a bond or other security directly to a limited number of investors; used in the context of general equities. For example, sale of stocks, bonds, or other investments directly to an institutional investor like an insurance company, avoiding the need for the registration with the regulator if the securities are purchased for investment as opposed to resale.
PROCEEDS, generally in business, is the total amount brought in, e.g. the proceeds of a sale. In insurance, it is the net amount received (as for a check or from an insurance settlement) after deduction of any discount or charges.
PROCESS ACCOUNTING see PROCESS COSTING.
PROCESS COSTING is a method of cost accounting applied to production carried out by a series of chemical or operational stages or processes. Its characteristics are that costs are accumulated for the whole production process and that average unit costs of production are computed at each stage.
PROCUREMENT, from a business perspective, is the purchasing of services or materials.
PRODUCER PRICE INDEX (PPI) measures the average change over time in the selling prices received by domestic producers for their output. The prices included in the PPI are from the first commercial transaction for many products and some services.
PRODUCT is: a. the end result of the manufacturing process, b. commodities offered for sale, or c. an artifact that has been created by someone or some process.
PRODUCT COST is cost of inventory on hand, also called Inventoriable Cost. They are assets until the products are sold. Once they are sold, they become expense, i.e. Cost of Good Sold (COGS). All manufacturing costs are product costs, e.g., direct material, direct labor, and factory overhead.
PRODUCT INVOICE is an invoice associated with a tangible or physical item as opposed to a service or professional invoice. See PROFESSIONAL INVOICE and SERVICE INVOICE.
PRODUCTION BUDGET is used to propose how much you will manufacture (or buy in from suppliers) so that you can compensate for the demand (identified on your sales budget). If your maximum capacity for producing stock was 100 units for the month (due to available resources), it may not be necessary to produce this maximum (due to a lower demand) each month because it adds to expense and ties up finance. If you expect a high demand during a certain month(s), it may be that your manufacturing capacity cannot compensate. In which case, you may budget to manufacture excess in the months where you do not manufacture the maximum so that you can build up your supplies for the expected months with high demand. Alternatively, it may be a call to buy/hire more machinery/staff in that particular month to allow an increased capacity for production. See OPERATING BUDGET.
PRODUCTIVE ACTIVITY usually is defined as including activities that have economic value in the marketplace. A more contemporary definition of productive activity includes any activity that produces a valued good or service, even if it is not actually paid for.
PRODUCTIVITY is a measured relationship of the quantity and quality of units produced and the labor required per unit of time.
PRODUCTIVITY RATIO is the ratio of outputs to inputs. The closer the ratio is to 1.0, the higher the productivity; the closer the ratio is to 0.0, the lower the productivity. Productivity is important because it relates to an organization's ability to compete, and to the overall wealth and standard of living of a nation. Productivity is affected by work methods, capital, quality, technology, and management.
PRODUCT MIX involves planning and developing the right type of product that will satisfy fully the needs of customers. A product has several dimensions. These dimensions are collectively called 'product mix'. Product mix for example may consist of size and weight of the product, volume of output, product quality, product design, product range, brand name, package, product testing, warranties and after sales services and the like.
PROFESSIONAL FEE is that fee charged for services from university trained professionals; primarily doctors, lawyers and accountants. The term is often expanded to include other university trained professions, e.g. pharmacists charging to maintain a medicinal profile of a client or customer.
PROFESSIONAL INVOICE is an invoice associated with professional services rendered, i.e. medical, legal or accounting services. See SERVICE INVOICE and PRODUCT INVOICE.
PROFESSIONAL SERVICES are those services offered by university trained professionals, e.g. doctors, lawyers, and accountants for, normally, a professional fee.
PROFESSIONAL SUBSCRIBER means all other persons who do not meet the definition of Non-Professional Subscriber. SEE NON-PROFESSIONAL SUBSCRIBER.
PROFIT is the excess of revenues over outlays in a given period of time (including depreciation and other non-cash expenses).
PROFITABILITY is company's ability to generate revenues in excess of the costs incurred in producing those revenues.
PROFITABILITY RATIOS are measures of performance showing how much the firm is earning compared to its sales, assets or equity.
PROFIT AFTER TAX (PAT) is the net profit earned by the company after deducting all expenses like interest, depreciation and tax. PAT can be fully retained by a company to be used in the business. Dividends, if declared, are paid to the share holders from this residue.
PROFIT & LOSS ACCOUNT shows the net profit which is left after all relevant business expenses have been deducted.
PROFIT AND LOSS SHARING (PLS) is the method utilized in Islamic banking to comply with the prohibition of interest. The Islamic solution, commonly referred to as Profit & Loss Sharing (PLS), suggests an equitable sharing of risks and profits between the parties involved in a financial transaction. In the banking business, there are three parties - the entrepreneur or the actual user of capital, the bank which serves as a partial user of capital funds and as a financial intermediary, and the depositors in the bank who are the suppliers of savings or capital funds. There are two different partnerships of the type mentioned in Islam: the partnership between the depositors and the bank, and the partnership between the entrepreneur (or the borrower) and the bank. Under this proposal, financial institutions will not receive a fixed rate of interest on their outstanding loans, rather, they share in profits or in losses of the business owner to whom they have provided the funds. Similarly, those individuals who deposit their funds in a bank will share in the profit/loss of the financial institution.
PROFIT AND LOSS STATEMENT (P&L) is also known as an income statement. It shows your business revenue and expenses for a specific period of time. The difference between the total revenue and the total expense is your business net income. A key element of this statement, and one that distinguishes it from a balance sheet, is that the amounts shown on the statement represent transactions over a period of time while the items represented on the balance sheet show information as of a specific date (or point in time).
PROFIT BEFORE TAXES (PBT) is a profitability measure that looks at a company's profits before the company has to pay income tax. This measure deducts all expenses from revenue including interest expenses and operating expenses, but it leaves out the payment of tax.
PROFIT MARGIN ON SALES is: a. Gross Profit Margin on Sales = Gross Profit/Sales * 100; or, b. Net Profit Margin on Sales = Net Profit After Tax/Sales * 100. See also GROSS PROFIT MARGIN ON SALES.
PROFIT MULTIPLE: Profit and sales multiples are the most widely used valuation benchmarks used in valuing a business. The information needed are pretax profits and a market multiplier, which may be 1, 2, 3, or 4 and usually a ceiling of 5. The market multiplier can be found in various financial publications, as well as analyzing the sale of comparable businesses. This method is easy to understand and use. The profit multiple is often used as the valuation ceiling benchmark.
PRO-FORMA is to provide in advance to a prescribed form or to describe item, e.g. pro forma financial statement or pro forma invoice.
PRO-FORMA FINANCIAL STATEMENT is a financial statement projection that shows how an actual financial statement will look if certain specified assumptions are realized.
PRO-FORMA INVOICE is a price quote. It is written as an invoice, and, in effect, says: 'This is the purchase price and terms we are offering.'
PROGRAM BUDGET is a budget wherein inputs of resources and outputs of services are identified by programs without regard to the number of organizational units involved in performing various aspects of the program.
PROGRESSIVE TAX is an income tax system to where the more income that is made the higher the tax percentage that must be paid.
PROGRESS BILLINGS are interim billings for construction work or government contract work. The entry is to debit progress billings receivable and credit progress billings on construction in progress. Progress billings is a contra account to CONSTRUCTION-IN-PROGRESS.
PROJECTION is an approximation of future events. Usually a projection is made by extrapolating known information into the future period, considering events that could affect the outcome. See FORECAST, BUDGET.
PROMISES FOR THE FUTURE is not a standard term, but is sometimes used in contracts to delineate what orders/commitments may exist in the future. Dependent upon the contractual language, it may or may not be binding.
PROMISSORY NOTE, usually just called a 'note', is a NEGOTIABLE INSTRUMENT wherein the maker agrees to pay a specific sum at a definite time.
PROMOTIONAL ALLOWANCES are offered by manufacturers to support the additional promotional activities undertaken by channel members (retailers) on their behalf, e.g. discounts given as part of promotional programs, such as when products are put on sale to increase traffic in a retail store.
PROOF OF POSTING (POP) is: a. to prove by acceptable methods the accuracy of any posts made within accounting ledgers; or b. details confirming the shipment of mail with a postal organization.
PROPORTIANATE UNIT CONCEPT is where a value or distribution is agreeing in amount, magnitude, or degree, e.g. a shareholder holding 1% outstanding shares of an entity is entitled to receive 1% of that entities declared dividend, i.e. it is in proportion.
PROPRIETARY is an account, item, or information belonging to a company or individual. See PROPRIETARY ASSET.
PROPRIETARY ASSET, usually, is any asset that is considered in the realm of intellectual property that should not be disclosed, e.g., all information having to do with clients/customers, including but not limited to names, addresses, telephone numbers and other contact information, as well as any other personal or business related information, as it may exist from time to time is a valuable, and unique proprietary asset to a company. Proprietary assets would also include trade secrets and undisclosed inventions.
PROPRIETARY THEORY is where no fundamental distinction is drawn between a legal entity and its owners, i.e. the entity does not exist separately from the owners for accounting purposes. The primary focus is to report information useful to the owners, and therefore the financial statements are prepared from their perspective. See ENTITY THEORY.
PROPRIETORS DRAW is when a business proprietor draws money for personal needs, but is taxed on business results (at individuals’ marginal rate) regardless of drawings.
PROPRIETORS FUNDS is owner's capital plus net profit minus owners drawings.
PROPRIERTORSHIP see SOLE PROPRIERTORSHIP.
PRO RATA is the basis for allocating an amount proportionally to the items involved. An amount may be proportionally distributed to assets, expenses, funds, etc.
PROSPECTIVE PAYMENT SYSTEM (PPS), in healthcare, is a Medicare administered payment plan where providers are paid a predetermined sum for caring for a given number of consumers. The built in incentive is for providers to control costs, theoretically leading to more cost effective care.
PROSPECTIVE REIMBURSEMENT, in healthcare, is a reimbursement method where the third party payer set the amount of money for a particular service to be delivered to clients in agreement with the organization before the service is delivered.
PROSPECTUS is the disclosure document for an offering registered with the SEC. The final prospectus is issued on the effective date, i.e., when the offering is released by the SEC.
PROVISION, generally, is to prepare in advance for an event that is projected to take place in the future. In accounting, it is an amount charged against profits for a specific liability (for example: bad debts, depreciation or taxes). A liability may be known, but the amount is often uncertain. This uncertainty may lead to an adjustment in a later income statement once the final amount of the liability is ascertained.
PROVISION FOR CREDIT LOSSES, in lending institutions, is a charge to income which represents an expense deemed adequate by management given the composition of a bank’s credit portfolios, their probability of default, the economic environment and the allowance for credit losses already established. Specific provisions are established to reduce the book value of specific assets (primarily loans) to establish the amount expected to be recovered on the loans. See also PROVISION.
PROX see PROXIMO.
PROXIMO (usually abbreviated to 'PROX') means of or in the following month.
PROXY is a person authorized to act for another, e.g. a power of attorney document given by shareholders of a corporation authorizing a specific vote on their behalf at a corporate meeting.
PRUDENCE is having foresight and caution along with discretion, and to not act recklessly.
PRUDENCE CONCEPT, otherwise known as conservatism, says that whenever there are alternative procedures or values, the accountant will choose the one that results in a lower profit, a lower asset value and a higher liability value.
PTI is Pretax Income.
PUBLIC ACCOUNTING means the performance of or offering to perform any engagement that will result in the issuance of an attest report that is in accordance with professional standards. "Practice of public accounting" also means the performance of or offering to perform services other than those described above, such as consulting services, personal financial planning services, or the preparation of tax returns or the furnishing of advice on tax matters by a sole proprietorship, partnership, limited liability company, professional association, corporation, or other business organization, that advertises to the public as a "certified public accountant" or "public accountant."
PUBLIC CORPORATION is a corporation formed by federal, state or local governments for specific public purposes.
PUBLIC DEBT OFFICE, in the
PUBLIC FUNDS is money funded in government securities or through the levy of taxes from a governmental entity.
PUBLIC OFFERING is the sale of a new securities issue to the public by way of an underwriter, a transaction that must be registered with the Securities and Exchange Commission.
PUBLIC OWNERSHIP is either: a. Government ownership and operation of a productive facility for the purposes of providing some goods or services to citizens; or, b. In investments, portion of a corporations stock that is publicly traded and owned in the open market.
PURCHASE ACCOUNT is an account in which all inventory purchases are recorded; used with the periodic inventory method.
PURCHASE AGREEMENT is a contract stating the terms of a purchase.
PURCHASE DISCOUNT is a reduction in the purchase price, allowed if payment is made within a specified period.
PURCHASE METHOD is accounting for an acquisition using market value for the consolidation of the two entities` net assets on the balance sheet. Generally, depreciation/amortization will increase for this method (due to the creation of goodwill) compared to the POOLING OF INTEREST METHOD resulting in lower net income.
PURCHASE MONEY AGREEMENT is an agreement under which a person pledges the property or item bought as security.
PURCHASE MONEY INTEREST is that interest associated with the purchase money mortgage.
PURCHASE MONEY MORTGAGE (PMM) is seller financing as a part of the purchase price.
PURCHASE ORDER is a written authorization for a vendor to supply goods or services at a specified price over a specified time period. Acceptance of the purchase order constitutes a purchase contract and is legally binding on all parties.
PURCHASE REQUISITION is a written request for goods to be purchased. It is usually prepared by a department head or manager and sent to a firm's purchasing department.
PURCHASE RETURNS is a contra purchase account that records all credits from returned inventory purchases.
PURCHASES BUDGET is a budget of the expected usage of materials in production and the purchase of the direct materials required. See OPERATING BUDGET.
PURCHASES LEDGER see LEDGER.
PURCHASING POWER is the value of a particular monetary unit in terms of the amount of goods or services that can be purchased with it, i,e, the ability to purchase, generally measured by income.
PURE COST is any direct readily verifiable cost assignable to the subject or item, e.g., the direct cost of producing a product.
PURE RESEARCH is motivated exclusively by the search for knowledge for its own sake.
PUSH-DOWN ACCOUNTING, in acquisitions, is an exception to the general rule that the acquiree’s carrying values are unaffected by the purchase may arise when substantially all of the acquiree’s shares are purchased by the acquirer. In that case, the acquirer may direct the acquiree to revalue its assets in accordance with the fair values attributed to those assets by the acquirer. This practice is known as push-down accounting, because the fair values are “pushed down” to the acquiree’s books. The net effect is the same as if the acquirer had formed a new subsidiary, which then purchased all of the assets and liabilities of the acquiree. There are two advantages to push-down accounting: a. The first is that the financial position and results of operations of the acquiree will be reported on the same economic basis in both the consolidated statements and its own separate entity statements. Without push-down accounting, for example, it would be possible for the subsidiary to report a profit on its own and yet contribute an operating loss to the parent’s consolidated results, if the consolidation adjustments are sufficient to tip the balance between profit and loss; and, b. The second advantage is that the process of consolidation will be greatly simplified for the parent. Since the carrying values will be the same as the acquisition fair values, there will be no need for many of the consolidation adjustments that otherwise will be required every time consolidated statements are prepared.
PUSH-PULL STRATEGY is the effective simultaneous use of a combination of two marketing strategies: PUSH = 1. (physical distribution definition) A manufacturing strategy aimed at other channel members rather than the end consumer. The manufacturer attempts to entice other channel members to carry its product through trade allowances, inventory stocking procedures, pricing policies, etc. 2. (sales promotion definition) The communications and promotional activities by the marketer to persuade wholesale and retail channel members to stock and promote specific products. PULL = 1. (physical distribution definition) A manufacturing strategy aimed at the end consumer of a product. The product is pulled through the channel by consumer demand initiated by promotional efforts, inventory stocking procedures, etc. 2. (sales promotion definition) The communications and promotional activities by the marketer to persuade consumers to request specific products or brands from retail channel members.
PUT is (1) A stipulated privilege of buying or selling a stated property, security, or commodity at a given price (strike price) within a specified time (for an American-style option, at any time prior to or on the expiration date). A securities option is a negotiable contract in which the seller (writer), for a certain sum of money called the option premium, gives the buyer the right to demand within a specified time the purchase (call) or sale (put) by the option seller of a specified number of bonds, currency units, index units, or shares of stock at a fixed price or rate called the strike price. Many options are settled for cash equal to the difference between the aggregate spot price and the aggregate strike price rather than by delivery of the underlying. In the
PUT OPTION is the right but not the obligation to sell an underlying at a particular price (strike price) on or before the expiration date of the contract. Alternatively, a short forward position with an upside insurance policy.
PUT WARRANT is a security that, in contrast to a conventional warrant, gives the holder the right to sell the underlying or to receive a cash payment that increases as the value of the underlying declines. Put warrants, like their call warrant counterparts, generally have an initial term of more than one year.
QDRO see QUALIFIED DOMESTIC RELATIONS ORDER (QDRO).
QUALIFIED DIVIDENDS are the ordinary dividends received in tax years beginning after 2002 that are subject to the same 5% or 15% maximum tax rate that applies to net capital gain. They are shown in box 1b of Form 1099 –DIV. Qualified dividends are subject to the new 15% maximum capital gains rate if the applicable regular tax rate is 25% or higher. If the applicable regular tax rate is lower than 25%, qualified dividends are subject to the new 5% maximum capital gains rate. To qualify for the 5% or 15% maximum rate, all of the following requirements must be met: a. The dividends must have been paid by a U.S. corporation or a qualified foreign corporation; b. The dividends are not of the type listed later under Dividends that are not qualified dividends; and, c. The proper holding period is met. The following dividends are not qualified dividends. They are not qualified dividends even if they are shown in
QUALIFIED DOMESTIC RELATIONS ORDER (QDRO) is when a state court allocates an interest in a qualified retirement plan to a former spouse through a qualified domestic relations order. Payments made to a former spouse as the result of a QDRO will not result in the taxpayer being assessed a penalty for early withdrawal from the plan; the former spouse will be taxed on the benefits when received, or the benefits can be rolled over tax free into an IRS or another qualified retirement plan.
QUALIFIED OPINION is the auditor’s opinion accompanying a financial statement that calls attention to limitations in the audit or exceptions the auditor has taken with the audit of the statements.
QUALITATIVE INFORMATION is information that is descriptive in nature, relating to, or involving quality or kind.
QUALITY OF EARNINGS is the increased earnings due to increased sales and cost controls, as compared to artificial profits created by inflation of inventory or other asset prices.
QUANTATIVE INFORMATION is information relating to, or expressible in, terms of quantity.
QUARTERLY REPORT see INTERIM STATEMENT.
QUASI-BUSINESS EXPENSES are those tax deductible expenses that could qualify as a personal or business expense dependent upon the situation, e.g. lavish automobiles, country club dues or dubious travel expenses.
QUICK ASSETS is current assets minus inventories.
QUICK RATIO (or Acid Test Ratio) is a more rigorous test than the Current Ratio of short-run solvency, the current ability of a firm to pay its current debts as they come due. This ratio considers only cash, marketable securities (cash equivalents) and accounts receivable because they are considered to be the most liquid forms of current assets. A Quick Ratio less than 1.0 implies "dependency" on inventory and other current assets to liquidate short-term debt.
QUOTATION, dependent upon usage, is a. a statement of the current market price of a security or commodity; or, b. an offer to sell goods at a stated price and under specified conditions.
QUOTE is to name the price of an asset or service, e.g. stock price or investment.
QUOTE TO CASH covers the business process for creating a quote for a prospect or customer, order management, invoicing and cash receipt. The functionality is highly integrated with Supply Chain Management and Customer Management. In traditional systems, it is funded in modules like order entry and accounts receivable.
RAB is REGULATORY ASSET BASE.
RABBI TRUST is a nonqualified deferred compensation plan whereby an employer and employee agree to defer payment for the employee's services until a specified future date. The rabbi trust features an irrevocable grantor trust that is set up by the employer to hold the contributions set aside for the employee. While this provides the employee some degree of safety that the money will be available when desired, the terms of the trust must be such that exposes the trust assets to the claims of the employer's creditors.
R&D see RESEARCH & DEVELOPMENT.
RANDOM SELECTION is a probability-based selection protocol in which each unit has a known probability of being selected. The chances of selection need not be equal for each unit, as long as the chances are known for each unit.
RAR, dependent upon context, is Resource Allocation Request, Revenue Agent Report (US IRS), Remedial Action Report, Report of Actual Reimbursements or Refill Authorization Request.
RATE BASE is the value of a regulated public utility and its operations as defined by its regulators and on which the company is allowed to earn a particular rate of return.
RATE OF RETURN is the gain or loss for a security in a particular period, consisting of income plus capital gains relative to investment, usually quoted as a percentage. The real rate of return is the annual return realized on that investment, adjusted for changes in the price due to inflation.
RATIO is the relative size, expressed as the number of times one quantity is contained in another (for example, the ratio of assets to liabilities of a company having total assets of $200,000 and liabilities of $150,000 would be $200,000 divided by $150,000 = 1.33).
RATIO ANALYSIS involves conversion of financial numbers for a firm into ratios. Ratio analysis allows comparison of one firm to another. Since ratios look at relationships inside the firm, a firm of one size can be directly compared to a second firm (or a collection of firms) which may be larger or smaller or even in a different business. Financial Ratio Analysis is a method of comparison not dependent on the size of either firm. Financial Ratios provide a broader basis for comparison than do raw numbers. In the VentureLine database the comparison is conducted against the industry (SIC Code) in which each particular listing is associated.
REACH, in advertising, is the total number of people within a target market that will be reached through an advertising campaign.
REAL, dependent upon usage, means either 1. in economics, refers to measures such as cost, price and income, which are corrected for inflation over time in order to permit a comparison of actual purchasing power; or, 2. actual cost, as opposed to nominal.
REAL ACCOUNTS, also called permanent accounts, are the accounts; asset, liability, reserve and capital; whose balances are not canceled out at the end of an accounting period, but are carried over to the next period. These accounts appear on the post-closing trial balance and the statement of condition (balance sheet).
REAL ESTATE see REAL PROPERTY.
REALIZABLE VALUE is the expected proceeds from converting assets into cash.
REALIZATION PRINCIPLE is that revenue should be recognized at the time goods is sold and services are rendered.
REALIZED GAIN/LOSS, in securities, is a capital gain or loss on securities held in a portfolio that has become actual by the sale or other type of surrender of one or many securities. See also CAPITAL GAIN.
REALIZED INCOME see REALIZED NET INCOME.
REALIZED NET INCOME, in relation to a particular investment, is the amount by which the total cash gains from an investment exceeds the total losses from the investment. The Realized Net Income from any investment cannot be less than zero.
REAL PROPERTY is land and / or any permanent structures attached to it; to include saleable natural resources, e.g., vacant land, buildings, farms, oil, gas, timber, etc.
REASONABLE CERTAINTY is the degree of certainty that would be found to be in existence by a reasonable person.
REASONABLENESS TEST is where the expected value is determined by reference to data partly or wholly independent of the accounting information system, and for that reason, evidence obtained through the application of such a test may be more reliable than evidence gathered using other analytical procedures.
REASONABLE PERSON is a phrase to denote a hypothetical person who exercises qualities of attention, knowledge, intelligence, and judgment that society requires of its members for the protection of their interest and the interest of others.
REBATE is a. payment to a customer upon completion of a purchase as an inducement or sales promotion tactic; b. unearned interest refunded to borrower if the loan is paid off prior to maturity; c. amount paid back or credit allowed because of an over-collection or the return of an object sold (i.e., a refund).
RECAPITALIZATION: It is dependent upon how you use the term. The term recapitalization in itself is, dependent upon the scenario, simply an adjustment of the relationships between the debt and equity that funds a firms assets. However, it can become quite complex dependent upon under what conditions or reasons the firm is being recapitalized. This is specially true if recapitalization is being pursued to ward off a hostile takeover.
RECAST EARNINGS is a recalculation of earnings based on the assumption that certain expenses could be eliminated through new forms of cost savings. Recast earnings are often used in the analysis of a takeover or merger.
RECEIPT is a written acknowledgment that a specified article, sum of money, or shipment of merchandise has been received.
RECEIPTS this term, unless otherwise qualified, in accounting means cash received.
RECEIVABLE is an amount awaiting receipt of payment.
RECEIVABLES TURNOVER see ACCOUNTS RECEIVABLE TURNOVER.
RECEIVER is a court appointed person who takes possession of, but not title to, the assets and affairs of a business or estate that is in a form of bankruptcy called RECEIVERSHIP. The receiver collects rents and other income and generally manages the affairs of the entity until a disposition is made by the court.
RECEIVERSHIP is equitable remedy whereby a court orders property placed under the control of a RECEIVER so that it may be preserved for the benefit of affected parties. A failing company may be placed in receivership in an action brought by its creditors. The business is often continued but is subject to the receiver's control. See also BANKRUPTCY.
RECHARGE, in accounting, normally involves an activity that provides a specific, ongoing and repetitive good or service to an entity or projects and recovers the cost of providing the good or service from the entity served on a fee basis. Operating costs are supported by recharges to the departments or specific activity receiving the service.
RECIPROCAL INVESTMENT is primarily a protection measure between states (governments) that ensures that investment between two or more states is balanced.
RECOGNIZE or RECOGNITION is the recording of a revenue or expense item in a given accounting period.
RECONCILIATION is the adjusting of the difference between two items (e.g., balances, amounts, statements, or accounts) so that the figures are in agreement. Often the reasons for the differences must be explained. One example would be reconciling a checking account (bringing the checking ledger and bank balance statement into agreement).
RECORDING PRINCIPLE of 'Accrual Basis' of accounting is the recording of data based upon the period in which they are earned or incurred regardless of whether cash is received or disbursed in that period. The recording principle of ‘Cash Basis’ is the recording of data based on a cash transaction occurrence between two parties (an actual event).
RECOURSE, in finance, is the right to demand payment from the maker or endorser of a negotiable instrument (as a check). See RECOURSE NOTE.
RECOURSE NOTE is a note where the default may result in loss of collateral and also personal suit and judgment. Most notes are recourse notes.
RECOVERY, in finance, a. absorption of cost through the allocation of depreciation; b. residual cost or salvage value of a fixed asset after all allowable depreciation; or, c. collection of an accounts receivable that had been previously been written off as a bad debt.
RECURRING ENTRY is a scheduled accounting entry that occurs consistently as to date and amount, e.g. a monthly lease payment.
REDEEMABLE means cashable, i.e. able to be converted into ready money or its equivalent, e.g. redeemable stocks and bonds or a cashable check.
REDEMPTION is the repayment of the principal amount of a debt or security at or before maturity (as when a corporation repurchases its own stock).
RED HERRING is a preliminary registration statement describing the issue (the IPO) and prospects of the company that must be filed with the SEC or provincial securities commission. There is no price or issue size stated in the red herring. Red Herring's are sometimes updated several times before it is called the final prospectus. It is known as a red herring because it contains a statement typed in red that the company is not attempting to sell their shares before the registration is approved by the SEC.
REDISCOUNT is to discount short-term negotiable debt instruments for a second time, after they have been discounted with a bank.
RED-WELLS are when legal records are set up in file folders and file pockets called "red-wells." Clients usually have several matters. Red-wells are usually four-inch filing media in which file folders are inserted. A legal file may have several standard components called "sub-files." These sub-files are normally inserted into red-wells.
REFERENDUM is when a legislative act is referred for final approval to a popular vote by the electorate, e.g., a bond referendum.
REFLATION is, upon recovering from a depression or a recession, the period during which prices are returned to the level they had attained during a period of prosperity by lowering the purchasing power of money is known as reflation.
REFUNDING is redeeming a bond with proceeds received from issuing lower-cost debt obligations with ranking equal to or superior to the debt to be redeemed.
REFURBISH is to renovate or clean up.
REG A see REGULATION A.
REG D see REGULATION D.
REGISTER, in accounting, is a formal or official recording of items within a book or register, e.g., Fixed Asset Register or Invoice Register.
REGISTERED BONDS are bonds for which the names and addresses of the bondholders are kept on file by the issuing company.
REGISTERED INVESTMENT ADVISOR (RIA) is an investment advisor registered with the SEC. No certification is required.
REGISTRATION RIGHTS is the right to require that a company register restricted shares. Demand Registered Rights enable the shareholder to request registration at any time, while Piggy Back Registration Rights enable the shareholder to request that the company register his or her shares when the company files a registration statement (for a public offering with the SEC).
REGRESSIVE TAX is a tax system to where the more income that is realized the lower the tax rate becomes.
REG S see REGULATION S.
REGULATION is the act of controlling or directing according to rule (e.g., the Securities Act of 1933 or SEC and FASB accounting regulations), i.e. it is the act of bringing to uniformity.
REGULATION A, in the
REGULATION D, in the
REGULATION S, in the
REGULATORY ASSETS are those assets under control of a government entity, normally a utility, controlling access to the asset base as well as ascribing fees for gaining access to the use of the regulatory asset base being regulated.
REIMBURSEMENT is to pay back to someone, e.g. to pay an employee for travel expenses that was paid by the employee out of that employees own personal funds.
REIT is Real Estate Investment Trust.
RELATED ENTITY, in relation to a person, means any of the following:
(a) a relative of the person;
(b) a body corporate of which the person, or a relative of the person, is a director;
(c) a body corporate that is related to the body corporate referred to in paragraph (b);
(d) a director, or a relative of a director, of a body corporate referred to in paragraph (b) or (c);
(e) a beneficiary under a trust of which the person, or a relative of the person, is a trustee;
(f) a relative of such a beneficiary;
(g) a relative of the spouse of such a beneficiary;
(h) a trustee of a trust under which the person, or a relative of the person, is a beneficiary;
(i) a member of a partnership of which the person, or a relative of the person, is a member.
RELATED PARTY TRANSACTION is an interaction between two parties, one of whom can exercise control or significant influence over the operating policies of the other. A special relationship may exist, e.g. a corporation and a major shareholder.
RELATIVE CHANGE is a value that is properly related in size or degree or other measurable characteristics, e.g. cost of goods enjoyed a relative change of 9% as compared to prior period performance.
RELEVANCE CONCEPT refers to the capacity of accounting information to make a difference to the external decision makers who use financial reports.
RELEVANT is having a bearing on or connection with the subject at issue, e.g. relevant revenues from sales of Model XXX.
RELEVANT COST, in managerial accounting decision-making situations, is any negative-implications phenomenon which is consequent upon the production process, whether it is denominated in money terms or not.
RELEVANT RANGE is the range of activity over which changes in cost are of interest to management
RELIABILITY CONCEPT is a quality of information that assures decision makers that the information represented in the financial records and financial statements captures the actual conditions and events of the reported entity.
REMITTANCE ADVICE is a notice of payment due, either in paper form or as a notice of an electronic data interchange financial transaction.
REMITTING BANK is a bank that sends a draft to the overseas bank for collection.
REMUNERATION is the act of paying for goods or services or to recompense for losses (Example: Receiving remuneration for work, i.e., a paycheck).
RENEWAL NOTE is a note that renews a previous note due date.
RENT EXPIRED is based upon prepaid rent and the amount of time that has elapsed that is covered under the prepaid term of the rental.
REPLACEMENT COST is the total cost at current prices of an asset that is not necessarily an exact duplicate of the subject asset but serves the same purpose or function as the original.
REPLACEMENT RESERVE FUND, in real estate, is a fund set aside for replacement of common property in a condominium, PUD, or cooperative project; particularly that which has a short life expectancy, such as carpeting and furniture.
REPLACEMENT VALUE CONCEPT, in insurance, is loss coverage for assets at the cost required to purchase like assets at market value. The replacement value concept eliminates the often troublesome factor of used or depreciated value when claims for losses are adjusted.
REPLACEMENT VALUE is the cost to replace an item on the present market. Replacement value is a valuation similar to an adjusted book value analysis. Replacement value is different than liquidation value in that is uses the value of the replacement value of assets, which is usually higher than book value. Liabilities are deducted from the replacement value of the assets to determine the replacement value of the business.
REPO is a contract under which the seller of securities, such as Treasury Bills, agrees to buy them back at a specified time and price. Also called repurchase agreement or buyback.
REPORTABLE CONDITION is a matter coming to the auditor’s attention relating to SIGNIFICANT DEFICIENCIES in the design or operation of the entity's internal control that could ADVERSLY AFFECT an entity’s ability to fulfill future obligations with customers and/or the satisfaction of liabilities.
REPORTABLE EVENT see REPORTABLE CONDITION.
REPORTABLE SEGMENT is a business segment or geographical segment for which IAS 14 requires segment information to be reported.
REPORTED EARNINGS PER SHARE is the earnings per share after profit owed to preference shareholders or minority interests is subtracted, i.e. it is the profit that actually belongs to the ordinary shareholders.
REPORTING ENTITY is the legal entity for which financial reports are prepared and made available.
REPORTING PERIOD see ACCOUNTING PERIOD.
REPRESENTATION EXPENSES are those expenditures whose character and primary purpose is for representational or entertainment related activities, including receptions or banquets.
REPRODUCTION COST LESS DEPRECIATION (RCLD) is a technique for valuing electric distribution assets.
REQUIRED RATE OF RETURN see HURDLE RATE.
REQUISITION is a written request to buy something. Usually, once approved, the requisition is then transformed into a purchase order.
RESEARCH & DEVELOPMENT (R&D) is research as a planned activity aimed at discovery of new knowledge with the hope of developing new or improved products and services. Development is the translation of the research findings into a plan or design of new or improved products and services.
RESERVE is an accounting entry that properly reflects contingent liabilities.
RESERVE ACCOUNTS, generally, are those accounts where retained earnings are set aside to satisfy dividends, improvements, contingencies, retirement of preferred stock, etc.
RESERVE CAPITAL is that part of the nominal (current value) of a business that has not yet been called up. It is thus a reserve, which can be drawn on in case of need.
RESIDUAL, generally, is something left after other parts have been taken away.
RESIDUAL CLAIM is a claim to a share of earnings after debt obligations have been satisfied.
RESIDUAL EQUITY THEORY is the theory that common stockholders are considered to be the real owners of the business, i.e., Assets - Liabilities - Preferred Stock = Common Stock.
RESIDUAL INCOME is income from efforts which continue to generate revenue over time without requiring any additional effort (e.g., a stream of future royalty payments from a book).
RESIDUAL OWNERSHIP see RESIDUAL EQUITY THEORY.
RESIDUAL VALUE is: a) Realizable value of a fixed asset after deducting costs associated with its sale; b) Scrap value or the value to a junk dealer; or c) The amount remaining after all depreciation has been deducted from the original cost of a depreciable asset.
RESOURCE ABSORPTION, in business, is the depletion of the finite resources available to a company, i.e., labor, machinery, materials, etc.
RESPONSIBILITY ACCOUNTING is the collection, summarization, and reporting of financial information about various decision centers throughout an organization; can also be called profitability accounting or activity accounting. It tracks costs, revenues, or profits to the individual managers who are responsible for making the decisions about costs, revenues, or profits and taking action about them.
RESTATEMENT OF FINANCIALS are sometimes required by the IRS when the IRS, through audit, determines that IRS rules were not followed; either lawfully or fraudulently. Such restatements usually have a negative effect on the financial results of the audited entity for the periods in question.
RESTRICTED is something that is curbed or regulated, e.g. restricted assets.
RESTRICTED ASSETS are assets / resources which are restricted by legal or contractual requirements for use under specific circumstances or purposes.
RESTRICTED DONATIONS see RESTRICTED ASSETS.
RESTRICTED STOCK is stock which is acquired through an employee stock option plan or other private means and which may not be transferred. Restricted stock may be forfeited if any SEC regulations related to it are violated or the employee either does not exercise his/her option or terminates employment prior to fully vesting.
RESTRUCTURING is the termination of employees and the reorganization of those remaining; can include reductions in plant and equipment. Restructuring is usually implemented to realize cost savings.
RESULTS FROM OPERATION is a synonym for the financial statement of a corporation: P&L, balance sheet, statement of cash flows, and sometimes a statement of owners equity. See FINANCIAL STATEMENT.
RETAIL is the selling of goods directly to consumers; usually in small quantities and not for resale.
RETAINAGE, in a construction contract, is the money earned by a contractor but not paid to the contractor until the completion of construction or another predetermined date. The retainage is held back as assurance for the quality of the contractors work.
RETAINED EARNINGS are profits of the business that have not been paid out to the owners as of the balance sheet date. The earnings have been "retained" for use in the business (Retained Earnings is an account in the equity section of the balance sheet). It is comprised of the balance, either debit or credit, of appropriated or unappropriated earnings of an entity that are retained in the business. NOTE: Appropriated earnings are not available for dividends, but may be used to reduce a deficit or may be transferred to stated capital. Other appropriations of profits require a vote of the shareholders.
RETAINED EARNINGS STATEMENT see STATEMENT OF RETAINED EARNINGS.
RETAINED PROFIT see RETAINED EARNINGS.
RETROACTIVE is to affect and modify things past, e.g. a retroactive tax increase.
RETROSPECTIVE is to be concerned with or related to the past, e.g. management's review of the prior years performance.
RETROSPECTIVE REIMBURSEMENT, in healthcare, is where reimbursement came after medical care was delivered.
RETURN ON ASSETS (ROA) shows the after tax earnings of assets. Return on assets is an indicator of how profitable a company is. Use this ratio annually to compare a business' performance to the industry norms: The higher the ratio the greater the return on assets. However this has to be balanced against such factors as risk, sustainability and reinvestment in the business through development costs.
RETURN OF CAPITAL is the distribution of cash that resulted from tax savings on depreciation, sale of a capital asset or securities, or any other sources unrelated to retained earnings.
RETURN ON CAPITAL EMPLOYED (ROCE) is a measure of how effectively the company is using its capital. The formula to measures the return on all the assets the company is using: Profit before interest and tax (PBIT) / (total assets - current liabilities)
RETURN ON EQUITY (ROE) measures the overall efficiency of the firm in managing its total investments in assets and in generating a return to stockholders. It is the primary measure of how well management is running the company. ROE allows you to quickly gauge whether a company is a value creator or a cash consumer. By relating the earnings generated to the shareholders' equity, you can see how much cash is created from the existing assets. Clearly, all things being equal, the higher a company's ROE, the better the company.
RETURN ON INVESTMENT (ROI) is a profitability measure that evaluates the performance of a business. ROI can be calculated in various ways. The most common method is Net Income as a percentage of Net Book Value (total assets minus intangible assets and liabilities).
RETURN ON NET WORTH see RETURN ON STOCKHOLDERS EQUITY.
RETURN ON RATE BASE is the ratio of net operating income earned by a utility, calculated as a percentage of its rate base.
RETURN ON SALES is a measure of a company's profitability, equal to a fiscal year's pre-tax income divided by total sales.
RETURN ON STOCKHOLDERS EQUITY is a measure of how profitably the company is utilizing shareholders' funds. It is calculated: profit after tax ÷ total stockholder's equity. Also called RETURN ON NET WORTH.
RETURNS INWARDS are goods sold on credit to a customer and returned for some reason to be refunded for (Sales returns).
RETURNS OUTWARDS are goods bought on credit from a supplier and returned for some reason to be refunded for (Purchases returns).
REVALUATION, in general, is the reconsideration of the value or worth of a property. In currency, it is the increase in the exchange rate of a currency as a result of official action.
REVALUATION RESERVE see ASSET REVALUATION RESERVE.
REVALUATION SURPLUS, under the revaluation model, increases in carrying amount above a cost-based measure are recognized as revaluation surplus.
REVENUE is the inflows of assets from selling goods and providing services to customers; including the reduction of liabilities from selling goods and providing services to customers.
REVENUE ADJUSTMENT is a journal entry to either increase or decrease revenue based upon new data; thereby either increasing or decreasing cash.
REVENUE BONDS are a type of municipal bond where principal and interest are secured by revenues such as charges or rents paid by users of the facility built with the proceeds of the bond issue. Projects financed by revenue bonds include highways, airports, and not-for-profit health care and other facilities.
REVENUE CONTRACT is a binding agreement between a governmental body and another party that defines the terms under which revenue will be received. A contract can be distinguished from a customer purchase order by the fact that a contract will contain the signatures of both parties, while a purchase order will contain only the signature of the customer.
REVENUE EXPENDITURE is the cost of resources consumed or used up in the process of generating revenue, generally referred to as expenses.
REVENUE JUSTIFIED is where the revenue realized from a product or service will pay for the cost and expenses of that product or service, i.e. the product or service will pay for itself.
REVENUE PRINCIPLE is where revenues are recorded when they are earned regardless of timing of cash receipts.
REVENUE RECOGNITION is the process of recording revenue, under one of the various acceptable methods, in the accounting period. In each period of revenue recognition, all related expenses should be matched to revenue. The most common method of recognizing revenue is at the time of sale or provisioning of service.
REVENUE RESERVE is a fund that is not a CAPITAL RESERVE, i.e. the funds are distributable.
REVERSE COST-BENEFIT METHOD is based on the short-cut rate of return formula and amounts to asking the question: given the cost of the investment, what level of annual benefits would produce a given rate of return (8 percent, for instance) on the investment?
REVERSE REPO see REVERSE REPURCHASE AGREEMENT.
REVERSE REPURCHASE AGREEMENT (reverse repo) is the opposite of a repo in that it is the purchase of securities (usually government debt) tied to an agreement to sell the security back at a later date at a higher price. Reverse repo's are normally short term agreements; primarily on an overnight basis.
REVERSE TAKEOVER can occur in different forms: 1. a smaller corporate entity takes over a larger one.; 2. a private company purchases a public one; or, 3. a method of listing a private company while bypassing most securities regulations, whereby which a shell public company buys out a functioning private company whose management then controls the public company.
REVERSING ENTRY is a very special type of adjusting entry. Generally, it is a debit or credit bookkeeping entry made to reverse a prior bookkeeping entry. They can be extremely useful and should be used where necessary. A reversing entry comes in two parts: the original adjusting entry, and the reverse, or opposite entry. The second entry is written by simply reversing the position of all debits and credits. Ultimately, the end result on the books is zero, but the adjusting entry serves to correctly allocate an expense, so the financial statements are correct.
For example: X Company has a payroll department, and cuts checks every two weeks after tabulating hours, and calculating net pay. A large number of allocations have to be made to various withholding accounts. The accountants don't want to interfere with the operations of the payroll department. And the employees also want the department to run efficiently so they can get their pay checks on time.
At the end of the year the accountants need to appropriately allocate payroll expenses, plus taxes due and payable. Rather than interfere with the payroll department the calculation is made on paper (or computer), and entered as an adjusting entry. It is marked to be reversed. After the closing entries are made, the first entries of the new year are the reversing entries. They undo the effects of the adjusting entry.
If the adjusting entry is not reversed, the books will not be correct. Both the accountants and payroll department will be making entries related to payroll. The reversing entry effectively allows the accountants to make adjusting entries without causing the books to be incorrect; the payroll department continues to make routine entries, and doesn't need to make any special entries or allocations.
REVERSION ASSET see ASSET REVERSION.
REVIEW is an accounting service providing some assurance to the Board of Directors and interested parties as to the reliability of financial data without the CPA conducting an examination in accordance with generally accepted accounting standards. The AICPA auditing standards board formulates review standards for public companies while the AICPA Accounting and Review Services Committee provides review standards for non-public businesses.
REVOCABLE LETTER OF CREDIT is a letter of credit which can be cancelled or altered by the drawee (buyer) after it has been issued by the drawee's bank.
REVOLVING COLLATERAL are accounts receivable or inventory which change from day to day.
REVOLVING CREDIT is a line of credit extended to customers who may use it as often as desired up to a certain dollar limit. Items purchased using this line of credit may be paid in full upon receipt of a monthly statement, or they may be paid for in several installments, for which an interest charge is added. Also known as REVOLVING LINE OF CREDIT.
REVOLVING LINE OF CREDIT in commercial banking is a contractual agreement between a bank and, usually, a company where the bank agrees to provide loans up to a specified maximum over a specified period, usually a year or more. In consumer banking, it is a loan account requiring monthly payments less than the full amount of the loan, and the balance is carried forward with a finance charge on that balance. Also known as REVOLVING CREDIT.
REVOLVING FINANCING is financing secured by collateral.
REVOLVING FUND is money that is renewed as it is used.
REVOLVING LOAN is a loan that is automatically renewed upon maturity.
REWORK is to change an item in order to improve it or make it more suitable for a particular purpose, e.g. to rework a defective product into one that exhibits the quality required for acceptance.
RFP is Request for Proposal.
RFSB is Rehabilitation Fund for Small Businesses.
RISK is the measurable possibility of losing or not gaining value. Risk is different from uncertainty. Uncertainty is not measurable.
RISK ADJUSTED RETURN is when we subtract from the rate of return on an asset a rate of return from another asset that has similar risk. This gives an abnormal rate of return that shows how the asset performed over and above a benchmark asset with the same risk. We can also use the beta against the benchmark to calculate an alpha which is also risk adjusted performance.
ROA see RETURN ON ASSETS.
ROACE stands for Return on Average Capital Employed.
ROBUST is when a business is considered fully developed and healthy.
ROCC is an acronym for Return On Committed Capital.
ROE see RETURN ON EQUITY.
ROG, in business, is an acronym meaning “Receipt Of Goods”.
ROI (Return on Investment) can be calculated in various ways. The most common method is Net Income as a percentage of Net Book Value (total assets minus intangible assets and liabilities).
ROIC see RETURN ON INVESTED CAPITAL.
ROLL FORWARD, in accounting, it is the systematic establishment of a new accounting period's balances by using (rolling forward) prior accounting period data. There are two approaches: 1. Roll forward both asset and liabilities on a consistent basis from a consistent earlier date (possibly the last annual review); or, take the most up to date asset and liability figures as the starting point (which may be at different dates) to produce roll forward estimates of assets and liabilities; in securities, it is when an investor replaces an old options position with a new one having a later expiration date (and same strike price).
ROLL FORWARD BUDGET see CONTINUOUS BUDGET.
ROLLING STOCK is the equipment available for use as transportation, as automotive vehicles, locomotives, or railroad cars, owned by a particular company or carrier. Does not include aircraft or water borne craft.
ROLLOVER is: a. in
ROYALTY is the share of the product, or of the proceeds realized from the product, reserved by an owner for permitting another entity to exploit and use that entity’s property, i.e. it is the rental paid to the original owner of property based upon a percentage of sales, profit or production. Royalty can involve literary works, inventions, and other intellectual property, as well as mining leases and conveyances.
RPI, among many others, can be Retail Price Index, Real Property Inventory, Rapid Process Improvement, or Responsive Production Inventory.
RULE OF THUMB is a rough and useful principle or method, based on experience rather than precisely accurate measures.
RULES-BASED ACCOUNTING is where specific accounting rules are set forth and must be followed in order to comply with GAAP. For example, if an airline company leases a jet, the company must follow specific GAAP rules to determine if the transaction is an operating lease or a capital lease. The main difference being that a capital lease would have to appear on the balance sheet of the airline. Therefore, two virtually identical lease transactions could be classified entirely differently based upon how they follow the GAAP leasing rules. See also PRINCIPLES-BASED ACCOUNTING.
RUNNING RATE is a sustained constant rate, often the only important single rate except for zero observed under a given schedule (as in some ratio performances); also known as stream rate.
RUNNING TOTAL is the sum of any given set of numbers that is incremented/decremented as additional numbers become available over time. For example, a retail store makes sales throughout a time period, the running total is the sum of their sales, including returns/credits, at any given point of time during that time period: day, week, month, quarter, year.
RUN RATE, in finance, is how the financial performance of a company would look if you were to extrapolate current results out over a certain period of time. In accounting, it is the average annual dilution from stock option grants at a company over the most recent three year period reported in the annual report.
SAFE HARBOR RULE is a concept in statutes and regulations whereby a person who meets listed requirements will be preserved from adverse legal action. Frequently, safe harbors are used where a legal requirement is somewhat ambiguous and carries a risk of punishment for an unintended violation.
SAFETY STOCK (SS) or security stock ensures that the item is available up to the pre-defined required service level, even when the re-ordered material arrives later then expected, or the fluctuations in demand during the lead-time cause the demand to be larger then expected. See also STOCK RESERVE.
SALARY is scheduled wages and benefits an employee receives from an employer.
SALES ALLOWANCE is an offer of a lower price as an inducement to the buyer to accept delivery under special circumstances, e.g. when the merchandise delivered is not exactly what was ordered.
SALES AND COLLECTIONS BUDGET represents one of the first steps in the budgeting process, as items such as inventory levels and operating expenses are driven off of the Sales and Collections Budget. Effective sales budgeting is a key factor in building a useful and representative financial model for a business. Regardless of the nature of your business (for example, whether it is product or service-based).
SALES & MARKETING EXPENSE normally includes: salaries, commissions, and benefits to sales and marketing personnel, co-op advertising allowances to customers, advertising, warehouse costs, and shipping costs.
SALES BUDGET is the expected sales in units and dollars. See OPERATING BUDGET.
SALES CONTRACT see SALES ORDER.
SALES DISCOUNT is a reduction in the selling price usually as an inducement to consummate a sale. Sales Discount is on the income statement as a deduction from Gross Sales to get Net Sales.
SALES INVOICE is a document that records the sale of goods or services from a vendor to a customer.
SALES JOURNAL is a record containing a chronological listing of credit sales.
SALES LEDGER see LEDGER.
SALES MULTIPLE is the most widely used valuation benchmark used in the valuation of a business. The information needed are annual sales and an industry multiplier, which is usually a range of .25 to 1 or higher. The industry multiplier can be found in various financial publications, as well as analyzing sales of comparable businesses. This method is easy to understand and use. The sales multiple is often used as the valuation benchmark.
SALES ORDER, also known as SALES CONTRACT, is a contract by which buyer and seller agree to the terms and conditions of a sale.
SALES PROCEEDS are the sum of the service units (products, services) sold by a corporation within a particular period. The sales proceeds are calculated from the quantities sold (pcs, kg, hrs) multiplied by the sales price per unit within a particular period.
SALES / RECEIVABLES (Receivables Turnover) is a ratio that measures the number of times trade Receivables turn over during the year. Generally, the higher the turnover of receivables, the shorter the time between sale and cash collection. It indicates how fast the company is getting paid for goods and services. Receivables turnover is best compared to the industry in order to determine if the company should improve their collection rate. The faster the receivables turnover, the better cash flow will look. Slow or below par turnover can be an indication of systemic problems within the company. It is best to compare receivables turnover with that of industry averages.
SALES TAX is a tax levied by a government entity, usually state or city, on the retail price of an item and certain taxable services, collected by the retailer.
SALES TURNOVER see TURNOVER.
SALVAGE VALUE is: a) Realizable value of a fixed asset after deducting costs associated with its sale; b) Scrap value or the value to a junk dealer; or c) The amount remaining after all depreciation has been deducted from the original cost of a depreciable asset.
SAME STORE SALES is used when analyzing the retail industry. It compares sales in stores which have been open for a year or more.
S&P 500 see STANDARD AND POOR'S (S&P) 500.
SAP is an integrated enterprise resource planning (ERP) system that seamlessly integrates most activities of a company.
SARBANES-OXLEY ACT (SOX) contains sweeping reforms for issuers of publicly traded securities, auditors, corporate board members, and lawyers. It adopts tough new provisions intended to deter and punish corporate and accounting fraud and corruption, threatening severe penalties for wrongdoers, and protecting the interests of workers and shareholders. The Sarbanes-Oxley Act of 2002, was signed into law by US President George W. Bush and became effective on July 30, 2002.
SAVINGS ACCOUNTS are client accounts maintained by banks, savings & loan associations, credit unions, and mutual savings banks that pay interest but can not be used directly as money. These accounts let customers set aside a portion of their liquid assets that could be used to make purchases. But to make those purchases, savings account balances must be transferred to "transactions deposits" (or "checkable deposits") or currency. However, this transference is easy enough that savings accounts are often termed near money. Savings accounts, as such constitute a sizeable portion of the M2 monetary aggregate. With savings accounts you can make withdrawals, but you do not have the flexibility of using checks to do so. As with an MMDAs (money market deposit account), the number of withdrawals or transfers you can make on the account each month is usually limited.
SAVINGS DEPOSITS see SAVINGS ACCOUNTS.
SBIC is Small Business Investment Company.
SCHEDULE is an ordered list of times at which things are planned to occur, e.g., cash receipts schedule and amortization schedule.
SCIENTER THEORY is based on the word 'scienter', which is Latin for "having knowledge." In criminal law, the theory refers to knowledge by a defendant that his/her acts were illegal or his/her statements were lies and thus fraudulent. In securities, it is to knowingly transact a fraudulent securities deal.
S CORPORATION see SUBCHAPTER S.
SCRAP is material that is discarded as worthless or sold to be reused as parts; junk; a small unusable amount of something that is left over after the rest has been used or consumed.
SCRAP VALUE see SALVAGE VALUE.
SDCF is Sales & Distribution Cash Flow.
SEC is the Securities and Exchange Commission.
SECA is Self-Employment Contributions Act of 1954.
SECURED is an obligation backed by a pledge of collateral. Opposite of unsecured.
SECURED LIABILITY is a liability that has a degree of protection towards satisfaction if unpaid because the debtor has pledged personal/company assets towards satisfaction of that liability; e.g., a property mortgage is a secured liability because the mortgage holder has a guarantee through a lien on the property.
SECURITIES FRAUD, in most cases, is nothing more than stealing. Federal and state securities laws contain more technical definitions. But when investors are enticed into purchasing security instruments based on untrue data, statements or promises, it is securities fraud.
SECURITIZATION is the process of creating a pass-through, such as the mortgage pass-through security, by which the pooled assets become standard securities backed by those assets. Also, refers to the replacement of non-marketable loans and/or cash flows provided by financial intermediaries with negotiable securities issued in the public capital markets.
SECURITY dependent upon usage is: a. a guarantee that an obligation will be met; b. defense against financial failure; financial independence; c. property that your creditor can claim in case you default on your obligation; or, d. a formal declaration that documents a fact of relevance to finance and investment; the holder of which has a right to receive interest or dividends, e.g. stocks and bonds.
SECURITY STOCK see SAFETY STOCK.
SEGMENTATION is the act of dividing or partitioning; separation by the creation of a boundary that divides or keeps apart, e.g. segmenting a market along the characteristics and needs of a particular consumer group.
SEGMENT REVENUE is revenue, including intersegment revenue, which is directly attributable or reasonably allocable to a segment. Includes interest and dividend income and related securities gains only if the segment is a financial segment (bank, insurance company, etc.).
SEGREGATED FUND is a pooled investment fund, much like a mutual fund, established by an insurance company and segregated from the general capital of the company. Its chief distinction from a mutual fund is its guarantee that, regardless of fund performance, at least a minimum percentage of the investor's payments into the fund will be returned when the fund matures.
SELF-CONTRUCT ASSETS is the costs incurred to build it yourself.
SELLER GUARANTEE DEPOSIT is a good-faith deposit of funds that is made to demonstrate that the seller is confident enough in their technical skills and time management abilities to guarantee that they will complete the project 100% and on time. If the project is completed successfully, then the seller receives back the Seller Guarantee Deposit (minus the Seller Guarantee Deposit Processing Fee). If the project is not completed successfully, the seller forfeits the entire Seller Guarantee Deposit as liquidated damages for the breech.
SELL-IN ACCOUNTING records shipments to wholesalers as product sales whether or not they expand retail or wholesale stocking, i.e. revenue is recorded when a product enters the distribution stream while sell-through does not. See SELL-THROUGH ACCOUNTING.
SELLING & ADMINISTRATIVE EXPENSE BUDGET is a budget of planned expenditures for non-manufacturing activities, such as sales commissions and office salaries. See OPERATING BUDGET.
SELL-THROUGH, in retail sales, is the number of product distributed that are actually sold, e.g. movies sold as compared to rented.
SELL-THROUGH ACCOUNTING is where revenue is not recognized until after the product has been subsequently shipped from the wholesalers. See SELL-IN ACCOUNTING.
SEMIVARIALBLE COST is one that varies with changes in volume, but, unlike variable cost, does not vary in direct proportion. This component contains both fixed and variable elements, e.g., a rented vehicle may have a rental fee (fixed), but contain a mileage adder (variable).
SENIOR DEBT/NOTE are loans or debt securities that have a claim prior to junior obligations and equity on a corporation’s assets in the event of a liquidation.
SENSEX is a Bombay Stock Exchange Index (BSE 30-Share Benchmark Sensex Index).
SENSITIVE ASSETS are those assets that can be affected by uncontrollable external factors. There are interest rate sensitive assets (assets yielding cash-flows at some fixed points in the future) and theft-sensitive assets (inventory for example).
SENSITIVE LIABILITIES normally refers to 'interest rate sensitive liabilities' (i.e., liabilities where there is a floating interest rate).
SENSITIVITY ANALYSIS is the analysis of how sensitive outcomes are to changes in the assumptions. The assumptions that deserve the most attention should depend largely on the dominant benefit and cost elements and the areas of greatest uncertainty of the program or process being analyzed.
SEPARABLE COSTS are all costs (manufacturing, marketing, distribution, etc.) incurred beyond the splitoff point that are assignable to one or more individual products.
SEPARATE DETERMINATION CONCEPT holds that each component of any category of assets or liabilities should be valued separately when arriving at a total to be shown in the accounts for that category. For example, the value of each stock item should be calculated individually (at the lower of cost and net realizable value) and these values should then be totaled to give the stock figure which will appear in the accounts. Stock should not be valued at the lower of total cost and total NRV.
SEPARATE VALUATION CONCEPT is a recording and measurement rule that relates to the determination of the aggregate amount of any item. In order to determine the aggregate amount of an asset or a liability, each individual asset or liability that comprises the aggregate must be determined separately. This is important because material items may reflect different economic circumstances. There must be a review of each material item to comply with the appropriate accounting standards.
SERIAL BOND is a bond issue in which the bonds mature periodically over a number of years.
SERIES A PREFERRED STOCK is the first round of stock offered during the seed or early stage round by a portfolio company to the venture investor or fund. This stock is convertible into common stock in certain cases such as an IPO or the sale of the company. Later rounds of preferred stock in a private company are called Series B, Series C and so on.
SERIES B, C, D, ETC. PREFERRED STOCK see SERIES A PREFERRED STOCK.
SERVICE BUSINESS is a form of business providing different types of labor services in a wide variety of business sectors, e.g., lawn mowing, housecleaning and clothes cleaners are three types of consumer services offered to the general public.
SERVICE CHARGE is an additional charge for a service for which there is already a basic fee; also called service fee.
SERVICE CHARGE ACCOUNTING, in property management, is estate and property service charge accounting system that provides the mechanism for comprehensive service charge reconciliation reports for both the tenant and the property manager. Expenditure can be apportioned equally over the entire service charge period or can be allocated to a specific date range within the period. Full budget reporting and next period budget calculation routines are usually provided.
SERVICE CONTRACT is a contract offered by a retailer for maintaining and repairing a product beyond its manufacturer's warranty coverage.
SERVICE FEE see SERVICE CHARGE.
SERVICE INVOICE is an invoice associated with non-professional services, e.g. janitorial, consulting or architectural. See PROFESSIONAL INVOICE and PRODUCT INVOICE.
SERVICE LEVEL AGREEMENT (SLA) is performance objectives reached by consensus between the user and the provider of a service, or between an outsourcer and an organization. A service level agreement specifies a variety of performance standards that may or may not include "service level."
SETOFF is the discharge of a debt by setting against it a distinct claim in favor of the debtor.
SETTLEMENT DISCOUNT is the discount percentage offered for payment within the settlement period. Many vendors offer settlement discounts for early payment of invoiced amounts.
SETUP COST see FIXED CHARGE.
SEVERANCE TAX is levied on production of natural resources taken from land or water bottoms within the territorial boundaries of a state.
SFAS is Statement of Financial Accounting Standards or Statewide Fixed Assets System.
SG&A refers to the indirect overhead costs contained within the Sales, General and Administrative expense / cost categories.
SGD is an acronym for SIGNED.
SHARE is one unit of ownership interest in a company, mutual fund, limited partnership, etc.
SHARE APPLICATION MONEY is that money received by a company during an IPO. Payments received for a subscription of stock is normally received over the IPO life. For example: Widgets Limited has been registered with an authorized capital of $2,00,000 divided into 2,000 shares of $100 each of which, 1,000 shares were offered for public subscription at a premium of $5 per share, payable as:
on application $10
on allotment $25 (including premium)
on first call $40
on final call $30
For a total of $105/share
The amounts received would be carried as a current liability until such time as the stock is issued, then it would be considered as part of equity.
SHARE BUY-BACK is when a company makes an offer to buy back some of its own shares. There are several types of buy-backs. Three common types are: 1. an equal access scheme - when the company offers to buy back the same proportion of each shareholder's shares; 2. a selective buy-back - when the company offers to buy back shares from only one or some of its shareholders; or, 3. the company may buy the shares on the exchange where the shares are traded.
SHARE CAPITAL is that portion of a corporation's equity obtained from issuing shares in return for cash or other considerations.
SHAREHOLDER is an individual or company, (including corporations) that legally owns one or more shares of a company.
SHAREHOLDER LOANS include any loans between a corporation and any of its shareholders. Loans from shareholders are normally carried as long-term debt, but the reality is such loans should be counted as equity (they are not) because they rarely are paid back to the shareholder.
SHAREHOLDER OF RECORD is any individual or company that owns at least one share of stock of a corportion; such shares represented by a stock certificate or record of shares held by the owner's broker.
SHAREHOLDERS FUND is equity plus accumulated profits.
SHAREHOLDER'S EQUITY is total assets minus total liabilities. It is the same as EQUITY, NET WORTH and stockholder’s equity.
SHARE PREMIUM is the difference between the higher price paid for a share of stock and the stocks par value when issued.
SHARPE RATIO, named after William P. Sharpe, is a measurement of portfolio trading performance. It is calculated by subtracting risk free rate from total portfolio return, then dividing by the standard deviation of the portfolio:Sharpe ratio = Total portfolio return – Risk free rate / Portfolio standard deviation.
SHELF LIFE specifies the period of time which a product can be stored, under specified conditions, and remain in optimum condition and suitable for use or consumption.
SHIP IN PLACE is sales billed to customers prior to delivery and held by the seller (also: "bill and hold" or "bill in place" sales).
SHIPPING NOTICE is a formal notification that goods ordered are en-route to their destination.
SHORT-TERM usually encompasses a calendar of 12 months or less.
SHORT TERM ASSET is an asset expected to be converted into cash within the normal operating cycle (usually one year), e.g. accounts receivable and inventory.
SHORT TERM LIABILITY is a liability that will come due within one year or less.
SHRINKAGE is: 1. the amount by which something shrinks; 2. process or result of becoming less or smaller (Example: "The material lost 2 inches per yard in shrinkage"); or, 3. the act of stealing goods that are on display in a store (Example: "Shrinkage" is the retail trade's euphemism for shoplifting).
SI&A is Structure Inventory and Appraisal or Site Installation and Activation.
SIC (STANDARD INDUSTRIAL CLASSIFICATION) is a U.S. Government numerical coding system used in the
SIDE POCKET INVESTMENTS enable a fund manager to invest in securities that are or become illiquid by allowing the fund manager to classify the securities as a “designated” or “special” investment i.e., held in a side pocket. Designated investments are valued separately from the general portfolio of the fund. Once designated, distinct valuation, allocation, withdrawal and distribution provisions are applied to such designated investments without affecting the general portfolio of the fund (and its applicable terms). Side pocket provisions typically permit a fund manager to designate any investment as a designated investment, creating a side pocket, if the fund manager determines it to be in the best interests of the fund and its investors. Generally, only investors that are investors at the time the side pocket is created are allocated a participating interest in such investments. Accordingly, investors that become investors after a side pocket is created will have no interest in such designated investment.
SIGHT DRAFT is a draft which is payable on demand.
SIGNATURE LOAN is a loan secured by the borrower with nothing more than the signature of that borrower.
SIGNIFICANCE is a meaning that is not expressly stated but can be inferred, e.g. the significance of an increase in product demand can only be known after the financial effects are calculated.
SIGNIFICANT DEFICIENCY, in finance, is an internal control shortcoming in a highly important control area or an aggregation of such deficiencies that could result in a misstatement of the financial statements that is more than inconsequential.
SILENT PARTNERSHIP is the relation of partnership sustained by a person who furnishes capital only, i.e., the partner is not involved in the day-to-day operations or decisions of the entity.
SIMPLE INTEREST is interest computed on principal alone, as opposed to compound interest which includes accrued interest in the calculation.
SIMPLE JOURNAL ENTRY is a journal entry that involves only one debit and one credit in the transaction.
SINGLE-ENTRY BOOKKEEPING is a simple bookkeeping system in which all transactions are recorded in a single record (e.g., a checkbook that indicates expenditures only). Single-entry does not rely upon equal debits and credits.
SIGN-OFF is approval or agreement, e.g. to sign-off on a purchase contract.
SINKING FUND is a sum set apart periodically from the income of a government or a business and allowed to accumulate in order ultimately to pay off a debt. A preferred investment for a sinking fund is the purchase of the government's or firm's bonds that are to be paid off. Usually the fund is administered by a trustee.
SIPS is an acronym for Secure Internet Payment Service (e.g., Cybercash).
SISTER COMPANY is similar to the way in which a family is structured, two or more sister companies (sibling) share the same Parent Company or individual owner. Like a Subsidiary, it is a separately incorporated business.
SKIP PERSON is a transfer of property to a person who is in a generation below a child of the transferor, referred to as a "skip" person, typically a grandchild or great grandchild.
SKU is an acronym for Stock Keeping Unit. It is usually used to identify an item carried in inventory or stock.
SLIDE ERROR is the incorrect placement of the decimal point, e.g. $2545.00 is recorded as $25.45.
SLIPPAGE is the difference between estimated transactions costs and actual transactions costs. The difference usually represents revisions to price difference or spread and commission costs.
SLIT is Serial-Lot Item Tracking.
SLR see STATUTORY LIQUIDITY RATIO and see below.
SLR is an acronym with several possible meanings, e.g., Stock Level Report, Stock Level Requirement, System Level Requirement(s), Statutory Liquidity Ratio.
SMA see SPECIAL MEMORANDUM ACCOUNT.
SMALL-CAP is a stock with a capitalization, meaning a total equity value, of less than $500 million.
SMOOTHING is a widely used technique in forecasting trends, seasonality and level change, e.g. averaging month-to-month fluctuations. Works well with data that has a lot of randomness.
SOCIAL CAPITAL is networks, together with shared norms, values and understandings which facilitate cooperation within or among those groups for mutual benefit.
SOCIAL COST is the cost to society as a whole from an event, action, or policy change. Includes negative externalities and does not count costs that are transfers to others, in contrast to private cost.
SOCIAL ENTITY is the separate existence of an organization that is perceived to exist, by its members and the public at large, as a 'given', i.e. something that exists before and outside of them.
SOES (Small Order Execution System) trading is an electronic method of day trading the NASD market. At present, SOES trading is at the center of controversy between the NASD, SEC, individual traders, and the courts. SOES is changing the way trading is done on the NASD, and it may rewrite the rules of the game for trading. Bandits is just a term being used for the individuals using the SOES system for day trading.
SOFT ASSETS are human resources (people, skills and knowledge) and intangible assets (information, brands, and reputation). Soft assets are hard to value and are not usually reflected in the books of account, nor are they typically subjected to periodic inventory. See also HARD ASSETS.
SOFT CLOSE, in accounting, is when journal entries may be allowed to periods previously considered closed with the confidence that you can create corrected financial statements and that balances brought forward are corrected; in securities, is when a fund will no longer accept new investors into the fund, however existing shareholders can continue to contribute.
SOFT COSTS are those extraneous costs that are not readily foreseen or budgeted for, e.g. legal fees, loan fees and interest, etc.
SOFT CREDIT see ASSOCIATED CREDIT.
SOLD LEDGER see LEDGER.
SOLE PROPRIETOR is an individual who owns a business as opposed to stock in a corporation. A sole proprietor pays no corporate income tax but has unlimited liability for his/her business debts and obligations. See SOLE PROPRIERTORSHIP.
SOLE PROPRIERTORSHIP is a business structure in which an individual and his/her company are considered a single entity for tax and liability purposes. A sole proprietorship is a company which is not registered with the state as a limited liability company or corporation. The owner does not pay income tax separately for the company, but he/she reports business income or losses on his/her individual income tax return. The owner is inseparable from the sole proprietorship, so he/she is liable for any business debts; also called proprietorship. The distinguishing characteristics of a sole proprietorship include: only one owner for the business (hence, "sole") and the business is unincorporated.
SOLVENCY is a company's long-term ability to meet all financial obligations.
SOP is Statement of Position (within the AICPA or FASB) or Standard Operating Procedure.
SOUND, when used in a financial context, means financially secure and safe.
SOURCE DOCUMENTS are the primary documents used when forwarding an argument or making a presentation of fact. Usually used as a direct reference as a source of empirical data, expert opinion or information. See SUPPORTING DOCUMENTS.
SOX see SARBANES-OXLEY ACT.
SPE see SPECIAL-PURPOSE ENTITY.
SPECIAL DEPRECIATION are governmental tax incentive measures intended to help achieve a variety of policy objectives including support for certain regions or certain types of firms by offering tax incentives through depreciation bonuses.
SPECIAL JOURNAL contains records of original entry other than the general journal that are designed for recording specific types of transactions of similar nature, e.g. Sales Journal, Purchase Journal, Cash Receipts Journal, Cash Disbursements Journal, and Payroll Journal.
SPECIAL MEMORANDUM ACCOUNT (SMA) is a sub-account of a margin account for excess equity. It can be withdrawn or used to buy more securities.
SPECIAL-PURPOSE ENTITY (SPE) is a financing vehicle that is not a substantive operating entity, usually one created for a single specified purpose. An SPE may be in the form of a corporation, trust, or partnership. Special-purpose entities have been used for several decades for asset securitization, risk sharing, and to take advantage of tax statutes.
SPECIAL PURPOSE VEHICLE (SPV) is an organization constructed with a limited purpose or life. Frequently, these Special Purpose Vehicles serve as conduits or pass through organizations or corporations. In relation to securitisation, it means the entity which would hold the legal rights over the assets transferred by the originator.
SPECIFIC IDENTIFICATON INVENTORY VALUATION is a method of valuing and tracking inventory where each item can be identified. Specific identification is most often used for large, easily traceable items, such as furniture or vehicles. If tracking each individual inventory item is not practical, the inventory can be valued using other accepted methods, such as the first-in, first-out method (FIFO) or the last-in, first-out method (LIFO).
SPECIFIC IDENTIFICATION METHOD is an inventory costing method under which the actual cost of a particular item is assigned to that item; used for determining cost of goods sold.
SPECIFIC RESEARCH is a method used when gathering primary information for a market survey where targeted customers / consumers are asked very specific and in-depth questions geared toward resolving problems found through prior exploratory research.
SPENDING LEVEL is the true expenditure or cash outlay of any entity in a given category or budgetary area.
SPIN-OFF is a type of corporate reorganization in which the original corporation transfers some of its assets to a newly formed corporation. In exchange for the spun off assets, the original corporation receives all of the new corporation's capital stock, which it then distributes to its shareholders as a property dividend.
SPIN-OFF RULING is a legally binding ruling by the Internal Revenue Service as to any aspect of a spin-off by a corporation. See also SPINOFF.
SPLIT ACCOUNTING, under IAS 39, provides that if certain conditions are met the ‘embedded derivative’ in a ‘hybrid (combined) financial instrument’ (i.e, a financial instrument which includes a non-derivative ‘host contract’ as well as an embedded derivative) must be accounted for separately from the ‘host contract’.
SPLIT-INTEREST AGREEMENT, in not-for-profits, is a contribution to the institution in which the institution must share the investment income/benefits with the donor and other beneficiaries if designated.
SPLIT-OFF POINT is the stage in the production process at which joint products become identified as distinct products which can be sold or processed further; this is called the split-off point.
SPLIT PAYMENT allows the customer to: a. pay part of the bill with cash and part with a credit card; or, b. apply portions of payments across several invoices.
SPOILAGE is materials wasted or spoiled in the production process. See also ABNORMAL SPOILAGE and NORMAL SPOILAGE.
SPONTANEOUS ASSETS are assets that arise automatically, in the course of operating a company day-to-day, when a company purchases assets and they are delivered.
SPONTANEOUS LIABILITIES are obligations that are realized automatically, in the course of operating a company day-to-day, when a company buys goods and services on credit.
SPOT-CASH is the immediate cash payment on a transaction.
SPOT COMMODITY is a commodity traded with the expectation that it will actually be delivered to the buyer, as contrasted with to a FUTURES CONTRACT that will usually expire without any physical delivery actually taking place. Spot commodities are traded in the SPOT MARKET.
SPOT RATE is the price at which a currency can be purchased or sold and then delivered within two business days, e.g., spot dollar.
SPREAD see ASK PRICE.
SPREADSHEET is (1) A multi-column sheet of paper used for performing numeric work, especially accounting and business related weekly or monthly summaries. (2) A computer application program that supports a user in numeric manipulation, especially in column / row format.
SPV see Special Purpose Vehicle.
SR see STOCK RESERVE.
SRO is Self-Regulatory Organization.
SS see SAFETY STOCK.
SSA is Social Security Administration, Selective Service Administration or Social Security Act.
STABLE DOLLAR ASSUMPTION is when using money as a measuring unit and preparing financial statements expressed in dollars, accountants make the assumption that the dollar is a stable unit of measurement.
STABLE MONETARY UNIT CONCEPT allows accountants to ignore the effect of inflation in the accounting records.
STABLE UNIT OF MEASURE, in accounting, assumes that money is used as the basic measuring unit for financial reporting. Money is the common denominator in which accounting measurements are made and summarized. The dollar, or any other monetary unit, represents a unit of value; that is, it reflects an ability to command goods and services. Implicit in the use of money as a measuring unit is the assumption that the dollar is a stable unit of value, just as the kilometer is a stable unit of distance and the hectare is a stable unit of area.
STABLE UNIT OF VALUE see STABLE UNIT OF MEASURE.
STABILIZED INCOME is the projected planned revenue that is subject to change but represents the best annualized estimate of consistent income.
STAFF ACCOUNTANT, on average, is a professional who is a CPA in good standing or CPA candidate with one to three years of professional experience. The staff accountant is supervised in the field by senior personnel and performs tasks such as tests of transactions and preparation of work papers.
STAFF MANAGEMENT is the function of managing all employees in the organization, including the development of staff skills through training and other forms of staff development as well as the identification, development and implementation of training needs and programs available for staff. Employees include permanent, temporary, and part-time employees, people working under scholarships, traineeships, apprenticeships and similar relationships.
STAKE is a share or an interest in an enterprise, especially a financial share.
STALE CHECK is a check that is six months or older than the date affixed to the check by the maker. If a customer’s check is presented more than six months after the date appearing on the check, the paying bank has the option of paying or dishonoring the check because the check is deemed "stale".
STANDARD AND POOR'S (S&P) 500 is an index of the 500 largest, most actively traded stocks on the New York Stock Exchange. It provides a guide to the overall health of the
STANDARD COST is production or operating cost that is carefully predetermined. A standard cost is a target cost that should be attained. The standard cost is compared with the actual cost in order to measure the performance of a given costing department or operation. See STANDARD COST SYSTEM.
STANDARD COST SYSTEM is an accounting system designed to properly allocate costs of direct labor, indirect labor, materials, overhead, and selling/ general/administrative accounts on a unit basis for the purpose of accurately costing products and the subsequent control of those costs in managing the production, marketing, purchasing, and administrative functions of the business.
STANDARD DEDUCTIONS is used to reduce income by taxpayers who do not itemize allowable deductions on their tax returns. The amount of the deduction depends on your filing status: if you are 65 or older, if you are blind and whether you can be claimed as a dependent on another taxpayer's income tax return. See ITEMIZED DEDUCTIONS.
STANDARD RATE AND DATA SERVICE (SRDS), in advertising, is a company that produces a directory for each different type of media; normally listing: rates, circulation, contacts, markets serviced, etc.
STAND-ALONE is where the subject is capable of operating or is intended to be viewed independently. For example, a. a pc can be connected to a network, but it also has a "stand-alone" capability where the user can work locally on his/her pc without interacting with the network; or, b. a sales forecast for multiple product models or categories is a "blended" forecast, but if you were to break the forecast out by individual models or category, you would have a "stand-alone" forecast for each.
STANDBY LETTER OF CREDIT is a guarantee of payment. If the beneficiary does not get paid from its customer it can then demand payment from the customer's Bank by forwarding the copy of the invoice that was not paid along with predetermined supporting documentation.
STARTUP COSTS or Organization Cost, in the
STAT is an abbreviation of "statistical", e.g. stat software package.
STATED CAPITAL is the declared total amount of money or other resources owned or used to acquire future income or benefits.
STATED VALUE is the per share value sometimes assigned to no-par stock by the corporation.
STATEMENT OF ACCOUNTING POLICIES is normally comprised of: a definition of the reporting organization, statement of general accounting policies, statement of particular accounting policies, and a statement of changes in accounting policies.
STATEMENT OF AFFAIRS is a specialized form of financial statement setting out the debtor's assets and liabilities - secured, preferred and unsecured. This document is usually prepared on short notice and from incomplete records. It is sworn to by an officer of the company and or by the bankrupt where applicable. The trustee often has a different opinion as to the value of the assets and the extent of liabilities included therein. The formalized statement of affairs is sworn under oath by the debtor before a lawyer or designated legal/court entity.
STATEMENT OF CASH FLOWS measures the flow of money in and out of a business. One of four financial statements found in the annual report, it categorizes a company's cash receipts and disbursements for a given fiscal year by three major activities: operations, investments and financing.
STATEMENT OF FUND BALANCE is part of the Financial Statements of certain regulated entities, e.g. local, county, and state, governments. The content or configuration of the Consolidated Financial Statements normally includes a Consolidated Statement of Fund Balance along with separate Statements of Fund Balance for all authorized funds within the jurisdiction, e.g. General Operating Fund and Airport Operating Fund.
STATEMENT OF RETAINED EARNINGS is one of the four basic financial statements; the Statement of Retained Earnings is a reconciliation of the Retained Earnings account. Information such as dividends or announced income is provided in the statement. The Statement of Retained Earnings provides information about what a company's management is doing with the company's earnings.
STATEMENT OF STOCKHOLDERS' EQUITY is a summary of the changes in stockholders' equity of a corporation that have occurred during a specific period of time.
STATE UNEMPLOYMENT TAX ACT (SUTA), in the
STATUTE is an act passed by a legislative body, e.g. U.S. Congress.
STATUTORY is relating to or created by statutes.
STATUTORY ACCOUNT is an involuntary account, which is created by law rather than by business need. An example of a statutory account would be taxes.
STATUTORY AUDITOR is normally part of the internal audit function operating in one or more of the following areas: a. Review of the Accounting Systems and the related internal controls. Thus while the adequacy of the accounting systems is the responsibility of the Management, the Statutory Auditor is usually assigned the specific responsibility for reviewing the accounting systems and the related internal controls, as also monitoring their operations; b. Review of financial and operating information including identification, measurement, classification and reporting such information specifically enquiring into individual items including detailed testing of transactions, procedures and balances; and, c. Examination of the economy, efficiency and effectiveness of operations including non-financial controls.
STATUTORY CONSOLIDATION is a merger where a new corporate entity is created from the two merging entities, the two merging entities then cease to exist. See also STATUTORY MERGER.
STATUTORY DEDUCTIONS are those deductions that are required by law or regulation, e.g. payroll taxes deducted from wages.
STATUTORY LAW is law enacted by the legislative branch of government, as distinguished from case law or common law.
STATUTORY LIEN is an involuntary lien, which is created by law rather than by contract. Statutory liens include tax liens, judgment liens, mechanic's liens, etc.
STATUTORY LIQUIDITY RATIO (SLR) is a ratio which every banking company shall maintain in the form of cash, gold or unencumbered approved securities, an amount which shall not, at the close of business on any day be less than such percentage of the total of its demand and time liabilities as the Reserve Bank may specify from time to time.
STATUTORY MERGER is a merger where one entity remains as a legal entity, instead of a new legal entity being formed. See also STATUTORY CONSOLIDATION.
STEAMSHIP CONFERENCE is an agreement between multiple shipping companies to provide common freight rates. Some shipping lines will state that they are “non-conference”, i.e., they charge an independent and likely lower rate.
STEP LEASE is type of lease that outlines or stipulates the expected annual increases in the tenant's base rent based on an approximation of what the landlord believes what the landlord’s expenses may be.
STEPPED COSTS is a cost that increases by a reasonably constant sum each time volume or activity increases by a predictable, constant, multiple. The smallest step costs are variable costs, which increase by a discrete amount each time output or activity increases by one unit. Larger steps will consist of what are, effectively, fixed costs over a particular range of output. Some costs increase, or decrease, in significant steps when output or activity passes certain limits. For instance, if a bus company regularly has more passengers on a route than can be carried by a single vehicle it may be necessary to use an additional bus. Running an additional bus will double the cost of operating on that route. Similarly, a manufacturing firm may have a policy of employing one supervisor for every ten production workers. In which case the firm will need one supervisor for 1–10 employees, two supervisors for 11–20 employees, and so on. So, if demand rises to the point where 21 production employees are required an extra supervisor
must be employed. Costs that behave in this way are called stepped costs.
STEP-UP LOAN is a type of home loan that offers varying equated monthly installments (EMIs) spread over the loan's tenure, i.e. the EMI is lower in the initial years, but over time the EMI increases. One of the primary advantages of a step-up loan as compared to a normal home loan is that it increases the loan eligibility of the individual. Since this loan takes into account the future earning potential of the prospective borrower, it factors in the imminent hike in the earnings going forward and adjusts the loan eligibility amount accordingly. Step-up loans are also generally available only to salaried individuals and professionals. In other words, businessmen cannot take advantage of this type of loan. This is because the general feeling among lenders is that salaries have a tendency to rise year on year. This is not always the case with businesses, which may be doing well at a given point in time but are generally conceived to be unpredictable in nature. The determinant on whether step-up loans are better or a normal home loan depends on individual requirements. There are various products designed to meet the varying requirements of individuals. However, the truth with a step-up is that it increases the net cash outflow for the borrower. In this way, the risk to the borrower on being able to satisfy future payments due to cash flow considerations could be potentially high.
STEWARDSHIP is responsibility for taking good care of resources entrusted to one, e.g., boards of directors must show good stewardship towards the company for which they are a board member.
STOCK is a. a certificate documenting the shareholder's ownership in a corporation; or, b. the merchandise that an entity has on hand or in inventory.
STOCK CERTIFICATE is a certificate establishing ownership of a stated number of shares in a corporation's stock.
STOCK CONTROL ACCOUNT reflects the total amount or value of all stock items. The balance of each of the individual stock item ledger accounts or records must equal the total of the stock item list, which represents the amounts or value of the individual stock items obtained from the individual balances in the various subsidiary ledger accounts for each stock item. This subsidiary ledger is known as the stock item ledger.
STOCK DIVIDEND is a dividend paid in stock rather than in cash. The additional shares can be in the form of a stock split, additional shares of the issuing company, or of a subsidiary.
STOCKHOLDER see SHAREHOLDER.
STOCKHOLDER'S EQUITY see SHAREHOLDER'S EQUITY.
STOCK INDEX a formalized screened listing of traded securities, e.g. the Dow Jones Industrial Average that tracks a portfolio of stocks.
STOCK OPTION is a contractual right granted by a company to the named holder of the option the right to purchase the company's stock at a fixed price stated on the stock option within a specified period of time. If the stock option is not exercised within the specified period of time, then the contractual right lapses.
STOCK POWER is a form that permits a Donor to provide the authority to change the name on a stock certificate from the Donor’s name to the name of another party, such as a charitable organization, without using a “transfer agent”. This form, together with the designated stock certificate and Letter of Authorization, given to the charitable organization will expedite the transfer of the Donor’s stock certificate by the charitable organization’s brokerage to expedite the sale and receipt of proceeds from the gift of securities.
STOCK RESERVE (SR) or buffer stock is a stock quantity which is based on the normal average expected consumption during the lead-time to replenish depleted stock. See also SAFETY STOCK.
STOCK ROTATION RIGHTS is a contractual stipulation that allows for a distributor to return up to a stipulated percentage of purchased goods to the supplier over a stipulated period of time. These rights are intended to ensure that a distributor is not overburdened with excessive or obsolete inventory from the supplier that granted the stock rotation rights.
STOCK SALE is where the equity price is assumed to include the operating assets and operating liabilities of the seller's business and not include the long term liabilities assumed. The long term liabilities assumed are shown as a separate line item and when added to the equity price results in the deal price. In those transactions indicated as an asset sale the equity price is assumed to include the operating assets.
STOCK SPLIT is the issuance of a substantial amount of additional shares, thereby reducing the par value of the stock on a proportionate basis.
STOCKTAKING is the process of counting and evaluating stock-in-trade, usually at an organization's year end in order to value the total stock for preparation of the accounts. In more sophisticated organizations, in which permanent stock records are maintained, stock is counted on a random basis throughout the year to compare quantities counted with the quantities that appear in the, usually, computerized records.
STOCK TURNOVER PERIOD is calculated: Long Term Disabilities X 100% / Cost of Sales.
STOCK TURNS is the number of times per year that the stock (raw material, wip & finished goods) is turned over in relation to the sales revenue of a given product. Calculation - Stock turns = Sales turnover of products / Value of raw material, wip & finished goods.
STORAGE can be: a. a depository for goods, e.g. a stockroom or warehouse; b. the process of storing information in a computer memory or on a magnetic tape or disk; or c. an electronic memory device.
STORES are provisions and supplies in inventory that are required for running an entity.
STRAIGHT BOND is the most common debt security. All other bond types are variations of, or additions to standard straight bond features. An investor pays a single capital sum to receive interest payments, called coupons, until a fixed maturity date when the last coupon is accompanied by redemption of the bond's face value. The coupon is simply a fixed rate of interest - paid annually or semi-annually - on the principal sum or face/par value. The debt is of fixed maturity - the principal redemption date. The maximum term is 30 years, but 7-10 years is most common.
STRAIGHT-LINE DEPRECIATION METHOD allows an equal amount to be charged as depreciation for each year of the expected use of the asset. It is computed by dividing the adjusted basis of a property by the estimated number of years of remaining useful life.
STRAIGHT-LINE METHOD see STRAIGHT-LINE DEPRECIATION METHOD.
STRANDED PLANT is a cost that has been incurred, but can not be reversed. Usually referred to as a sunk cost.
STRATEGIC ASSET, in relation to the assets held by a legal entity, means an asset or group of assets that the entity needs to retain if the entity is to maintain the entity's capacity to achieve or promote any outcome that the entity determines to be important to the current or future well-being of the entity.
STRATEGIC 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. See GOAL.
STRATEGIC PERFORMANCE MANAGEMENT provides a detailed blueprint for turning corporate vision into reality - breaking down the things an entity needs to achieve as a business into real actions that can be measured. See BALANCED SCORECARD.
STRATEGIC PLANNING is the activity of defining what you want to accomplish in your business and then identifying the path that will allow you to reach your goal in the most efficient and sensible manner.
STRAW MAN is a weak or imaginary opposition (as an argument or adversary) set up only to be easily confuted. Often done to create an environment for brainstorming from a certain starting point.
STRIPPED BOND is a bond that can be subdivided into a series of zero-coupon bonds.
STRONG, from a corporate perspective, usually means having or wielding force or authority within that entity's market segment or niche.
STUMPAGE refers to: a. Timber in standing trees; usually sold without the land at a fixed price per tree or per stump, the stumps being counted when the land is cleared. (NOTE: Only trees above a certain size are allowed to be cut by loggers buying stumpage from the owners of land); or, b. A tax on the amount of timber cut, regulated by the price of lumber.
SUBSTANTIVE is reality, real rather than apparent, as seen by an unbiased observer and not just the official view of management.
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.
SUBLET, in real estate, refers to the leasing of space within a leased facility by the original lessee.
SUBLEDGER is for the purpose of organizing revenue and expense transaction for only one account, e.g., For an individual salesperson, like a general ledger, the subledger has different default account types, each from a salesperson's perspective, not a company perspective. Thus, Due is due to the salesperson and Payable is payable by the salesperson.
SUBORDINATED DEBT is debt over which senior debt takes priority. In the event of bankruptcy, subordinated debt holders receive payment only after senior debt claims are paid in full. There is a pecking order determining the sequence in which a company will pay off its debt instruments, subordinate (or junior) issues will not be repaid until unsubordinated (or senior) debt has been repaid in full.
SUBPART F of the Internal Revenue Code requires certain income (called subpart F income) of a controlled foreign corporation to be currently included in the gross income of its
SUB-PRIME CREDIT CARDS are credit cards offered to consumers with credit problems or no established credit; as opposed to prime cards for those with good credit ratings. Sub-prime cards do not offer as many benefits and possibly could be more costly.
SUBSCRIBER, in securities, is an entity that contributes (or promises to contribute) a sum of money to purchase securities. The term Subscriber encompasses all Non-Professional and Professional Subscribers. See NON-PROFESSIONAL SUBSCRIBER and PROFESSIONAL SUBSCRIBER.
SUBSCRIPTION, in securities, is an agreement to buy a new issue of securities.
SUBSIDIARY is a company whose voting stock is more that 50% owned by another company.
SUBSIDIARY BOOKS see SUBSIDIARY LEDGER.
SUBSIDIARY LEDGER is a group of subsidiary accounts the sum of the balances of which is equal to the balance of the related control account in the general ledger.
SUBSTANCE OVER FORM is an accounting concept where the entity is accounting for items according to their substance and economic reality and not merely their legal form. This concept is one of the key determinants of reliable information. For most transactions there will be no difference, so no issue arises. In some cases however, the two diverge and the choice of how to present the transactions can give very different results. This difference occurs when an asset or liability is not recognized in the accounts even though benefits or obligations may result from the transaction, or oppositely.
SUBVENTION is the provision of assistance or financial support such as an endowment or a subsidy from a government or foundation.
SUI is either State Unemployment Insurance (tax) or State Unemployment Income.
SUM-OF-THE-YEARS DIGITS (SYD) is the accelerated depreciation method in which a constant balance (cost minus salvage value) is multiplied by a declining depreciation rate.
SUNDRY ACCOUNT is an account where miscellaneous items are recorded, e.g., SUNDRY RECEIVABLES represent miscellaneous receivables.
SUNDRY CREDITORS refers to companies or individuals to which money is owed.
SUNDRY DEBTOR is an entity from who amounts are due for goods sold or services rendered or in respect of contractual obligations. Also termed: debtor, trade debtor, and account receivable.
SUNDRY SHAREHOLDERS are a group of miscellaneous shareholders.
SUNK COST is the cost expended that cannot be retrieved on a product or service.
SUPERANNUATION is a. the act of discharging someone because of age (especially to cause someone to retire from service on a pension); or, b. a monthly payment made to someone who is retired from work.
SUPERANNUATION FUND see PENSION FUND.
SUPPLANT is to take the place of or move into the position of, e.g. the computer supplanted the slide rule.
SUPPLIER FINANCING is where the trade assists in meeting credit needs of a customer, e.g. a trade credit line may be negotiated to where a supplier may give 90 to 120 days to pay for the goods plus an interest charge.
SUPPORTING DOCUMENTS assist in making a case (prove a point or forward an argument) by providing additional depth and analysis for much of the case in question. See SOURCE DOCUMENTS.
SUPPRESSED INFLATION means that a situation exists in which prices would rise -- if government regulations did not establish artificial limits on prices, wages, etc.
SUPRANATIONAL is transcending established national boundaries or spheres of interest (Example: A supranational company).
SURCHARGE is a charge added on top of another charge for a specific service, product or purpose.
SURETY BOND is a contract by which one party agrees to make payment on any default or the debt of another party.
SURPLUS generally means any excess amount, but in finance it is the remainder of a fund appropriated for a particular purpose. In a corporation, surplus means assets left after liabilities and debt, including capital stock, have been subtracted.
SURVEILLANCE is close watch kept over someone or something.
SUSPENSE ACCOUNT, in accounting, is an account that is used on a temporary basis for receipts, disbursements, or discrepancies until such time as the analysis is complete and they can be properly classified.
SUSTAINABLE GROWTH RATE (SGR) shows how fast a company can grow using internally generated assets without issuing additional debt or equity. SGR provides a useful benchmark for judging a company's appropriate rate of growth. A company with a low sustainable growth rate but lots of opportunities for expansion will have to fund that growth via outside sources, which could lower profits and perhaps strain the company's finances. Growth can be a major dilemma because with growth comes a spontaneously generated need for increased working capital. VentureLine calculates a Sustainable Growth Rate from the data entered into the Income Statement and Balance Sheet. The Sustainable Growth Rate is the rate at which the firm may grow the Stockholder's Equity Account (Net Worth) using only increases in Retained Earnings (Net Profit's contribution to retained earnings) to fund the growth. Growth beyond this amount will force the firm to obtain additional financing from external sources to finance growth.
SUTA see STATE UNEMPLOYMENT TAX ACT.
SWAPS is when one currency is temporarily exchanged for another, then the currency is held and exchanged later after a fixed period of time. To calculate the swap take the interest rate differential between the two underlying currencies, thus it may be used for speculative purposes to exploit anticipated movement in the interest rates. See INTEREST RATE SWAPS.
SWAPTIONS are over-the-counter options on swaps.
SWOT ANALYSIS is one of the most used forms of business analysis. A SWOT examines and assesses the impacts of internal strengths and weaknesses, and external opportunities and threats, on the success of the "subject" of analysis. An important part of a SWOT analysis involves listing and evaluating the firm's strengths, weaknesses, opportunities, and threats. Each of these elements is described:
1. Strengths: Strengths are those factors that make an organization more competitive than its marketplace peers. Strengths are what the company has a distinctive advantage at doing or what resources it has that is strategic to the competition. Strengths are, in effect, resources, capabilities and core competencies that the organization holds that can be used effectively to achieve its performance objectives.
2. Weaknesses: A weakness is a limitation, fault, or defect within the organization that will keep it from achieving its objectives; it is what an organization does poorly or where it has inferior capabilities or resources as compared to the competition.
3. Opportunities: Opportunities include any favorable current prospective situation in the organization's environment, such as a trend, market, change or overlooked need that supports the demand for a product or service and permits the organization to enhance its competitive position.
4. Threats: A threat includes any unfavorable situation, trend or impending change in an organization's environment that is currently or potentially damaging or threatening to its ability to compete. It may be a barrier, constraint, or anything that might inflict problems, damages, harm or injury to the organization.
A firm's strengths and weaknesses (i.e., its internal environment) are made up of factors over which it has greater relative control. These factors include the firm's resources; culture; systems; staffing practices; and the personal values of the firm's managers. Meanwhile, an organization's opportunities and threats (i.e., its external environment) are made up of those factors over which the organization has lesser relative control. These factors include, among others, overall demand, the degree of market saturation, government policies, economic condition, social, cultural, and ethical developments; technological developments; ecological developments, and the factors making up Porter's Five Forces (i.e., intensity of rivalry, threat of new entrants, threat of substitute products, bargaining power of buyers, and bargaining power of suppliers.)
SWEEPING ACCOUNTS is when an entity zeros out a monetary asset account (takes the money) that does not meet an established mandatory monetary hurdle at which they will make a payment to the holder of that account, e.g., if a salesman does not make a certain amount of sales required over a time period, his company will not pay him commission on the sales that were made during that period and sweep his account balance to zero at the end of the time period.
SWIFT CODE, within the context of international payment transactions, is a code issued by the Society for Worldwide Interbank Financial Telecommunication (SWIFT) that enables banks worldwide to be identified without the need to specify an address or bank number. SWIFT codes are used mainly for automatic payment transactions.
SYNDICATE is a group of investment bankers or banks that acts jointly, on a temporary basis, to, in the case of investment bankers, sell securities or to underwrite a new issue of bonds (syndicated capital), or, for the bank syndicate to loan money in a bank credit (syndicated credit).
SYNERGY is the working together of two or more things to produce an effect greater than the sum of their individual effects. For example, in the context of mergers, cost synergy is the savings in operating costs expected after two companies, who compliment each other's strengths, join.
SYNTHETIC LEASE is a transaction that appears, from an accounting standpoint, as a lease, but as a loan from a tax standpoint; resulting in an off-balance sheet account of the financing and the tax benefits that accompany the financed asset.
T-ACCOUNT is the basis for journal entry in accounting. T-accounts have three basic elements. A title, a left side (debit side) and a right side (credit side). To make an entry in a t-account, put the currency (dollar, pound, etc.) amount on the appropriate side (debit or credit). There are five basic types of accounts: assets, liabilities, equity, revenue and expenses. Assets, liabilities and equity are the balance sheet accounts.
TAFR is Treasurer’s Annual Financial Report.
TAINTED ACCOUNTS RECEIVABLE is receivables that are considered to be legally suspect due to acts of fraud, misuse, or abuse.
TAG-ALONG is to go along with.
TAG-ALONG RIGHTS is a contractual obligation used to protect a minority shareholder (usually in a venture capital deal). Basically, if a majority shareholder sells their stake, then the minority shareholder has the right to join the transaction and sell their minority stake in the company. Also referred to as co-sale rights.
TAKEOVER refers to one company (the acquirer) purchasing another (the target). Such events resemble mergers, but without the formation of a new company.
TAKE OR PAY AGREEMENT is where a buyer must pay for the contracted amount of the contracted item(s) delivered whether or not he/she can take delivery.
TALLY SHEET is a form for counting, i.e. a form on which quantities are recorded, especially when conditions make counting errors likely.
T&E is an acronym for Travel & Entertainment.
T&M is Time and Materials.
T&R, among others, can mean: Technical & Research or Termination & Recoupment.
TANGIBLE normally refers to assets that can be held or seen and that are capable of being appraised at an actual or approximate value (e.g. inventory, land & buildings, etc.).
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).
TANGO SHEETS is a not often used slang term refering to a document that compares forecasted financial data to actual financial performance for the purposes of illegally adjusting the reported financial data to more closely match the prior forecasted performance.
TARE WEIGHT is the weight of packing container and packaging material without the weight of the goods contained therein.
TARGET is the goal intended to be attained and which is believed to be attainable, e.g. sales target, margin target, or profit target.
TARGET COSTING is a disciplined process for determining and realizing a total cost at which a proposed product with specified functionality must be produced to generate the desired profitability at its anticipated selling price in the future.
TARGET MARGIN is the desired profit on each sale; used to determine the selling price where the average total cost is known.
TARIFF, usually, a country's tax on imports. May sometimes refer to the rate of tax; and, is used interchangeably with the term “duty”.
TARIFF, AD VAL
TAX is a charge against a legal entity's person or property or activity for the support of government, e.g. income taxes, sales taxes, duties and levies.
TAXABLE refers to goods or funds subject to taxation.
TAXABLE BENEFITS are employer provided "non-cash" taxable compensation or fringe benefits, such as employer-provided vehicles, complementary tickets, and graduate level educational assistance, are subject to federal income, state income, social security, and Medicare tax rules. According to Internal Revenue Code Section 1.61-1, all compensation paid to, or on behalf of, an employee constitutes wages subject to income and employment tax withholding, unless specifically excluded by IRS code.
TAXABLE INCOME is that income that is reported to the government for the purposes of calculating income taxes. Taxable income normally is not aligned with the financial income reported within financial statements. See FINANCIAL INCOME.
TAX ACCOUNTING is the planning of business strategies based on tax consequences and avoidance.
TAX EFFECT METHOD is where, irrespective of when is a tax payable, its effect should be recognized in the year in which the relevant income has been recorded.
TAX EQUIVALENT YIELD is the yield that must be offered before factoring in taxes so that an investment pays off a certain after-tax yield. This measure is often necessary to compare taxable and tax-free investments, since tax-free issues tend to have lower pre-tax yields due to the fact that the investment's proceeds will not be reduced by taxes. Tax equivalent yield is equal to required after-tax yield divided by (1 minus the tax rate).
TAX LOSS CARRY FORWARD/BACKWARD is a tax benefit that lets a company or individual to deduct losses in order to reduce a tax liability.
TAX PAYABLE METHOD is where the tax expense is equal to the provision for taxes payable in a particular period and deferred income tax is not recognized.
TAX SHELTER are legal methods taxpayers can use to reduce tax liabilities. An example is the use of depreciation of assets.
T-BILL see TREASURY BILL.
TCO see TOTAL COST OF OWNERSHIP.
TECHNICALLY BANKRUPT means that the company has, at least temporarily, run out of cash to pay its bills and is, at the moment, bankrupt. However, it may recover by raising capital, collecting monies owed to it, or selling off various assets. When a company does not do this on its own, its creditors may, through the courts, put a company officially or legally into bankruptcy.
TEMPORARY ACCOUNT see NOMINAL ACCOUNT.
TENDER is to offer a product for sale at a specified price. A tender is issued usually in response to a specific request from a potential purchaser, e.g. government procurement.
TERM BONDS are bonds whose principal is payable at maturity. Sometimes referred to as bullet-maturity bonds or bullet bonds.
TERM DEBT, as in Term Bonds, is debt that mature in one lump sum at a specified future date. Term debt is usually carried as one type of long-term debt.
TERM ENDOWMENT are endowments with time restrictions required by the donor such as a restriction that the income from the endowment may not be utilized until a future period or a specific date for condition is met.
TERMINAL VALUE, when used in a discounted cash flow valuation, the cash flow is projected for each year into the future for a certain number of years, after which unique annual cash flows cannot be forecasted with reasonable accuracy. At that point, rather than attempting to forecast the varying cash flow for each individual year, one uses a single value representing the discounted value of all subsequent cash flows. This single value is referred to as the terminal value.When a firm's cash flows grow at a "constant" rate forever, the present value of those cash flows can be written as: Value = Expected Cash Flow Next Period / (r - g)where, r = Discount rate (Cost of Equity or Cost of Capital) g = Expected growth rate. This "constant" growth rate is called a stable growth rate and cannot be higher than the growth rate of the economy in which the firm operates. While companies can maintain high growth rates for extended periods, they will all approach "stable growth" at some point in time. When they do approach stable growth, the valuation formula above can be used to estimate the "terminal value" of all cash flows beyond.
TERM LOAN is a bank loan, typically with a floating interest rate, for a specified amount that matures in between one and ten years and requires a specified repayment schedule.
TESTIMONY is evidence given by a competent witness under oath.
THEFT, as legally defined, encompasses a broad range of activities when one person uses, transfers, conceals, or retains possession of another person's property without the other person's consent. This definition is much broader than what most persons believe to be theft and can include writing bad checks, unauthorized use of a credit card, keeping found property without making a reasonable attempt to find its rightful owner, misusing trade secrets, unlawfully tapping into cable television services, wrongfully receiving public assistance, and removing serial numbers from movable property with the intent of concealing the identity of the true owner.
THEORETICAL USAGE, in a manufacturing environment, is the projected or budgeted usage of parts, materials or supplies as opposed to the actual usage that may occur.
THEORY OF CONSTRAINTS is a management approach that focuses on identifying and relaxing the constraints that limit an organization's ability to reach a higher level of goal attainment.
THIRD PARTY is someone other than the principals directly involved in a transaction or agreement.
THIRD PARTY RECOVERY normally refers to delinquent accounts receivable recovered by a collection agency for a fee.
THREE PERCENT (3%) RULE is a rule used in vesting pension plan benefits. The participant's accrued benefit must be at least equal to 3% of the participant's normal projected retirement benefit for each year of participation, with a maximum of 100% after 33 1/3 years of participation.
TI icould mean, among others, Total Income or Tenant Improvements.
TIC is Total Invested Capital.
TIC/EBIT is one of the earnings multiples ratios used in determining company value.
TILL ROLL is a roll of paper on which the separate amounts of money paid for goods are recorded in a retail shop's cash register.
TIME DEPOSIT is a bank deposit that can be withdrawn only after a set period of time or with prior notice, e.g. a certificate of deposit (CD).
TIME DRAFT is a draft that matures either a certain number of days after acceptance or a certain number of days after the date of the draft. See SITE DRAFT.
TIME INTERVAL CONCEPT, in accounting, requires that financial statements be prepared at regular intervals, e.g. monthly, quarterly, annually.
TIME LAG see LAG TIME.
TIME PERIOD CONCEPT provides that accounting take place over specific time periods known as fiscal periods. These fiscal periods are of equal length, and are used when measuring the financial progress of a business.
TIME SERIES is an ordered sequence of values of a variable at equally spaced time intervals.
TIME SERIES ANALYSIS is the branch of quantitative forecasting in which data for one variable are examined for patterns of trend, seasonality, and cycle.
TIMES FIXED CHARGES EARNED see COVERAGE OF FIXED CHARGES.
TIMES INTEREST EARNED (TIE) measures the extent to which operating income can decline before the firm is unable to meet its annual interest costs. The TIE ratio is used by bankers to assess a firm’s ability to pay their liabilities. TIE determines how many times during the year the company has earned the annual interest costs associated with servicing its debt. Normally, a banker will be looking for a TIE ratio to be 2.0 or greater, showing that a business is earning the interest charges two or more times each year. A value of 1.0 or less suggests that the firm is not earning sufficient amounts to cover interest charges.
TIME TO MARKET (TTM) is the length of time it takes to develop a new product from an early initial idea for a new product to initial market sales. Precise definitions of the start and end point vary from one company to another, and may vary from one project to another within the company.
TIME VALUE OF MONEY is the idea that a dollar today is worth more than a dollar in the future, because the dollar received today can earn interest up until the time the future dollar is received.
T-NOTE see TREASURY NOTE.
TOBIN RATIO see MARKET TO BOOK VALUE.
TO DATE is prior to the current date.
TOP DOWN is a concept of analyzing a subject, such as costs or revenue, starting from the highest level working towards the bottom.
TOP-DOWN BUDGETING is where budgets are created by starting from the highest level working towards the bottom using parametric relationships. A monetary value is placed on an individual unit (product, service, materials, and labor hour). An estimate of the number of units required is then converted to currency by multiplying the quantity of units by the unit price.
TOPSIDE ACCOUNTING ADJUSTMENTS/DEVICES is an illegal practice to where accountants manipulate its accounting practices to close gaps between actual operating results and results reported to the investing public. Accountants then falsely represent to the public that their audits were conducted in accordance with generally accepted auditing standards (GAAS) and that an entity's financial reports fairly represent the entity's financial condition and were prepared in accordance with generally accepted accounting principles (GAAP).
TOP-LINE of a company is its gross sales, or revenue figure.
TOR; among many others; can mean Time of Receipt, Terms Of Reference, Time of Report, etc.
TOTAL ASSETS is the total of all assets; both current and fixed.
TOTAL ASSET TURNOVER measures management's efficiency in managing all of a firm’s assets - specifically the generation of revenues from the firm's total investments in assets. This ratio is extremely important in high asset firms such as manufactures and telecommunications companies. Generally, the higher this ratio as compared to like companies or the industry:
· 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.
TOTAL COST OF OWNERSHIP (TCO) is a model developed by Gartner Group to analyze the direct and indirect costs of owning and using hardware and software. Managers of enterprise systems use various versions of TCO to lower costs while increasing the benefits of information technology deployments. The TCO includes: original cost of the computer and software, hardware and software upgrades, maintenance, technical support, and training. Most estimates place the TCO at about 3 to 4 times the actual purchase cost of the PC.
TOTAL CURRENT ASSETS is total of cash & equivalents, trade receivables, inventory and all other current assets.
TOTAL CURRENT LIABILITIES is the total of notes payable-short term, current maturities-LTD, trade payables, income taxes payable, and all other current liabilities.
TOTAL LIABILITIES & NET WORTH is the sum of all liability items and Net Worth.
TOTAL QUALITY MANAGEMENT (TQM) is a structured system for satisfying internal and external customers and suppliers by integrating the business environment, continuous improvement, and breakthroughs with development, improvement, and maintenance cycles while changing organizational culture.
TQM see TOTAL QUALITY MANAGEMENT.
TRACEABILITY, COST is where businesses rely on linking or tracing costs to outputs; managerial or cost accounting provides managers this information. Management accountants strive to establish causal relationships between costs and cost objects to determine why costs were incurred. The process of tracing costs to cost objects forges a necessary link so that ultimately costs can be traced to outputs, even if at an aggregated level to their main categories: Direct Costs, Indirect Costs, and General and Administrative Costs.
TRACEABLE, in accounting, is to discover by going backward over the transactions (evidence) step by step establishing a "paper-trail" for a transaction. Non-traceable is where the "paper-trail" of a transaction is broken or non-existent.
TRADE ACCEPTANCE is a draft drawn by the seller of goods upon the buyer who agrees to pay usually by signing "accepted" on the draft along with the buyer's signature.
TRADE DEBTORS represent amounts of money owed by customers who have purchased goods/services from the company.
TRADE DISCOUNT is a producer discount given to retail trade members to assist them in increasing sales of the producer's product.
TRADE DRAFT is a draft addressed to a commercial enterprise.
TRADE EXCHANGE is a barter system where people or companies trade goods and services without the use of money. In the
TRADEMARK is a formally registered symbol identifying the manufacturer or distributor of a product.
TRADE NAME is a distinctive name used to identify a product or company and build recognition. Many corporations; e.g. Coca Cola, Ford, IBM, etc.; aggressively protect their trade names within the market.
TRADE PAYABLE, also known as an account payable, is an amount owed to a creditor for goods and services received.
TRADE RECEIVABLES (NET) are all accounts from trade, net of allowance for doubtful accounts.
TRADE INVESTMENT is shares held by one company in another. Also known as fixed asset investment.
TRADE SPENDING is that marketing expense directed towards brand building, e.g. promotional allowances, slotting, and advertisements. Total expenditure often represents 20-25% or more of total sales and is a significant expenditure for any size company. Managing this investment more wisely and reducing any fraction of a percentage of these dollars is vital.
TRADING ACCOUNT is an account held at a financial institution and administered by an investment dealer that the account holder uses to employ a trading strategy rather than a buy-and-hold investment strategy.
TRADING CONCERN is an entity that derives its products for sale, thereby revenue, through purchasing products for sale from other producers / manufacturers for resale to their customer base.
TRADING PROFIT is that profit earned from the short-term trading of securities that were held for less than one year. Such profit is usually subject to tax at regular income tax rates.
TRAILING, in time periods, is the most recently completed time period. For example, trailing twelve months would be the twelve-month period which ended on the final day of the last month.
TRANCHES are related securities that are offered at the same time but have different risk, reward, and/or maturity.
TRANSACTION is an event or happening that changes financial position and/or earnings.
TRANSACTION ANALYSIS is coupled with data event analysis. Transaction analysis looks at the data carriers which move data and information around the firm. Some of these transactions may be externally generated and some are internally generated. See DATA EVENT ANALYSIS.
TRANSACTION DATE is the date on which an activity occurs.
TRANSACTION DRIVERS are used to count the frequency of an activity, i.e., the number of times an activity is performed.
TRANSACTION EXPOSURE, in foreign exchange, is the possibility of incurring exchange gains or losses on transactions already entered into and denominated in a foreign currency. It is typified by real exchange gains or losses and mixes retrospective and prospective views. It is short-term in nature.
TRANSFER JOURNAL ENTRY is used to allocate an expense or revenue from one account or sponsored project to another, or to transfer funds between object codes within an account or sponsored project. Transfers journal entries should include a description of the item(s) and explanation of why the transfer is necessary.
TRANSFER PRICE is the price charged by an individual entity in a multi-entity corporation on transactions among the entities involved.
TRANSLATION EXPOSURE, in foreign exchange, is to convert the results of foreign operations from the local currency to the home currency in the areas of paper exchange gains or losses; it is retrospective and short-term in nature.
TRANSPARENCY, in economics, (1) Principle adopted in the General Agreement on Tariffs and Trade that governments must make their rules, regulations, and practices open and accessible to the public and other governments. (2) General Agreement on Trade in Services requirement that its member states publish their regulations affecting trade in services, that they notify the Council for Trade in Services of any relevant changes, and that they respond promptly to requests for information from other members.
TRANSPORTATON IN is freight costs paid by the buyer therefore added to the costs of merchandise, i.e. part of inventory cost.
TRANSPORTATION OUT is part of cost of selling therefore included as selling expense, i.e. part of SG&A.
TRANSPOSITION ERROR is the unintentional exchange of two elements of an ordered list with all others staying the same. A transposition is therefore a permutation of two elements. For example, the swapping of 2 and 5 to take the list 123456 to 153426 is a transposition. In this example, if the newly ordered list of 153426 was unintentional, it would be commonly called a transposition error. In accounting, an error in copying a number from one place to another is a transposition error.
TREASURY BILL (T-BILL) is a government security that matures in one year or less. They are zero-coupon bonds that are sold at a discount of the par value to create a positive yield to maturity. Treasury bills are considered by many the most risk free investment. Treasury Bills are commonly issued with maturity dates of 91 days, 6 months, or 1 year.
TREASURY CERTIFICATE is a U. S. Treasury security usually issued at par with a specified rate of interest and a maturity of one year or less. It is issued payable to the bearer and sold in minimum amounts of $l0,000.
TREASURY CYCLE is the timing and frequency of the various maturities or treasury instruments; transactions include those related to financing the operations of the business (e.g. issuance of capital stock or long-term debt).
TREASURY NOTE is a intermediate term debt obligation of the
TREASURY SHARE see TREASURY STOCK.
TREASURY STOCK is stock reacquired by the issuing company and available for retirement or resale. It is issued but not outstanding. It cannot be voted and it pays or accrues no dividends. It is not included in any of the ratios measuring values per common share.
TREND is the general direction in which something tends to move.
TREND ANALYSIS is the analysis of changes over time through the use of analytical techniques, such as time series analysis, to discern trends.
TRIAL BALANCE is a listing of the accounts in your general ledger and their balances as of a specified date. A trial balance is usually prepared at the end of an accounting period and is used to see if additional adjustments are required to any of the balances. Since the basic accounting system relies on double-entry bookkeeping, a trial balance will have the same total debit amount as it has total credit amounts.
TRIPLE BOTTOM LINE (TBL) is a metric for a corporation's social, environmental, and economic performance. TBL is the latest series of buzz words to describe business involvement in sustainability. TBL is all about dropping the financial bottom line as a meaningful indicator of where you stand in the market place and replacing it with a bottom line that properly acknowledges the interplay of the social economic and environmental dimensions of our lives.
TRIPLE NET (NNN) is a lease that includes on top of the basic rent, a share of the real property taxes, insurance, and maintenance. "Triple-net-leases' are standard in commercial property leases in shopping centers and malls. Usually done under a limited partnership, resulting in lower risk for investors.
TRIPLE P is a productivity model wherein the interrelationship between productivity, profitability and performance, as well as, effectiveness and efficiency are plotted in a schematic view where the main difference between these five terms can be captured.
TRUE AND FAIR VIEW is one of the most prominent principles of accounting. It suggests that an enterprise should provide a true and fair view about its financial conditions and operating results. The concept of true and fair view does not mean absolute truth about enterprises. Financial statements are a product of management's judgments and estimates. The principle of true and fair view requires comparative truth about the enterprises' picture. True and fair view is rather defined operationally; it is thought to be accomplished by complying with all other lower accounting principles.
TRUE-UP, generally, is to make level, square, balanced, or concentric. Used in business as an expression meaning to "bring into alignment" with predetermined criteria or process.
TRUE VALUE is the amount that a buyer is finally willing to pay.
TRUST ACCOUNT is a separate bank account, segregated from a broker's own funds, in which the broker is required by state law to deposit all monies collected for clients; in some states called an ESCROW ACCOUNT.
TRUST DEED is an instrument of conveyance of title to property wherein the transferee will be holding the title to the property on behalf of another person.
TRUST FUND is a fiduciary relationship calling for a trustee to hold the title to assets, usually monetary, for the benefit of the beneficiary.
T/T is a payment or financial transaction designation meaning "Telegraphic Transfer" of funds.
TTM see Time To Market.
TURNAROUND is the reversal of unfavorable circumstances of a business where an investment opportunity may exist. A firm may work with such a business to restructure the management and finances in order to take the greatest advantage of more favorable circumstances. There are organizations like the Turnaround Management Association that specialize in turning around failing companies.
TURNAROUND DOCUMENT is a document that has been created by a computer to be used for data entry. It is a called a turnaround document because once it has been filled in by users it is then used for input back into the computer. An example of a turnaround document is the mark sheet that is filled in by your teacher. The mark sheet is generated by the computer, filled in by the subject teacher and then used for input back into the computer so that reports can be printed.
TWO PARTY CHECK is a check made out from one individual to another, i.e. only two entities are involved in the transaction.
TWO PARTY ENDORSEMENT, normally, is when two signatures are required to make a document or bank draft legal or authorized.
ULLAGE is the empty space present when a shipping container is not full.
UNABSORBED COSTS occurs when the cost structure does not fully reflect all variable and/or fixed costs.
UNALLOCATED COSTS represents corporate costs not associated either directly or indirectly in providing a product or service for sale. Unallocated costs are not included in the calculation of COST OF GOODS SOLD.
UNAPPLIED CASH see UNAPPLIED FUNDS.
UNAPPLIED FUNDS is available money credited to a temporary holding (suspense) account, pending determination or instruction on the breakdown of how the money is to be allocated.
UNAPPROPRIATED PROFITS are those profits that have been withdrawn from a business by its proprietors or appropriated for any other purpose.
UNAUDITED OPINION is a qualified opinion by a Certified Public Accountant who has not audited the relevant financial statements.
UNBILLED REVENUE is revenue which had been recognized but which had not been billed to the purchaser(s).
UNBUDGETED are items and/or amounts that are currently not included within a budget.
UNCOLLECTIBLE ACCOUNT EXPENSE, also known as a bad-debt expense, is that expense incurred in the unsuccessful attempt to realize payment of a Account Receivable. Uncollectible account expenses must be incurred in the time period in which the related sales are made, e.g. an AR that originates from a credit sale in January and is determined to be uncollectible in June represents an expense in January.
UNCONDITIONAL means that an agreement is not contingent, determined or influenced by someone or something else; to include not being modified or restricted by reservations.
UNCONTROLLABLE EXPENSE is expense that cannot be controlled or restrained. Some of the costs of doing business can not be postponed or spread out over a longer period of time (e.g., taxes, rent and utilities).
UNDERABSORBED BURDEN is where total employee costs, other than salaries, have not been fully allocated to products sold or services offered.
UNDERABSORBED OVERHEAD is where total overhead has not been fully allocated to products sold or services offered. Such a condition can result in an understatement of COGS or cost of sales.
UNDER-APPLIED FACTORY OVERHEAD is the amount of residual factory overhead that remains once all known overhead allocations are assigned to the applicable products. See also UNABSORBED COSTS.
UNDER-BILLING is not recovering the full value of the agreed upon price or not billing for the correct amount of services or goods provided (usually unintentional).
UNDERBUDGETED is a line item within a budget to where the budgeted amount is not sufficient to cover the actual amount.
UNDERLYING is the security, cash commodity, forward, futures contract, swap, or other contract or instrument that is the subject of a derivative contract or instrument.
UNDERRECORDED normally refers to an understatement as to what a total would be if all data was accurately included or considered; e.g. underrecorded costs, revenues, population, etc.
UNDERSTATED is to represent as less than is the case.
UNDERWRITER is a. a banker who deals chiefly in underwriting new securities (investment banker), or b. an agent or financial institution that sells insurance.
UNDERWRITER'S DISCOUNT is the differential between the price paid to the issuer for the new issue and the prices at which the securities are initially offered to the investing public.
UNDERWRITER'S SPREAD see UNDERWRITER'S DISCOUNT.
UNDERWRITING is to protect by insurance or to guarantee the financial support of the subject item.
UNDISTRIBUTED EARNINGS see RETAINED EARNINGS.
UNEARNED REVENUE / INCOME represents money that you have received in advance of providing the goods or services to your customer. Unearned revenue is a liability of your business until you provide the goods or services you agreed to provide to the customer.
UNEXPIRED means not having come to an end or been terminated by the passage of time.
UNFAVORABLE VARIANCE is the opposite of favorable variance. See FAVORABLE VARIANCE.
UNFUNDED COMMITMENT is, as of any date of determination, the sum of legally binding calls upon current or future assets to where the assets or sums have not been identified or set aside to satisfy the commitment.
UNICAP see UNIFORM CAPITALIZATION RULES.
UNIDENTIFIED CASH RECEIPTS is normally a temporary holding (suspense) account in which funds received but not yet identified as to which account receivable the amount should be properly assigned to are posted.
UNIFORM CAPITALIZATION RULES (UNICAP), in the
UNIT-CONTROL SYSTEM is an accounting system used in inventory management that tracks inventory using bin tickets and physical inventory checks.
UNIT COST see OBJECT COST.
UNITIZE is to separate or classify into units, e.g. auto manufacturers unitize along model designations.
UNIT-LEVEL ACTIVITY, in Activity Based Costing, is an activity that must be done for each unit of production.
UNIT-OF-DELIVERY METHOD see UNIT-OF-WORK-PERFORMED METHOD.
UNIT-OF-WORK-PERFORMED METHOD is where revenue and cost of sales are recorded as units of work are delivered. This is most suitable to production-type contracts where many units of a product are produced in a continuous process, e.g. automobile manufacture.
UNLIMITED COMPANY is where there is no limit to the members liabilities.
UNLIQUIDATED can mean: not liquidated; not exactly ascertained; not adjusted or settled.
UNQUALIFIED OPINION is an independent auditor's opinion that a company's financial statements comply with accepted accounting procedures. See QUALIFIED OPINION.
UNREALIZED is an event having occurred but not yet reflected in a transaction. This refers to unrealized gains and losses, which have not happened but would happen if the investor sold the security or asset that an entity currently holds. Unrealized gains are not usually taxable. It is the opposite of realized.
UNREALIZED ACCOUNTS RECEIVABLE, in cash based accounting, is monies due but not received; can be used to offset taxes.
UNREALIZED INCOME (paper profit) is profit which has been made but not yet realized or collected through a transaction, such as a stock which has risen in value but is still being held. also called unrealized gain or unrealized profit or paper gain or book profit.
UNREALIZED LOSS is a term that commonly refers to the write-down of an investment portfolio resulting from applying the lower of cost or market value on an aggregate basis. On a short-term portfolio, the unrealized loss is shown on the income statement. On a long-term portfolio, the unrealized loss is presented as a separate item in the stockholder's equity section of the balance sheet.
UNRESOLVED EQUITY is the difference between Total Assets and Total Liabilities on the Balance Sheet. Total Assets is always equal to Total Liabilities plus Equity.
UNRESTRICTED ASSETS are assets / resources which are not restricted for use by legal or contractual requirements and may be used for any purpose.
UNRESTRICTED GRANT is a grant made to further the general purpose or work of an organization, rather than for a specific purpose or project.
UNSECURED is obligation backed not by collateral but only by the integrity of the borrower. Opposite of secured.
UP-FRONT PAYMENT is anything of value, usually money, delivered at the time a contract is signed, e.g. down payment, licensing fees, or closing costs.
UPSTREAM / DOWNSTREAM SALES is normally associated with inter-company sales: Upstream is a subsidiary selling into the parent entity; while downstream is the parent selling into a subsidiary.
UNUSUAL GAINS AND LOSSES are material gains and losses that are either unusual or occur infrequently, but not both, are excluded from the extraordinary item classification (see EXTRAORDINARY ITEMS).
USAGE VARIANCE is the difference between the budgeted quantity of materials and the actual quantity used.
USEFUL LIFE is the expected period of time, in years, during which a depreciating asset will be productive.
USE TAX is a tax on the storing, using, consuming, and sometimes distributing tangible personal property or providing a taxable service, i.e. you will be subject to the use tax in the state where that event occurs.
USP is Unit Sales Price, Unique Selling Proposition, Unique Selling Point, or Usage Sensitive Pricing.
UST is United States Treasury.
UST BENCHMARK RATE is the yield to maturity (calculated in accordance with standard market practice) corresponding to the bid-side price for the relevant UST Bond.
VAD, in business, can mean: Value of Annual Demand, Value-Added Data, Value-Added Dealer, or, Value-Added Distributor.
VALIDATE is to a. declare or make legally valid; b. mark with an indication of official sanction; or, c. to establish the soundness of; corroborate.
VALUATION ALLOWANCE/RESERVE is an allowance to provide for changes in the value of a company's assets, such as depreciation or if an asset is deemed impaired.
VALUATION DATE is the day when the evaluation has been made or the date when the evaluation applies.
VALUE is a term that defines the worth of a thing. The term is usually preceded by the word, or words such as 'Fair" or "Fair Market", and it is usually defined in the document where it is found. Not all value for an item is the same, i.e. value is usually perceived.
VALUE ADDED is the difference, at each stage of production or the provisioning of a service, between the price of a product or service and all materials or activities paid for to produce the product or provide the service.
VALUE ADDED TAX is a consumption tax where taxes are levied at each step of a manufacturing process where value is added to that product at that point in the manufacturing cycle; as well as at the point where the consumer purchases the end product.
VALUE ADDED VERTICAL INTEGRATION is controlling as much of the build stream, both upstream and downstream, in producing a product or service as possible while ensuring that every part of the stream provides added value. See also VALUE ADDED and VERTICAL INTEGRATION.
VALUE CHAIN is the sequential set of primary and support activities that an enterprise performs to turn inputs into value-added outputs for its external customers. As developed by Michael E. Porter, it is a connected series of organizations, resources, and knowledge streams involved in the creation and delivery of value to end customers. Value systems integrate supply chain activities, from determination of customer needs through product/service development, production/operations and distribution, including (as appropriate) first-, second-, and third-tier suppliers. The objective of value systems is to position organizations in the supply chain to achieve the highest levels of customer satisfaction and value while effectively exploiting the competencies of all organizations in the supply chain.
VALUE CREATION is performing activities that increase the value of goods or services to consumers.
VALUE FOR MONEY is in the perception of the buyer or receiver of goods and/or services. Proof of good value for money is in believing or concluding that the goods/services received was worth the price paid. Examples of the types of factors that may be considered are suitability, quality, skills, price, whole of life costs and other criteria. The mix of these and other factors and the relevant importance of each will vary on a case by case basis.
VALUE IN USE is the value of an asset in the opinion of the owner.
VALUE MANAGEMENT is the application of established techniques to help define and refine business need, delivery strategy and the best value concept by setting customer objectives and values and determining success criteria for the project.
VALUE STOCK is a stock that trades at a lower price relative to it's fundamentals (i.e. earnings, dividends, sales, etc.); thereby being considered undervalued by a value investor. Common characteristics of such stocks include a high dividend yield, low price-to-book ratio and/or low price-to-earnings ratio.
VAR is an acronym for Value-Added Reseller (usually of technology products); or, in finance, Value at Risk.
VARIABLE COSTS are those costs associated with production that changes directly with the amount of production, e.g.,the direct material or labor required to complete the build or manufacturing of a product.
VARIABLE EXPENSES are those business expenses that usually fluctuate dependent upon production or sales volume. Contrast with FIXED EXPENSES.
VARIABLE INTEREST RATE is an interest rate that moves up and down based on the changes of an underlying interest rate index, e.g. a credit card might have a variable rate that is a certain spread over the prime rate.
VARIANCE, in accounting, is the difference between a projected number and the actual number, e.g. 1. a budget variance is spending either more or less from the amount that was budgeted; and 2. a cost variance is the difference between actual cost and standard cost in the categories of direct material, direct labor, and direct overhead.
VARIANCE ANALYSIS is the analysis of performance by means of variances. Used to promote management action at the earliest possible stages. After a budget (based on standard costs) has been set, its usefulness lies in the review procedures which compare actual results against the budget. Variance analysis is the process of examining in detail each variance between actual and budgeted/expected/standard costs to determine the reasons why budgeted results were not met (material costs too high, sales prices too low, etc.).
VAT see VALUE ADDED TAX.
VC is Venture Capital(ist) or Variable Cost. See also VENTURE CAPITAL, VENTURE CAPITALIST or VARIABLE COSTS.
VEBA is Voluntary Employees' Benefits Association.
VENDOR is a legal entity that promotes or exchanges goods or services for money.
VENDOR MANAGED INVENTORY (VMI) is a process in which a supplier generates orders for its distributor based on demand information sent by the distributor. Vendor Managed Inventory was first applied to the grocery industry, between companies like Procter & Gamble (supplier) and Wal-Mart (distributor). But increasingly, Vendor Managed Inventory is providing the benefits of smoother demand, increased sales, lower inventories and reduced costs to other industries.
VENDOR STATEMENT is a statement by the seller to the buyer detailing material particulars regarding the property in question (suitability for intended use).
VENTURE is an investment that is very risky but could yield great profits.
VENTURE CAPITAL is capital committed to an unproven venture. The initial, start-up money is referred to as "seed money" and entails the greatest risk. If the project gets off the ground it may require additional financing at additional "rounds" or the "mezzanine level" before the company is finally brought to the market and the venture capitalist can enjoy handsome rewards. Experienced investors in venture capital situations typically plan on turning away a minimum of 9 out of every 10 proposals which are brought to them, and then they expect as many failures as successes from their selected investments.
VENTURE CAPITALIST (VC) is a professional equity-based investor. He/She manages one or more venture capital funds looking for suitable high-reward investments. VC investment are normally in riskier start-up or expansion ventures. Being high-risk investors, venture capitalists normally look for a substantially higher rate of return than might be realized in more traditional investments. See ANGEL INVESTOR.
VERIFIABILITY is where the fact is capable of being tested (verified or falsified) by experiment or observation.
VERTICAL FINANCIAL ANALYSIS allows comparison of the financial ratios of a company in time – past, present and future.
VERTICAL INTEGRATION is the extent to which a firm owns its upstream suppliers and its downstream buyers. Control upstream is referred to as backward integration (towards suppliers of raw material), while control of activities downstream (towards the eventual buyer) is referred to as forward integration.
VESTED refers to having an absolute right or title, when previously the holder of the right or title only had an expectation. Example: after 20 years of employment Larry Loyal's pension rights are now vested.
VET, VETTED, VETTING is to make a careful and critical examination of someone or something, e.g. a person prior to employment.
VIABILITY, in economics, is the capability of developing and surviving as a relatively independent social, economic or political unit.
VISUAL-FIT METHOD is a cost estimation method where an analyst examines a cost by plotting points on a graph (called a scatter diagram) and places a line through the points to yield a cost function. This method is more objective than the account-classification method, but it is still lacking because two cost analysts could (and likely would) visually fit different lines. Such an approach is useful, though, because it helps spot non-representative data points, or outliers.
VMI see VENDOR MANAGED INVENTORY.
VOLATILITY, in securities, is the measurement of the change in price over a given time period. It is often expressed as a percentage and computed as the annualized standard deviation of percentage change in daily price.
VOLATILITY RISK is the risk that a specific security price will increase or decrease by greater increments than the general market.
VOLUME GAIN is to obtain advantages due to increase in volume, such as value increase, points in gross margin or profit.
VOSTRO ACCOUNT is a local currency account maintained with a bank by another bank. The term is normally applied to the counterparty's account from which funds may be paid into or withdrawn, as a result of a transaction.
VOUCHER is a. a piece of substantiating evidence; a proof; or, b. a written record of expenditure, disbursement, or completed transaction; or, c. a written authorization or certificate, especially one exchangeable for cash or representing a credit against future expenditures.
WACC see Weighted Average Cost of Capital.
WAGE is actual remuneration paid to an employee for services rendered. Minimum wages, in the
WARRANT, in government accounting, is an order drawn authorizing payment to a designated payee. In securities, it is a security entitling the holder to buy a proportionate amount of stock at some specified future date at a specified price, usually one higher than current market. This "warrant" is then traded as a security, the price of which reflects the value of the underlying stock. Warrants are issued by corporations and often used as a "sweetener" bundled with another class of security to enhance the marketability of the latter. Warrants are like call options, but with much longer time spans -- sometimes years. In addition, warrants are offered by corporations whereas exchange traded call options are not issued by firms.
WARRANTY is a guarantee given to a buyer from a seller that the goods or services purchased will perform as promised, or a refund will be given, repair will be done at no charge, or an exchange made.
WASTAGE see SCRAP.
WEIGHTED AVERAGE is one in which different data in the data set are given different "weights." Varying subjective assumptions are derived for determining the level of importance for each data category. For example, many teachers will use a "weighted average" when calculating a student's grade in a course. A teacher might determine the final grade for the course by calculating that the test average is 60% of the grade, quiz average is 30% of the grade, and a single project is 10% of the grade.
WEIGHTED AVERAGE COST OF CAPITAL (WACC) is an average representing the expected return on all of a company's securities. Each source of capital, such as stocks, bonds, and other debt, is weighted in the calculation according to its prominence in the company's capital structure.
WHITE COLLAR CRIME is a number of miscellaneous nonviolent crimes lumped together as white collar crimes. There is no fixed definition of white collar crime, although it usually includes bribery, embezzlement, fraud, forgery, and violations of trust committed by corporations or individuals engaged in commerce. Historically, in the
WHITE KNIGHT is an entity that comes to the rescue of a corporation that is being taken over.
WHITE PAPER 1. in a technological industry, is an informational brief offering an overview of a technology, product, issue, standard, policy, or solution - its importance, use and implementation, and business benefits. White Papers have emerged as the standard way of communicating more in-depth information to business decision-makers in terms of problems solved and markets addressed; or, 2. a White Paper can be an official government report of an investigation into a public event that received a great deal of publicity and notoriety; it indicates the official government position on a particular public issue.
WHOLLY OWNED SUBSIDIARY is an entity whose parent owns virtually 100% of its common stock.
WHOLESALE is the selling of goods to retail merchants; usually in large quantities for resale to consumers.
WINDFALL PROFIT/GAIN is profit that occurs suddenly as a result of an event not controlled by the company or person realizing the gain from the event. For example, a hurricane may bring extraordinary revenue to a roofing contractor as a result of the natural disaster.
WINDOW DRESSING is the act or an instance of making something appear deceptively attractive or favorable. Usually using something, e.g. inflated sales projections, to create a deceptively favorable or attractive impression.
WINDOW OF ENTERPRISE depicts the overall structure of accounting.
WIDGET is a device that is very useful for a particular job. Often used within a name of a fictitious company.
WIP is an acronym for Work in Process/Progress. Usually refers to inventory that has value added from labor or additional processing. When considered for inventory value, the value of the raw material plus the value added component is accounted for in determining the value of that inventory at that point in the process.
WITHDRAWAL is a. the act of taking out money or other capital from a controlled account; or, b. a retraction of a previously held position.
WITHOLDING, dependent upon application, is: a. income tax withheld from employees' wages and paid directly to the government by the employer; or, b. a tax deducted from dividends on investments which are paid to foreign investors. This can be claimed back if there is a Double Taxation Agreement in place between the countries. See WITHHOLDING TAX.
WITHHOLDING TAX usually refers to those taxes that are withheld from an employee’s compensation to account for that individuals tax liability on his/her compensation.
WITNESS is an individual who testifies at a trial on what he has seen, heard, or otherwise observed.
WORKER’S COMPENSATION is, usually, a state or privately managed insurance fund in the
WORKING ASSET STATEMENT is a net worth statement minus any personal assets, the car, house, boat, etc. A working asset statement will give a clear picture of an individual's invested assets.
WORKING CAPITAL (WC) is current assets minus current liabilities; also called net current assets or current capital. It measures the margin of protection for current creditors. It reflects the ability to finance current operations.
WORKING CAPITAL DAYS OF NET SALES measures how many days of net revenue are tied up in working capital. It is calculated: Working Capital Days of Net Sales = Working Capital / Net Revenue * 365. Low values tend to show problems in ability to support sales while high values may indicate under-capitalization problems.
WORKING CAPITAL RATIO is working capital expressed as a percentage of sales.
WORKING CAPITAL STATEMENT (WCS) is part of the financial statements' "Statements of Cash Flows or Changes in Financial Position." The WCS normally includes sections covering: Sources of Working Capital, Uses of Working Capital, and Working Capital Changes.
WORKING CAPITAL TURNOVER (WCT) shows how efficiently Working Capital (WC) is employed, i.e., it measures how efficiently the business is using its available assets. WCT measures the amount of Net Revenue generated per monetary unit of Working Capital. It varies widely by industry; therefore it is best to compare WCT to industry averages.
WORKING PAPERS, in accounting, are papers that document the evidence gathered by auditors to show the work they have done, the methods and procedures they have followed, and the conclusions they have developed in an audit of financial statements or other type of engagement.
WORKING TRIAL BALANCE is similar to the trial balance. Additionally, it contains columns for adjusting entries and the adjusted balance. This report is typically used at year-end to assist in making adjusting entries.
WORK IN PROCESS is parts and subassemblies in the process of becoming completed finished goods.
WORK IN PROGRESS a piece of work that is not yet finished.
WORK-OF-ART is a product of one of the fine arts; especially a painting or sculpture of artistic merit.
WORK SHEET is a document or schedule in which an accountant or auditor gathers information to substantiate an opinion concerning an account balance or 'test of transaction.'
WORLD TRADE ORGANIZATION (WTO) is the international trade body formed by the agreement of member nations. The WTO is an evolution of the GATT process designed to resolve trade disputes and work for the lowering of tariff and non-tariff trade barriers.
WORTH is an indefinite quantity of something having a specified value. See VALUE.
WRAP ACCOUNT at its most basic is an alternative form of commission arrangement between a securities firm and its client. Wrap accounts generally charge the client an annual fee based on assets in the account in lieu of a per transaction commission structure. In other words, the firm "wraps" together all the costs and charges them off as a "management fee”. Firms often add further features to wrap accounts such as investment management, custodial services, and enhanced reporting.
WRITE-DOWN is the reduction in the book value of an asset.
WRITE-OFF is to decrease the value of an item, e.g., a tax write-off decreases tax liability, a vehicle involved in an accident can be declared a write-off if the cost to repair is in excess of the value of the vehicle.
WRITE-UP is the increase in value of an asset, but it is seldom used and is not allowed in GAAP (Generally Accepted Accounting Principles).
WRITE-UP SERVICE is the provisioning of all reporting requirements of bookkeeping and accounting services. The following is a non-exhaustive list of reporting services provided:
1099s report preparation for subcontractors.
Bank account reconciliation.
Fixed asset schedules.
Maintenance of general ledger.
Payroll deposit calculations.
Payroll tax filings.
Personal property tax returns.
Preparation of internal financial statements.
W-2 FORM, Wage and Tax Statement, is the form
W-3 FORM, Transmittal of Wage and Tax Statements, is a form employers must use when filing paper W-2s with the Social Security Administration. Form W-3 summarizes the total wages, Social Security wages, federal income tax withheld, and FICA tax withheld from employees during the year and lists the number of W-2s being transmitted.
W-4 FORM, Employee's Withholding Allowance Certification , is completed by each employee so that the employer can withhold the correct federal income tax from the employee's pay. Because tax situations may change, employees may want to refigure their withholding each year.
X-INEFFICIENCY is the failure to minimize costs or maximize returns. (Sometimes referred to as X-efficiency, but carrying the same meaning.)
YANKEE BOND is a dollar bond issued by a non-U.S. borrower in the
YELLING MARKETS refers to markets where transactions involve the yelling of prices and quantities during the transaction.
YEN is the currency of
YIELD is the annual return on an investment, expressed as a percentage. The yield to redemption or maturity (the same thing) combines the running yield with the "pull to redemption"; thus a bond which has a 10% coupon and exactly one year of remaining life will sell at $98.2% when interest rates are at 12.0%, that 12.0% being composed of 10.2% running yield and 1.8% pull to redemption ($100.0 - 98.2%).
YIELD TO MATURITY (YTM) is the rate of return the investor will earn if a bond is held to maturity.
YTD is Year To Date; meaning the period beginning of the calendar year, January 1st of the current year, or the fiscal year up until today's date.
YTM see YIELD TO MATURITY.
ZERO BASED BUDGET is where the expenses or costs of the prior year are not taken into consideration when establishing expense or budgetary levels looking forward. Each expense category starts from zero. All expenses or cost levels within the budget must be justified or re-justified as being necessary; thus “zero-base”.
ZERO COUPON BONDS are bonds priced at a large discount from face value. The bonds mature at full face value so the difference between the original issue price and the face value represents interest income. The issuer of the zero coupon bond saves on cash flow since the interest isn't paid out until the end of the bond holding period.
ZERO COUPON CONVERTIBLE DEBENTURE/SECURITY is a zero coupon bond that is convertible into the common stock of the issuing company after the common stock reaches a certain price.
ZERO-RATED denotes goods on which the buyer pays no value-added tax although the seller can claim back any tax he/she has paid.ZERO-RATED SALES is when a sale is taxable at the rate of 0%, i.e. no sales tax. Some examples could be: basic groceries, prescription drugs or certain medical devices.