AAA is American Accounting Association, Association of Accounting Administrators, or see ACCUMULATED ADJUSTMENT ACCOUNT.
AAA-CPA is American Association of Attorney-Certified Public Accountants.
AACSB is American Assembly of Collegiate Schools of Business.
AAFI is Associated Accounting Firms International.
AAHCPA is American Association of Hispanic CPAs.
A&E can mean either Appropriation & Expense or Analysis & Evaluation.
A&G is Administrative & General.
A&M is Additions and Maintenance.
A&P is an acronym for Administrative and Personnel.
AAT, in
ABATEMENT, in general, is the reduction or lessening. In law, it is the termination or suspension of a lawsuit. For example, an abatement of taxes is a tax decrease or rebate.
ABC see ACTIVITY BASED COSTING.
ABM see ACTIVITY BASED MANAGEMENT.
ABNORMAL EXPENSE see EXTRAORDINARY ITEMS.
ABNORMAL GAIN see NORMAL LOSS.
ABNORMAL ITEMS see EXTRAORDINARY ITEMS.
ABNORMAL LOSS see NORMAL LOSS.
ABNORMAL RETURNS is the difference between the actual return and that is expected to result from market movements (normal return).
ABNORMAL SPOILAGE is spoilage that is not part of everyday operations. It occurs for reasons such as the following: out-of-control manufacturing processes, unusual machine breakdowns, and unexpected electrical outages that result in a number of spoiled units. Some abnormal spoilage is considered avoidable; that is, if managers monitor processes and maintain machinery appropriately, little spoilage will occur. To highlight these types of problems so that they can be monitored, abnormal spoilage is recorded in a Loss from Abnormal Spoilage Account in the general ledger and is not included in the job costing inventory accounts (work in process, finished goods, and cost of goods sold).
ABOVE THE LINE, in accounting, denotes revenue and expense items that enter fully and directly into the calculation of periodic net income, in contrast to below the line items that affect capital accounts directly and net income only indirectly.
ABOVE THE LINE, for the individual, is a term derived from a solid bold line on Form 1040 and 1040A above the line for adjusted gross income. Items above the line prior to coming to adjusted gross income, for example, can include: IRA contributions, half of the self-employment tax, self-employed health insurance deduction, Keogh retirement plan and self-employed SEP deduction, penalty on early withdrawal of savings, and alimony paid. A taxpayer can take deductions above the line and still claim the standard deduction.
ABSOLUTE CHANGE is a numerical change in an empirical value, e.g. cost of goods was reduced by $9.00.
ABSORB is to assimilate, transfer or incorporate amounts in an account or a group of accounts in a manner in which the first entity loses its identity and is "absorbed" within the second entity. For example, see ABSORPTION COSTING.
ABSORBED COSTS incorporates both variable and fixed costs.
ABSORPTION see ABSORB.
ABSORPTION COSTING is the method under which all manufacturing costs, both variable and fixed, are treated as product costs with non-manufacturing costs, e.g. selling and administrative expenses, being treated as period costs.
ABSORPTION PRICING is where all costs, both fixed and variable; plus a percentage mark-up for profit; are recovered in the price.
ABSORPTION VARIANCE is the variance from budgeted absorption costing of manufactured product. See also ABSORPTION COSTING.
ACA is Accreditation Council for Accountancy.
ACAT (Accreditation Council for Accountancy and Taxation) is a national organization established in 1973 as a non-profit independent testing, accrediting and monitoring organization. The Council seeks to identify professionals in independent practice who specialize in providing financial, accounting and taxation services to individuals and small to mid-size businesses. Professionals receive accreditation through examination and/or coursework and maintain accreditation through commitment to a significant program of continuing professional education and adherence to the Council's Code of Ethics and Rules of Professional Conduct.
ACB normally refers to 'adjusted cost base.'
ACCELERATED DEPRECIATION is a method of calculating depreciation with larger amounts in the first year(s).
ACCEPTANCE is a drawee's promise to pay either a TIME DRAFT or SIGHT DRAFT. Normally, the acceptor signs his/her name after writing "accepted" (or some other words indicating acceptance) on the bill along with the date. That "acceptance" effectively makes the bill a promissory note, i.e. the acceptor is the maker and the drawer is the endorser.
ACCOMODATION ENDORSEMENT is a) the guarantee given by one legal entity to induce a lender to grant a loan to another legal entity. b) a banking practice where one bank endorses the acceptances of another bank, for a fee, qualifying them for purchase in the acceptance market.
ACCOUNT is the detailed record of a particular asset, liability, owners' equity, revenue or expense.
ACCOUNT AGING usually refers to the methods of tracking past due accounts in accounts receivable based on the dates the charges were incurred. Account aging can also be used in accounts payable, to a lesser degree, to monitor payment history to suppliers. See also AGING OF ACCOUNTS.
ACCOUNT ANALYSIS is a way to measure cost behavior. It selects a volume-related cost driver and classifies each account from the accounting records as a fixed or variable cost. The cost accountant then looks at each cost account balance and estimates either the variable cost per unit of cost driver activity or the periodic fixed cost.
ACCOUNTANT'S OPINION is a signed statement regarding the financial status of an entity from an independent public accountant after examination of that entities records and accounts.
ACCOUNT-CLASSIFICATION METHOD, also called account analysis, is a cost estimation method that requires a study of an account in the general ledger. The experienced analysts use the account information as well as their own judgment to determine how costs will behave in the future.
ACCOUNT CURRENT is a running or continued account between two or more parties, or a statement of the particulars of such an account.
ACCOUNT DISTRIBUTION is the process by which debits and credits are identified to the correct accounts.
ACCOUNT GROUP, in accounting, is a designation of a group of accounts of like type (for example: accounts receivable and fixed assets).
ACCOUNTING is primarily a system of measurement and reporting of economic events based upon the accounting equation for the purpose of decision making. Generally, when someone says "accounting" they are referring to the department, activity or individuals involved in the application of the accounting equation.
ACCOUNTING CONCEPTS are the assumptions underlying the preparation of financial statements, i.e., the basic assumptions of going concern, accruals, consistency and prudence.
ACCOUNTING CONVENTION see CONVENTION.
ACCOUNTING CYCLE is the sequence of steps in preparing the financial statements for a given period. It refers to the fact that because financial reports are given each period (usually a year) there are a set of steps (cycle) taken each period that result in the reports and preparation for the next period or cycle. The term cycle is used because every period there is a start and an end. The cycle usually starts with the budget, goes through the journal entries, adjusting entries, posting to the accounts, financial reports, and closings.
ACCOUNTING DATA is all the information and data contained in journals, ledgers and other records that support financial statements, e.g. spreadsheets. It may be in computer readable form or on paper.
ACCOUNTING DIVERSITY is the recognition that many diverse national and international accounting standards exist in the world.
ACCOUNTING ENTITY ASSUMPTION states that a business is a separate legal entity from the owner. In the accounts the business’ monetary transactions are recorded only.
ACCOUNTING ENTITY is an organization, institution or being that has its own existence for legal or tax purposes. An accounting entity is often an organization with an existence separate from its individual members--for example, a corporation, partnership, trust, etc. See also ACCOUNTING ENTITY ASSUMPTION.
ACCOUNTING EQUATION is a mathematical expression used to describe the relationship between the assets, liabilities and owner's equity of the business model. The basic accounting equation states that assets equal liabilities and owner's equity, but can be modified by operations applied to both sides of the equation, e.g., assets minus liabilities equal owner's equity.
ACCOUNTING EVENT is when the assets and liabilities of a business increase/decrease or when there are changes in owner's equity.
ACCOUNTING INCOME is the income derived through historical accrual based accounting. Income = the change in net assets occurring during the period excluding transactions with owners; i.e. transaction based.
ACCOUNTING MEASUREMENT AND DISCLOSURE is the concepts of measurement and information disclosure required for decision making.
ACCOUNTING PACKAGE/SOFTWARE, usually, is a commercially available software program or suite that, with little customization, will satisfy the accounting system needs of the purchasing entity.
ACCOUNTING PERIOD is the time period for which accounts are prepared, usually one year.
ACCOUNTING PRINCIPLES see GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (GAAP).
ACCOUNTING PRINCIPLES BOARD (APB) OPINIONS were published by the Accounting Principles Board (APB). The APB was created by American Institute of Certified Public Accountants (AICPA) in 1959; replaced by Financial Accounting Standards Board (FASB) in 1973. The APB mission was to develop an overall conceptual framework of US generally accepted accounting principles (US GAAP). APB was the main organization setting the US GAAP and its opinions are still an important part of it.
ACCOUNTING RATIO is the result of dividing one financial statement item by another. Ratios help analysts interpret financial statements by focusing on specific relationships.
ACCOUNTING STANDARDS BOARD (ASB) makes, improves, amends and withdraws accounting standards. Many of ASBs specialize in the various fields or sectors of accounting.
ACCOUNTING SYSTEM is the set of manual and computerized procedures and controls that provide for identifying relevant transactions or events; preparing accurate source documents, entering data into the accounting records accurately, processing transactions accurately, updating master files properly, and generating accurate documents and reports.
ACCOUNTING THEORY tries to describe the role of accounting and is composed of four types of accounting theory: classical inductive theories, income theories, decision usefulness theories, and information economics / agency theories: a. Classical inductive theories are attempts to find the principles on which current accounting processes are based; b. Income theories try to identify the real profit of an organization; c. Decision usefulness theories attempt to describe accounting as a process of providing the relevant information to the relevant decision makers; and, d. The information economics / agency theories of accounting see accounting information as a good to be traded between rational agents each acting in their own self-interest.
ACCOUNTING TIMING DIFFERENCE is the effect that a defered accounting event would have on the financials if taken into consideration e.g., the release of a deferred tax asset to the income statement as a deferred tax expense (ie the reversal of an accounting timing difference).
ACCOUNTING TREATEMENT is the methods, processes and decisions as to any given accounting decision as to how a transaction is to be or is handled in compliance to GAAP and all applicable statutes.
ACCOUNTS PAYABLE (AP) are trade accounts of businesses representing obligations to pay for goods and services received.
ACCOUNTS PAYABLE TO SALES measures the speed with which a company pays vendors relative to sales. Numbers higher than typical industry ratios suggest that the company is using suppliers assets (cash owed) to fund operations.
ACCOUNTS RECEIVABLE is a current asset representing money due for services performed or merchandise sold on credit.
ACCOUNTS RECEIVABLE LEDGER is the bookkeeping ledger in which all accounts for which cash assets owed to an organization is maintained.
ACCOUNTS RECEIVABLE RESERVE is a reserve against bad debt. See also RESERVE and RESERVE ACCOUNTS.
ACCOUNTS RECEIVABLE TURNOVER is the ratio of net credit sales to average accounts receivable, which is a measure of how quickly customers pay their bills.
ACCRETION is the adjustment of the difference between the price of a bond purchased at an original discount and the par value of the bond; or, asset growth through internal growth, expansion or natural causes, e.g. the aging of wine or growth of timber/trees.
ACCRUAL is the recognition of revenue when earned or expenses when incurred regardless of when cash is received or disbursed.
ACCRUAL BASIS OF ACCOUNTING is wherein revenue and expenses are recorded in the period in which they are earned or incurred regardless of whether cash is received or disbursed in that period. This is the accounting basis that generally is required to be used in order to conform to generally accepted accounting principles (GAAP) in preparing financial statements for external users.
ACCRUAL CONCEPT see ACCRUAL BASIS OF ACCOUNTING.
ACCRUED ASSETS are assets from revenues earned but not yet received.
ACCRUED EXPENSES are expenses incurred during an accounting period for which payment is postponed.
ACCRUED INCOME is income earned during a fiscal period but not paid by the end of the period.
ACCRUED INTEREST is interest earned but not paid since the last due date.
ACCRUED INVENTORY functions as a "clearing" account to establish a liability for inventory physically received into the warehouse, but for which a vendor invoice had not yet arrived.
ACCRUED LIABILITY are liabilities which are incurred, but for which payment is not yet made, during a given accounting period. Some examples in a manufacturing environment would be: wages, taxes, suppliers/vendors, etc.
ACCRUED PAYROLL is a liability arising from employees' salary expense that has been incurred but not paid.
ACCRUED REVENUE is the accumulated revenue as they have been recognized over a given period.
ACCRUED VACATION see ACCRUED LIABILITY.
ACCUMULATED ADJUSTMENT ACCOUNT (AAA) under Section 1368(e)(1) of the IRS Code provides that the term “accumulated adjustment account” (AAA) means an account of the S corporation which is adjusted for the S period in a manner similar to the adjustments under § 1367 (except that no adjustment shall be made for income (and related expenses) which is exempt from tax under title 26 and the phrase “(but not below)” shall be disregarded in § 1367(b)(2)(A)) and no adjustment shall be made for Federal taxes attributable to any taxable year in which the corporation was a C corporation.
ACCUMULATED AMORTIZATION is the cumulative charges against the intangible assets of a company over the expected useful life of the assets.
ACCUMULATED DEPRECIATION is the cumulative charges against the fixed assets of a company for wear and tear or obsolescence.
ACH is Automated Clearing House.
ACID-TEST RATIO is an analysis method used to measure the liquidity of a business by dividing total liquid assets by current liabilities.
ACKNOWLEDGEMENT OF INDEBTEDNESS is a written recognition of debt that is enforceable in law, e.g. memorandum check, bank draft, or loan contract.
ACMA is an acronym for Associate Chartered Management Accountant.
ACQUISITION is one company taking over controlling interest in another company. See also MERGER and POOLING OF INTERESTS.
ACQUISITION COST is the amount, net of both trade and cash discounts, paid for property, plus transportation costs and ancillary costs.
ACQUISITION PRICE PRINCIPLE see COST PRINCIPLE.
ACR is Accounts Receivable. See ACCOUNTS RECEIVABLE.
ACTIVITY BASED COSTING (ABC) is a costing system that identifies the various activities performed in a firm and uses multiple cost drivers (non-volume as well as the volume based cost drivers) to assign overhead costs (or indirect costs) to products. ABC recognizes the causal relationship of cost drivers with activities.
ACTIVITY BASED MANAGEMENT (ABM) converts Activity Based Costing (ABC) into a system to manage an organization. Activity Based Management not only focuses on product, service, customer, channel costing, it also emphasizes: cost drivers (root cause analysis), action plans to improve to achieve strategic objectives, and, performance measures for activities and processes.
ACTIVITY DRIVERS, in activity based costing (ABC), activity costs are assigned to outputs using activity drivers. Activity drivers assign activity costs to outputs based on individual outputs’ consumption or demand for activities. For example, a driver may be the number of times an activity is performed (transaction driver) or the length of time an activity is performed (duration driver) see DURATION DRIVERS, INTENSITY DRIVERS, TRANSACTION DRIVERS.
ACTIVITY RATIO is any accounting ratio that measures a firm's ability to convert different accounts within their balance sheets into cash or sales.
ACTUAL CASH VALUE (ACV) is the common method of determining the amount of reimbursement for a loss. Normally calculated be determining what it will cost to replace an item at the time of loss after subtracting depreciation.
ACTUAL COST is the amount paid for an asset; not its retail value, market value or insurance value.
ACTUALS is jargon used when speaking of an actual number experienced through some point in time as opposed to a number that is budgeted or projected into the future, e.g., year-to-date sales, expenses, product produced, etc.
ACTUARIAL METHOD means the method of allocating payments made on a debt between the amount financed and the finance or other charges where the payment is applied first to the accumulated finance or other charges and any remainder is subtracted from, or any deficiency is added to the unpaid balance of the amount financed.
ACTUARIAL SCIENCE applies mathematical and statistical methods to finance and insurance, particularly to the assessment of risk. Actuaries are professionals who are qualified in this field.
ACV see ACTUAL CASH VALUE.
ADD-INS is: a. something designed or intended for use in conjunction with another, e.g. accessories to a primary product in a purchase order; or, b. an accessory software program that extends the capabilities of an existing application.
ADDITIONAL PAID IN CAPITAL is the amounts paid for stock in excess of its par value; included are other amounts paid by stockholders and charged to equity accounts other than capital stock.
ADEA is Age Discrimination in Employment Act of 1967.
ADEQUATE DISCLOSURE is sufficient information in footnotes, as well as financial statements, indicative of a firm's financial status.
ADF, in invoicing, is After Deducting Freight.
AD HOC is being concerned with a particular end or purpose, e.g., a ad hoc committee established to handle a specific subject.
ADI, in invoicing, is After Date of Invoice.
ADJUNCT ACCOUNT is an account that accumulates either additions or subtractions to another account. Thus the original account may retain its identity. Examples include premiums on bonds payable, which is a contra account to bonds payable; and accumulated depreciation, which is an offset to the fixed asset.
ADJUSTED BASIS see BASIS.
ADJUSTED BOOK VALUE: Your MBA performs two types of adjusted book value analysis. Tangible Book Value and Economic Book Value (also known as Book Value at Market).
· Tangible Book Value is different than book value in that it deducts from asset value intangible assets, which are assets that are not hard (e.g., goodwill, patents, capitalized start-up expenses and deferred financing costs).
· Economic Book Value allows for a book value analysis that adjusts the assets to their market value. This valuation allows valuation of goodwill, real estate, inventories and other assets at their market value.
ADJUSTED EARNINGS PER SHARE is a non-GAAP financial measure of earnings per share. Dependent upon the entity, it may or may not include what would normally be included in a GAAP sanctioned earnings per share calculation.
ADJUSTING ENTRIES are special accounting entries that must be made when you close the books at the end of an accounting period. Adjusting entries are necessary to update your accounts for items that are not recorded in your daily transactions.
ADJUSTMENT can be either: 1. an increase or decrease to an account resulting from ADJUSTING ENTRIES; or, 2. changing an account balance due to some event, e.g., adjustment of an account due to the return of merchandise for credit.
ADMINISTRATIVE/ADMINISTRATION COST see INDIRECT COST.
ADMITTED ASSETS are assets whose values are permitted by state law to be included in the annual statement.
ADMITTED VALUE see ADMITTED ASSETS.
ADR is American Depository Receipts.
ADSCR is Average Debt Service Coverage Ratio.
ADVANCE is an amount paid before it is earned, e.g. payment ahead of actual expenditures or phase completion of a construction project.
ADVANCED ACCOUNTING covers accounting operations, patterns, merger of public holding companies, foreign currency operations, changing financial statement prepared in foreign and local currencies. Advanced accounting also includes a variety of advanced financial accounting issues such as lease contracts, pension funds, end of service severance payments, etc.
ADVERSE OPINION is expressed if the basis of accounting is unacceptable and distorts the financial reporting of the corporation. If auditors discover circumstances during the course of the audit that make them question whether they can issue an unqualified opinion, they should always discuss those circumstances with the client before issuing the opinion, in order to determine whether it is possible to rectify the problem.
ADVICE NOTE is a written piece of information e.g. about the shipping status of the goods.
ADVISING BANK is a bank in the exporter's country handling a letter of credit.
AFE, dependent upon usage, is an acronym for Authorization for Expenditure or Average Funds Employed.
AFFILIATE is a relationship between two companies when one company owns substantial interest, but less than a majority of the voting stock of another company, or when two companies are both subsidiaries of a third company.
AFUDC is Accumulated Funds Used During Construction or Allowance for Funds Used During Construction.
AGED TRIAL BALANCE alphabetically lists accounts receivable with outstanding balances. It displays one balance for every account by age and is typically produced only once on demand to check receivable details against other reports.
AGENCY is the relationship between a principal and an agent wherein the agent is authorized to represent the principal in certain transactions.
AGENCY COSTS is the incremental costs of having an Agent make decisions for a principal.
AGE OF INVENTORY see DAYS IN INVENTORY.
AGING OF ACCOUNTS is the classification of accounts by the time elapsed after the date of billing or the due date. The longer a customer's account remains uncollected or the longer inventory is held, the greater is its realization risk. If a customer's account is past due, the company also has an Opportunity Cost of funds tied-up in the receivable that could be invested elsewhere for a return. An aging schedule of accounts receivable may break down receivables from 1-30 days, 31-60 days, 61-90 days, and over 90 days. With regard to inventory, if it is held too long, obsolescence, spoilage, and technological problems may result. Aging can be done for other accounts such as fixed assets and accounts payable. See also ACCOUNT AGING.
AGGREGATE is the sum or total.
AGGREGATE THEORY is a theory of partnership taxation in which a partnership is considered as an aggregate of individual co-owners who have bound themselves together with the intention of sharing gains and loses; under this theory, the partnership itself has no existence separate and apart from its members.
AGI (Annual Gross Income) is annualized total income prior to exclusions and deductions.
AGING see ACCOUNT AGING.
AGING OF RECEIVABLES see ACCOUNT AGING.
AGREED UPON PROCEDURES are used when a client retains an external auditor to perform specific tests and procedures and report on the results. Examples might include special reviews of loan portfolio or internal control systems. In performing agreed-upon procedures, the auditor provides no opinion, certification, or assurance that the assertions being made in the financial statements are free from material misstatement. The users of reports based on agreed-upon procedures must draw their own conclusions on the results of the tests reported. For example, an external auditor could be asked to look at a certain number of corporation loan files and document which of the required forms are in the files. The auditor would report on the selection and the results of the procedures performed but would not provide a formal opinion with conclusions drawn from the results of the procedures.
AICPA is the American Institute [of] Certified Public Accountants.
AIR WAYBILL is a bill of lading and contract between the shipper and the airline for delivery of goods to a specified location, and sometimes with specified delivery date/time. Non-negotiable, but serves as receipt from the airline to prove that goods were received.
ALLOCATE is to distribute according to a plan or set apart for a special purpose. Examples: a. spread a cost over two or more accounting periods; b. charge a cost or revenue to a number of departments, products, processes or activities on a rational basis.
ALLOCATION is the act of distributing by allotting or apportioning; distribution according to a plan, e.g., allocating costs is the assignment of costs to departments or products over various time periods, products, operations, or investments. See ALLOCATE.
ALLONGE is a piece of paper attached to a negotiable instrument to allow space for writing endorsements.
ALL OTHER CURRENT ASSETS relates to any other current assets. Does not include prepaid items.
ALL OTHER CURRENT LIABILITIES includes any other current liabilities, including bank overdrafts and accrued expenses.
ALL OTHER EXPENSES (NET) includes miscellaneous other income and expenses (net), such as interest expense, miscellaneous expenses not included in general and administrative expenses, netted against recoveries, interest income, dividends received and miscellaneous income.
ALL OTHER NON-CURRENT ASSETS are prepaid items and any other non-current assets.
ALL OTHER NON-CURRENT LIABILITIES means any other non-current liabilities, including subordinated debt, and liability reserves.
ALLOWANCE, within Sales, is a concession granted to customers for unsatisfactory goods or services. Reduces sales because a portion of the sale has not been earned.
ALLOWANCE FOR BAD DEBTS is an account established to record a subtraction from ACCOUNTS RECEIVABLE, to allow for those accounts that will not be paid.
ALLOWANCE FOR DOUBTFUL ACCOUNTS see ALLOWANCE FOR BAD DEBTS.
ALLOWANCE FOR DOUBTFUL DEBTS see ALLOWANCE FOR BAD DEBTS.
ALLOWANCE FOR NOTES RECEIVABLE LOSSES is an account maintained at a level considered adequate to provide for probable losses. The provision is increased by amounts charged to earnings and reduced by net charge-offs. The level of allowance is based on management’s evaluation of the portfolio, which takes into account prevailing and anticipated business and economic conditions and the net realizable value of securities held.
ALLOWANCE FOR UNCOLLECTIBLE ACCOUNTS see ALLOWANCE FOR BAD DEBTS.
ALLOWANCE METHOD is the accepted way to account for bad debt. Bad debt expense may be based on the percent of credit sales for the period, an aging of the accounts receivable balance at the end of the period, or some other method, e.g., percent of accounts receivable.
ALPHA is the measurement of returns from an investment in excess of market returns. It represents the amount expected from fundamental causes, e.g. the growth rate in earnings per share. This contrasts with BETA, which is a measure of risk or volatility.
ALTERNATE PAYEE ENDORSEMENT, normally, it is when one payee endorses a draft over to another entity, then the new or alternate payee endorses the draft near the original payees endorsement (signature).
ALTMAN, EDWARD developed the "ALTMAN Z-SCORE" by examining 85 manufacturing companies. Later, additional "Z-Scores" were developed for private manufacturing companies (Z-Score - Model A) and another for general/service firms (Z-Score - Model B). VentureLine selects the "Z-Score" appropriate for each firm based upon the questionnaire input from the listing company. A "Z-Score" is only as valid as the data from which it was derived i.e. if a company has altered or falsified their financial records/books, a "Z-Score" derived from those "cooked books" is of highly suspect value.
- ORIGINAL Z-SCORE (For Public Manufacturer) If the Z-Score is 3.0 or above - banruptcy is not likely. If the Z-Score is 1.8 or less - bankruptcy is likely. A score between 1.8 and 3.0 is the gray area. Probabilities of bankruptcy within the above ranges are 95% for one year and 70% within two years. Obviously a higher Z-Score is desirable.
- MODEL A Z-SCORE (For Private Manufacturer) Model A is appropriated for a private manufacturing firm. Model A should not be applied to other companies. A Z-Score of 2.90 or above indicates that bankruptcy in not likely, buyt a Z-Score of 1.23 or below is a strong indicator that bankruptcy is likely. Probabilities of bankruptcy within the above ranges are 95% for one year and 70% within two years. Obviously a higher Z-Score is desirable.
- MODEL B Z-SCORE (For Private General Firm) Model B Z-Score is appropriate for a private general non-manufacturing firm. A Z-Score of 2.60 or above indicates that bankruptcy in not likely, buyt a Z-Score of 1.10 or below is a strong indicator that bankruptcy is likely. Probabilities of bankruptcy within the above ranges are 95% for one year and 70% within two years. A Z-Score between the two is the gray area. Obviously a higher Z-Score is desirable.
ALTMAN Z-SCORE reliably predicts whether or not a company is likely to enter into bankruptcy within one or two years:
- If the Z-Score is 3.0 or above - bankruptcy is not likely.
- If the Z-Score is 1.8 or less - bankruptcy is likely.
- A Z-Score between 1.8 and 3.0 is the gray area, i.e., a high degree of caution should be used.
Probabilities of bankruptcy within the above ranges are 95% for one year and 70% within two years. A Z-Score between the two is the gray area. Obviously a higher Z-Score is desirable. It is best to assess each individual company's Z-Score against that of the industry. In low margin industries it is possible for Z-Scores to fall below the above. In such cases a trend comparison to the industry over consecutive time periods may be a better indicator. It should be remembered that a Z-Score is only as valid as the data from which it was derived i.e. if a company has altered or falsified their financial records/books, a Z-Score derived from those "cooked books" is of lesser use.
AM can be: Asset Management, Account Manager, After Market, Audit Manager, or Accounting Management.
AMALGAMATION is a consolidation or merger, as of several corporations. In business, the distinction being that the surviving entity incorporates the asset base of others into its base.
AMORTIZATION 1. is the gradual reduction of a debt by means of equal periodic payments sufficient to meet current interest and liquidate the debt at maturity. When the debt involves real property, often the periodic payments include a sum sufficient to pay taxes and hazard insurance on the property. 2. is the process of spreading the cost of an intangible asset over the expected useful life of the asset. For example: a company pays $100,000 for a patent, they amortize the cost over the 16 year useful life of the patent. 3. the deduction of capital expenses over a specific period of time. Similar to depreciation, it is a method of measuring the "consumption" of the value of long-term assets like equipment or buildings.
AMS see AUTOMATED MANIFEST SYSTEM.
ANALYSIS CODES, in accounting, represent software driven analysis methods which are independent of the normal grouping of account codes. An analysis code allows management to collect and monitor income and expenditure for a particular function or event that is not captured by the use of a project code or class, i.e. allows for much finer segmentation.
ANCILLARY relates to something extra or of lesser importance. For example, ancillary revenue would be revenue derived from the provisioning of products or services that are not considered to be primary to the generation of revenue.
ANGEL INVESTOR is a private wealthy individual that has no association with a venture capital firm, investment fund, etc. The "angel" invests his/her private money into what he/she believes to be promising opportunities, i.e., normally startup companies. Sometimes two or more "angels" will jointly invest into opportunities to spread the risk.
ANNUALIZE is a statistical technique whereby figures covering a period of less than one year are extended to cover a 12-month period. The technique, to be accurate, must take seasonal variations into consideration.
ANNUAL REPORT is the requirement for all public companies to file an annual report with the Securities and Exchange Commission detailing the preceding year's financial results and plans for the upcoming year. Its regulatory version is called "Form 10 K." The report contains financial information concerning a company's assets, liabilities, earnings, profits, and other year-end statistics. The annual report is also the most widely-read shareholder communication.
ANNUITY, in finance, is a series of fixed payments, usually over a fixed number of years; or for the lifetime of a person, in which case it would be called a life-contingent annuity or simply life annuity.
ANOMALY, generally, is a deviation from the common rule. It is an irregularity that is difficult to explain using existing rules or theory. In securities, it is an unexplained or unexpected price or rate relationship that seems to offer an opportunity for an arbitrage-type profit, although not typically without risk. Examples include the tendency of small stocks to outperform large stocks, of stocks with low price-to-book value ratios to outperform stocks with high price-to-book value ratios, and of discount currency forward contracts to outperform premium currency forward contracts.
ANR is Average Number of Runs or Average Not Ready (call centers).
AOP is either Adjusted Operating Profit or Annual Operations Plan.
AP is Accounts Payable.
APB is Accounting Principles Board or an Accounting Principles Board opinion (GAAP).
APB 18 is the Accounting Principles Board Equity Method of Accounting for Investments in Common Stock.
APB 29 (Accounting Principles Board Opinion No. 29) Accounting for Non-monetary Transactions states that an exchange of non-monetary assets should be recorded at fair value. Certain modifications to that basic principle are contained in paragraphs 20-23 of APB No. 29. Paragraph 21(b) provides that accounting for an exchange of productive assets for similar productive assets should be based on the recorded amount of the non-monetary assets relinquished. However, Paragraph 4 of APB No. 29 states that Opinion is not applicable to business combinations.
APIC is an acronym for Additional Paid-In-Capital (finance/business).
APPLICATION RATE is the quantity (mass, volume or thickness) of material applied per unit area.
APPLICATION RATE, OVERHEAD is a rate used to apply manufacturing overhead to output; estimated factory overhead for a period divided by the estimated application base.
APPLIED RESEARCH is designed to solve practical problems of the modern world, rather than to acquire knowledge for knowledge's sake.
APPORTION is to divide and share out according to a plan.
APPRAISAL is a report made by a qualified person setting forth an opinion or estimate of value.
APPRAISAL VALUE is an opinion of a asset's fair market value, based on an appraiser's knowledge, experience, and analysis of the asset class.
APPRECIATION is the increase in the value of an asset in excess of its depreciable cost, which is due to economic, and other conditions, as distinguished from increases in value due to improvements or additions made to it.
APPROPRIATE / APPROPRIATED / APPROPRIATION is distribution of net income to various accounts and / or the allocation of retained earnings for a designated purpose, e.g. plant expansion.
APPROPRIATION ACCOUNT is a separate account for which specific dollar amounts are authorized and appropriated.
AR is Accounts Receivable.
ARBITRAGE is the movements of funds to take advantage of differences in exchange or interest rates; such movements quickly eliminate any such differences.
ARGUMENT IN ACCOUNTING usually revolves around the premise that characterizes fair values of assets as being more relevant but less reliable than their historical costs, with fair value being ultimately more informative only if its increased relevance outweighs its reduced reliability.
ARM’S LENGTH TRANSACTION is a transaction that is conducted as though the parties were unrelated, thereby avoiding any semblance of conflict of interest.
AROE is Adjusted Return on Equity.
ARPU is Average Revenue Per User.
ARR is an acronym for Accounting Rate of Return.
ARREARS is an unpaid overdue debt, or the state of being behind in payments, e.g. an account in arrears.
ARTICLES OF INCORPORATION is the primary legal document of a corporation; they serve as a corporation's constitution. The articles are filed with the state government to begin corporate existence. The articles contain basic information on the corporation as required by state law.
ARTICLES OF PARTNERSHIP is the contract creating a partnership.
ARTICULATION, in business, is the shape or manner in which things come together and a connection is made. In the spoken word, it is expressing in coherent verbal form.
ASB see ACCOUNTING STANDARDS BOARD.
ASC is Accounting Standards Committee or Australian Securities Commission.
ASEAN (Association of Southeast Asian Nations) is a trading block of countries in
AS-IS CONDITION is the transfer of title to a property in an existing condition with no warranties or representations.
ASK PRICE, in the context of the over-the-counter market, the term "ask" refers to the lowest price at which a market maker will sell a specified number of shares of a stock at any given time. The term "bid" refers to the highest price a market maker will pay to purchase the stock. The ask price (also known as the "offer" price) will almost always be higher than the bid price. Market makers make money on the difference between the bid price and the ask price. That difference is called the "spread".
ASRB is Accounting Standards Review Board.
ASSESSED VALUE is the estimated value of property used for tax purposes.
ASSESSMENT is a. proportionate share of a shared expense; or, b. amount of tax or other levied special payment due to a governmental municipality or association.
ASSET is anything owned by an individual or a business, which has commercial or exchange value. Assets may consist of specific property or claims against others, in contrast to obligations due others. (See also Liabilities).
ASSET AVAILABILITY is the stated condition or availability of an asset for usability. The subject asset is not available if it is already in use, at capacity, undergoing maintenance, broken, etc.
ASSET EARNING POWER is a common profitability measure used to determine the profitability of a business by taking its total earning before taxes and dividing that by total assets.
ASSET REVALUATION RESERVE is an accounting concept and represents a reassessment of the value of a capital asset as at a particular date. The reserve is considered a category of the equity of the entity. An asset is originally recorded in the accounts at its cost and depreciated periodically over its estimated useful life as a measure of the amount of the asset's value consumed in that period. In practice, the actual useful life of an asset can be miscalculated or an event can cause a change to the useful life. Consequently, assets occasionally need to be revalued in order to reflect a more close approximation to their "worth" in the accounts. When the asset is revalued, the offsetting entry (in a double entry accounting system) would be either made to the profit or loss accounts or to the equity of the entity.
ASSET REVERSION is asset recovery by the sponsoring employer through termination of a defined benefit pension fund and/or of assets in excess of amounts required to pay accrued benefits of a pension fund. In the
ASSET SALE is the sale of certain named assets of a corporation, partnership or sole proprietorship. Usually the seller retains ownership of the cash and cash equivalents (such as Accounts Receivable) and the liabilities of the entity. The seller then will pay the liabilities with the cash, any down payment and the cash equivalents as they become cash. Assets named are typically trade name, trade fixtures, inventory, leasehold rights, telephone number rights and goodwill. Assets sold can be tangible or intangible.
ASSETS HELD FOR SALE are those assets, primarily long-term assets, that an entity wishes to dispose of or liquidate through sale to others.
ASSET TURNOVER RATIO is a general measure of a firm's ability to generate sales in relation to total assets. It should be used only to compare firms within specific industry groups and in conjunction with other operating ratios to determine the effective employment of assets.
ASSET VALUATION is the process of determining the current worth of a portfolio, company, investment, or balance sheet item. The term is often used to describe the worth of an asset which may be incorporated into company accounts, where the ownership of the asset is not necessarily to be transferred but the valuation is required for the balance sheet, company takeovers, share flotation or mortgages.
ASSIGNED VALUE is a value that serves as an agreed-upon reference for comparison; normally derived from or based upon experimental work of some national or international organization.
ASSOCIATE, in business, is a person brought together with a company or another person into a relationship in any of various intangible ways.
ASSOCIATED CREDIT is where a charitable or a not for profit entity (a university for example) may acknowledge the efforts of persons, other than the legal donor(s), who were instrumental in facilitating or providing for a gift by providing “soft” (or associated) credit for gifts. Associated credit allows the entity to acknowledge these efforts without compromising the entity’s legal obligation to record the gift according to IRS regulations. Associated credit is given for donor recognition purposes, allowing their names to be listed in publications such as the "Report to Contributors" and other donor recognition publications. For example an individual may write a corporate gift to a university, i.e. the individual would get the associated credit. Also known as SOFT CREDIT.
ASSUMPTION, generally, is one or more beliefs or unconfirmed facts that contribute to a conclusion. Specifically, it is the act of taking on the responsibility or assuming the liabilities of another.
ASSURANCE has been defined by the American Institute of Certified Public Accountants (AICPA) as "Independent Professional Services that improve information quality or its context". Such services are very broad and could include assessments of various industries, e.g., Internet security or quality of health facilities.
ATA (Accredited Tax Advisor), in the US, is a national credential conferred by Accreditation Council for Accountancy and Taxation to professionals who handle sophisticated tax planning issues, including ownership of closely held businesses, qualified retirement plans and complicated estates.
ATM see AUTOMATED/AUTOMATIC TELLER MACHINE.
ATP is an acronym for After Tax Profit, Accredited Tax Preparer, and possibly more.
ATP (Accredited Tax Preparer), in the US, is a national credential conferred by Accreditation Council for Accountancy and Taxation to professionals who have a thorough knowledge behind the existing tax code and tax preparation of individuals, corporate and partnership tax returns.
AT RISK is the exposure to the danger of economic loss; frequently used in the context of claiming tax deductions. For example, a person can claim a tax deduction in a limited partnership if the taxpayer can show it is at risk of never realizing a profit and of losing its initial investment.
ATTEST is to authenticate, affirm to be true, genuine, or correct, as in an official capacity.
AT THE MONEY is an option where the strike price is approximately equal to the underlying price.
ATTRITION a reduction in numbers usually as a result of resignation, retirement, or death.
AUCTION MARKET is a trading system in which buyers enter competitive bids and sellers enter competitive offers simultaneously. This, as opposed to the over-the-counter market, where trades are negotiated. Examples: the NYSE and the AMEX. It is sometimes called double auction market.
AUDIT is the inspection of the accounting records and procedures of a business, government unit, or other reporting entity by a trained accountant for the purpose of verifying the accuracy and completeness of the records. It could be conducted by a member of the organization (internal audit) or by an outsider (independent audit). A CPA audit determines the overall validity of financial statements. A tax audit (IRS in the
AUDIT BUREAU OF CIRCULATION (ABC) is a third-party organization that verifies the circulation of print media through periodic audits.
AUDIT COMMITTEE, in a larger or more sophisticated corporation, the board may find it useful to appoint an audit committee whose oversight extends not only to external audits, but also to internal audits, internal controls, and external reporting. Ideally, an audit committee is composed of three to five non-management directors and, as needed, outsiders with accounting and financial expertise. In a smaller corporation the audit committee may be a single director with financial expertise and audit experience who takes the lead in exercising the board's audit oversight responsibility.
AUDIT EVIDENCE includes written and electronic information (such as checks, records of electronic fund transfers, invoices, contracts, and other information) that permits the auditor to reach conclusions through reasoning.
AUDIT FAILURE is an Instance where the auditor said that the financial statements were fairly stated when in fact, they were not.
AUDITING STANDARDS provide minimum guidance for the auditor that helps determine the extent of audit steps and procedures that should be applied to fulfill the audit objective. They are the criteria or yardsticks against which the quality of the audit results are evaluated.
AUDIT OPINION LETTER is a signed representation by an auditor as to the reliability and fairness of a set of financial statements. It is usually presented at the beginning of an audit report.
AUDITOR is an accountant usually certified by a national professional association of accountants, if one exists in the corporation’s country, or certified by another country's recognized national association of accountants. Corporations will often work with both internal auditors and external auditors.
AUDIT PLAN/PLANNING is developing an overall strategy for the expected conduct and scope of the audit. The nature, extent, and timing of planning varies with the size and complexity of the entity, experience with the entity, and knowledge of the entity's business.
AUDIT REPORT is a signed, written document which presents the purpose, scope, and results of the audit. Results of the audit may include findings, conclusions (opinions), and recommendations.
AUDIT RISK is a combination of the risk that material errors will occur in the accounting process and the risk the errors will not be discovered by audit tests. Audit risk includes uncertainties due to sampling (sampling risk) and to other factors (non-sampling risk).
AUDIT SCHEDULES are the information formats developed by the external auditors to guide the corporation in the preparation of particular information presented in a particular manner that facilitates the audit. These should always be completed by the corporation prior to the start of the audit.
AUDIT SCOPE refers to the activities covered by an internal audit. Audit scope includes, where appropriate: audit objectives; nature and extent of auditing procedures performed; Time period audited; and related activities not audited in order to delineate the boundaries of the audit.
AUDIT STRATEGY is a game plan to attack audit issues before they are raised. Reasons and justifications for all positions must be understood and the foundation laid for taking the position.
AUDIT TRAIL is a step-by-step record by which financial, business, and quality assurance data can be traced to its source. For example: checking the validity of an accounting entry through the step-by-step record by which accounting data can be traced to their source.
AUTHORITATIVE PRONOUNCEMENT is a formal declaration of opinion sanctioned by established authority.
AUTHORIZATION OF STOCK is the provision in a corporate charter giving permission to issue stock.
AUTHORIZATION SCHEDULE is the guideline under which the subject activity is controlled and authorized. For example, expenditure spending may be controlled by amounts and the managerial level required authorizing or approving a preset trigger amount. As the amount increases over certain preset levels, higher managerial authority is required for approval.
AUTHORIZED CAPITAL STOCK is the maximum number of shares of common stock that can be issued under a company's Articles of Incorporation. Issued shares are normally less than the number of authorized shares.
AUTHORIZED STOCK see AUTHORIZED CAPITAL STOCK.
AUTOMATED MANIFEST SYSTEM (AMS) is a multi-modular cargo inventory control and release notification system. AMS is the electronic system allowing a manifest inventory to be transmitted to the US Customs Service data center by carrier, port authority or service center computers. AMS interfaces directly with Customs Cargo Selectivity and In-Bond systems, and indirectly with ABI, allowing faster identification and release of low risk shipments.
AUTOMATED/AUTOMATIC TELLER MACHINE (ATM) is an unattended machine (outside some banks) that dispenses money or allows an individual to conduct unassisted business transactions with the ATM when a personal coded card is used.
AUXILIARY JOURNAL is a journal in which accounting information is stored both before and after the transfer to the General Ledger.
AVAILABLE FOR SALE is a term that means exactly what is says, i.e. an asset is available for purchase and transfer of ownership upon reaching an agreed upon price.
AVAL is a term meaning inseparable from the financial instrument. This gives a guarantee and is abstracted from the performance of the underlying trade contract: Article 31 of the 1930 Geneva Convention of the Bills Of Exchange states that the aval can be written on the bill itself or on an allonge.
AVALIZOR is an institution or person who gives an aval.
AVERAGE AGE OF INVENTORY is calculated by the formula: 365 / inventory turnover.
AVERAGE COST is total cost for all units bought (or produced) divided by the number of units.
AVERAGE COST METHOD is using a weighted average cost for items in inventory rather than actual cost for each specific item.
AVERAGE FUNDS EMPLOYED see FUNDS EMPLOYED.
AVERAGE SETTLEMENT PERIOD is calculated:
For Debtors = Trade Debtors X 365 days / Credit Sales
For Creditors = Trade Creditors X 365 days / Credit Purchases.
AVOIDABLE COST is the amount of expense that would not occur if a particular decision were to be implemented (e.g., if an employee is laid off at a company that is self-insured for unemployment compensation, the avoidable cost is total direct salary less payments for unemployment benefits plus savings in employee benefits).
AXIOM, generally, it is a saying that is widely accepted on its own merits; in logic, it is a proposition that is not susceptible of proof or disproof; its truth is assumed to be self-evident.
BACKDOOR LISTING is a technique used by a company which failed to get listed on an exchange, whereby the company acquires and merges with a company already listed on that exchange.
BACKCHARGE is to charge a person or a firm an amount of money in order to make adjustments for a previous transaction.
BAC
BACK-TO-BACK TRADING allows securities dealers to trade and settle the same securities several times during the same settlement day without loss of value days.
BACKUP WITHHOLDING is a mandatory withholding that may be imposed when rules regarding taxpayer identification numbers, (usually a Social Security number) are not met by the individual. Another way for these withholdings to take effect is when a notice is issued by the IRS to withhold on payments to that individual. Backup withholding may be claimed as a credit by taxpayers on their federal income tax return.
BAD DEBT is an open account balance or loan receivable that has proven to be uncollectible and is written off.
BAD DEBT EXPENSE see UNCOLLECTIBLE ACCOUNT EXPENSE.
BALANCE is: a. equality between the totals of the credit and debit sides of an account; or, b. the difference between the totals of the credit and debit sides of an account.
BALANCED SCORECARD (BSC) is a strategic management system based upon measuring key performance indicators across all aspects and areas of an enterprise: Financial, Customer, Internal Process, and Learning and Growth.
BALANCE FORWARD ACCOUNTING is where you maintain a list of charges and payments for each account. To find out the balance at any point in time, you add the charges, add the payments, and then subtract total payments from total charges. A billing statement is sent out every month with any balance carried forward from the previous statement
BALANCE OF PAYMENTS / BALANCE OF TRADE is the difference between a country's total export dollar value and its total import dollar value, generally or with respect to a particular trading partner. A positive balance means a net inflow of capital, while a negative means capital flows out of the country.
BALANCE SHEET is an itemized statement that lists the total assets and the total liabilities of a given business to portray its net worth at a given moment of time. The amounts shown on a balance sheet are generally the historic cost of items and not their current values.
BALANCE SHEET GEARING is the ratio of interest-bearing debt to equity.
BALANCING OFF THE BOOKS means totaling off the various amounts to find out how much money is left or, how overdrawn the organization is. At certain times; e.g. once a month, quarterly, for management committee meetings; it may be necessary to 'balance off the books".
BALLOON PAYMENT is a final loan payment that is considerably higher than prior regular payments, in order to pay off the loan.
BANCASSURANCE is a general term describing the broader financial services activities of banks and building societies, in particular their ‘insurance company’ activities.
BANK BALANCE is the amount of money in a bank account on a particular date as recorded by a financial institution on a bank statement.
BANK COLLECTION is the collection of a check by the bank on behalf of a depositor.
BANK GUARANTEE is an irrevocable commitment by a bank to pay a specified sum of money in the event that the party requesting the guarantee fails to perform the promise or discharge the liability to a third person in case of the requestor's default.
BANK OVERDRAFT see OVERDRAFT.
BANK RECONCILIATION is the verification of a bank statement balance and the depositor’s checkbook balance.
BANK STATEMENT is a statement reporting all transactions in the accounts held by the account holder.
BANKRUPTCY is a state of insolvency of an organization or individual, i.e. an inability to pay debts. In the
A) Chapter 7 is involuntary liquidation forced by creditor(s). Some companies are so far in debt that they can't continue their business operations. They are likely to "liquidate" and are forced to file under Chapter 7. The courts take over and administers through a court appointed trustee. Their assets are sold for cash by a court appointed trustee. Administrative and legal expenses are paid first, and the remainder goes to creditors;
B) Chapter 11 is voluntary by the debtor. Unless the court rules otherwise, the debtor stays in control of the enterprise. The U.S. Trustee, the bankruptcy arm of the Justice Department, will appoint one or more committees to represent the interests of creditors and stockholders in working with the company to develop a plan of reorganization to get out of debt.; and,
C) Chapter 13 bankruptcy, a debtor proposes a 3-5 year repayment plan to the creditors offering to pay off all or part of the debts from the debtors' future income. The amount to be repaid is determined by several factors including the debtors' disposable income. To file under this chapter you must have a "regular source of income" and have some disposable income. Like in a Chapter 7, corporations and partnerships may not file under this chapter.
BARRIERS TO ENTRY are obstacles to the entry of new firms into a market. Barriers to entry may take various forms. They may be technical barriers, legal barriers or barriers that arise from strong branding of the product.
BARS is an acronym for Base Accounts Receivable System.
BARTER SYSTEM see TRADE EXCHANGE.
BAS, among many others, can mean Basic Accounting System, Business and Administrative Services, or Bachelor of Arts and Sciences.
BASE AMOUNT is the fundamental numerical assumption from which something is begun or developed or calculated or explained, e.g. base pay.
BASE CAPITAL includes (1) shares that (a) are non-cumulative, non-retractable, non-redeemable and, if convertible, are only convertible into common shares, and (b) have been issued and paid for; base capital also includes (2) contributed surplus, and (3) retained earnings.
BASE TAX YEAR is the tax year prior to the subject tax year.
BASIC ACCOUNTING normally includes the areas of Debits and Credits; Accounts; Assets, Liabilities, Equity, Revenue and Expenses; and, an accounting system that offers a method for checking, balancing, and reconciling all accounting related transactions in order to produce accurate pictures of the entities financial health. Profit and Loss Reports, Balance Sheets, and Cash Flow Statements are the end result of compiling all the transactions into meaningful, usable information for individuals and business owners alike.
BASIC DEFENSE INTERVAL (BDI) is a measure that if for some reason all of your revenues were to suddenly cease, the Basic Defense Interval (BDI) helps determine the number of days your company can cover its cash expenses without the aid of additional financing. The BDI is calculated: (Cash + Receivables + Marketable Securities) / ((Operating Expenses + Interest + Income Taxes) / 365) = Basic Defense Interval.
BASIC EARNINGS POWER (BEP) is useful for comparing firms in different tax situations and with different degrees of financial leverage. This ratio is often used as a measure of the effectiveness of operations. Basic Earning Power measures the basic profitability of Assets because it excludes consideration of interest and tax. This ratio should be examined in conjunction with turnover ratios to help pinpoint potential problems regarding asset management.
BASIC NET INCOME PER SHARE is always reported as net income per share on an undiluted basis. The calculation of diluted net income per share includes the effect of common stock equivalents such as outstanding stock options, while the calculation of basic net income per share does not.
BASIC TENETS OF ACCOUNTING are four in number: 1. Assets = Liabilities + Owner's Equity, 2. Debits = Credits, 3. Assets are on the left (debit side), and, 4. Liabilities and Equity are on the right (credit side).
BASIS, generally, is that figure or value that is the starting point in computing gain or loss, depreciation, depletion, and amortization of a company. Specifically, it is the financial interest that the Internal Revenue Service attributes to an owner of an investment property for the purpose of determining annual depreciation and gain or loss on the sale of the asset. If a property was acquired by purchase, the owner's basis is the cost of the property plus the value of any capital expenditures for improvements to the property, minus any depreciation allowable or actually taken. This new basis is called the ADJUSTED BASIS.
BASIS, in investments, is the cost or book value of an investment. The gain or loss on an investment is the sale price less the basis. Basis is often called "cost basis."
BASIS POINTS is 0.01% in yield. For example, in increasing from 5.00% to 5.05%, the yield increases by five basis points.
BATCH is a collection of things or persons to be handled or processed together.
BATCH COSTING is the identification and assignment of those costs incurred in completing the manufacture of a specified batch of components. Having arrived at the batch cost, the unit cost is simply derived by dividing it by the number of components in the batch.
BATCHING, in accounting, is the gathering and organizing of incoming invoices prior to processing.
BAY, in business / accounting, means Buy Another Yearly.
BBA can mean: Bachelor of Business Administration, Balanced Budget Act of 1997, Budget Activity Account, Budget By Account, British Bankers Association, Black Business Association, etc.
BCF is an acronym for Broadcast Cash Flow.
BCL is an acronym for, among others, Bank Comfort Letter or Bachelor of Canon/Civil Law.
B/D is Brought Down (T-accounts).
BDI see BASIC DEFENSE INTERVAL.
BE, dependent upon usage, can mean Best Estimate, Best Effort, or Bill of Exchange.
BEHAVIOURAL ACCOUNTING is the explanation and prediction of human behavior in all possible accounting contexts, e.g., adequacy of disclosure, usefulness of financial statement data, attitudes about corporate reporting practices, materiality judgements, and decision effects of alternative accounting procedures.
BELOW THE LINE, in accounting, denotes credits or debits affecting balance sheet accounts rather than the income statement. Extraordinary items may also appear below the net profit line in the income statement, but accounting standards-setters have increasingly favored reflecting most such items in periodic net income.
BENCHMARK is a study to compare actual performance to a standard of typical competence; or, a standard for the basis of comparison as being above, below or comparable to.
BENEFICIAL OWNER is the person who enjoys the benefits of ownership even though title is in another name (often used in risk arbitrage).
BENEFICIARY is a person who benefits from the terms of a trust, pension or provident fund, or other deferred income plan, or an insurance policy. In banking, it is the person in whose favor a letter of credit is issued or a draft is drawn.
BENEFIT see TAXABLE BENEFITS.
BENEFIT PERIOD is the projected useful life time period over which an asset will be productive.
BEST PRACTICES are the generally understood operational characteristics of corporations which have been successful in terms of high repayment rates, significant outreach, and progress towards surplus generation.
BETA, in securitites, is a statistical measurement correlating a stock's price change with the movement of the stock market. The beta is an indicator or statistical measure of the relative volatility of a stock, fund, or other security in comparison with the market as a whole. The beta for the market is 1.00. Stocks with betas above 1.0 are more responsive to the market, but are also more risky investments. Stocks with a beta below 1.0 tend to move in the opposite direction of the market. For example, if the market moves 10%, a stock with a beta of 3.00 will move 30%; a stock with a beta of .5 will move 5%.
BID PRICE see ASK PRICE.
BIFURCATED generally means to be divided into or made up of two parts. In accounting an example would be: to split the cash account in the accounting records into two accounts, cash – principal and cash – income.
BIG BATH is a business strategy in which a company manipulates its income statement to make poor results look even worse. Strategy being that the following year will show significant improvement. Big bath is sometimes employed by new CEOs to make their first years results more impressive by employing big bath accounting to prior year results.
BIG 4 usually refers to the largest accounting firms: Deloitte & Touche, Ernst and Young, KPMG, and PricewaterhouseCoopers.
BILL is a : to enter in an accounting system : prepare a bill of (charges) b : to submit a bill of charges to c : to enter (as freight) in a waybill d : to issue a bill of lading to or for; e.g., "billable expenses" are those expenses for which reimbursement invoices are issued.
BILLABLE are those costs and/or expenses that are covered under a contractual agreement between two entities that may be billed to the receiving entity.
BILLABLE HOURS is professional hours worked and billed to clients.
BILL AND HOLD see
BILL AND HOLD INVENTORY see
BILLBACK, in e-commerce and credit card transactions, is a means of recovering or reducing interchange fees for transactions clearing differently than planned. The processing company (FDC) passes through the charges to the merchant.
BILLINGS IN EXCESS OF COSTS see COST IN EXCESS OF BILLINGS.
BILL OF EXCHANGE see DRAFT.
BILL OF LADING is the contract between the owner of the goods and the cargo carrier to move the goods to a specified destination. A clean bill of lading is issued by the carrier verifying receipt of the merchandise in apparent good condition (without visually apparent damage or defect). Bills of lading can sometimes be made to cover the whole trip, or separate bills of lading can be prepared for each carrier. Ocean shipments generally require two, an Inland Bill of Lading covering land transportation to the port and an Ocean Bill of Lading covering the ship portion. Bills of lading are negotiable while cargo is in transit.
BILL OF MATERIALS (BOM) is a listing of all the assemblies, sub-assemblies, parts, and raw materials that are needed to produce one unit of a finished product. Each finished product has its own bill of materials.
BILL OF SALE is a written statement attesting to the transfer (sale) of goods, possessions, or a business to a buyer.
BILLS PAYABLE, in merchant accounts, are all bills which have been accepted, and promissory notes which have been made, are called "bills payable," and are entered in a ledger account under that name, and recorded in a book bearing the same title.
BILLS PURCHASED, in trade finance, allows a seller to obtain financing and receive immediate funds in exchange for a sales document not drawn under a letter of credit. The bank will send the sales documents to the buyer's bank on behalf of the seller.
BILLS RECEIVABLE, in merchant accounts, are all promissory notes, bills of exchange, bonds, and other evidences or securities which a merchant or trader holds, and which are payable to him.
BIN CARD is a stock status recording document for a particular material/item held in a stock room. It is for the recording of stock receipts and issues and the running balance which should be on hand.
BIR is Bureau of Internal Revenue, Benefit/Investment Ratio, or Best Incremental Return.
BLACK HOLE EXPENDITURE is a capital R&D expenditure that does not give rise to a depreciable asset and is not otherwise deductible.
BLACK MARKETS are created when buyers and sellers meet to negotiate the exchange of a prohibited or illegal good. More generally, it is any unofficial market in which prices are inordinately high.
BLANKET AUTHORIZATION is direct authority to act without having to gain approval for each action. For example: "Blanket authorization was given to him for all his business travel".
BLENDED COSTS is the cost of pre-set multiple items or processes that result in more than one end result or product. In a sense it is a form of cost averaging rather than stand-alone costing of one given product or identified process.
BLIND RECEIVING is a method to ensure more accurate warehouse receipt counts, i.e.,
BLIND TRUST is a trust where assets are not disclosed to their owner.
BLUE SKY LAW is a law providing for state regulation and supervision of the issuance of investment securities.
BMR, among others, is Base Mortgage Rate.
BOA is Board of Auditors, Bank of America, Board of Adjustment, or Basic Ordering Agreement.
BOM see BILL OF MATERIALS.
BONA FIDE GUARANTY covers a specific element of a secured transaction, for example, the integrity of receivables or the accuracy of inventory count.
BOND is a commonly used form of long term debt.
BOND COVENANT are agreements within a bond that can either be negative or positive in the view of the bondholder, e.g., a negative bond covenant is a bond covenant that prevents certain activities unless agreed to by the bondholders.
BONDED is to: a. secure payment of duties and taxes on (goods) by giving a bond; or, b. convert into a debt secured by bonds; or, c. provide a bond for or cause to provide such a bond (e.g., to bond an employee) that guarantees any monetary loss caused by intentional acts by the bonded employee.
BONDED WAREHOUSE is a warehouse authorized by customs officials for the storage of goods on which payment of duty is deferred until the goods are removed.
BOND DISCOUNT is the excess of a bond face value over issued price.
BOND FUND see GLOBAL MUTUAL FUND.
BOND INDENTURE is the title specifying all the obligations of the issuing company to the bondholder.
BONDING is generally used by service companies as a guarantee to their clients that they have the necessary ability and financial tracking to meet their obligations. Bonds are also used to guarantee payment of duty for U.S. Customs entry.
BOND PREMIUM is the excess of the issue price over the face value of the bond.
BOND REFERENDUM see REFERENDUM.
BOND SINKING FUND is a provision to repay a bond.
BONUS is remuneration over and above regular salary.
BOOK(S) when used as a noun refers to journals or ledgers (for example: cash book). When used a verb it refers to the recording of an entry (for example: to book the sale).
BOOKBUILD is a particular way of conducting a float where the price at which shares are sold is not fixed, but rather is determined following a process in which interested investors bid for shares. This is quite a common way of determining the price paid for shares by institutional investors (Funds Managers).
BOOK COST, normally, is the cost at the time an asset is purchased or realized, i.e. the total amount paid to acquire an asset.
BOOK INCOME is the income reported within the financial statements of the taxable entity, i.e., taxable income normally is not aligned with the financial income (book income) reported within financial statements
BOOKING, in import / export, is an arrangement with a shipping company to load and carry a shipment.
BOOK INVENTORY is the acquistion cost of all inventory less liabilities associated wth the inventory. See BOOK VALUE.
BOOKKEEPING is the recording of business transactions.
BOOK OF ACCOUNTS see LEDGER.
BOOKS OF ACCOUNT are the financial records of a business. Usually refers to the lowest level of recorded data, before summaries are made.
BOOKS OF RECORD are all mandatory entries into those documents that track the activity, events, or decisions pertaining to the subject for which the records are maintained, e.g., board of director minutes, births or deaths, and marriage licenses.
BOOK-TAX DIFFERENCE is pretax book income minus tax net income.
BOOK-TO-BILL RATIO is the ratio of orders taken (sic booked) to products shipped and bills sent (sic billed). The ratio is a measure of whether a company has more, equal to or less than the orders than it can likely produce and deliver. The book-to-bill ratio is primarily of interest to investors or traders in the high-tech sector.
BOOK-TO-MARKET is the ratio of the firm's book equity to market equity.
BOOK VALUE is an accounting term which usually refers to a business' historical cost of assets less liabilities. The book value of a stock is determined from a company's records by adding all assets (generally excluding such intangibles as goodwill), then deducting all debts and other liabilities, plus the liquidation price of any preferred stock issued. The sum arrived at is divided by the number of common shares outstanding and the result is the book value per common share. Book value of the assets of a company may have little or no significant relationship to market value.
- Tangible Book Value is different than Book Value in that it deducts from asset value intangible assets, which are assets that are not hard (e.g., goodwill, patents, capitalized start-up expenses and deferred financing costs).
- Economic Book Value allows for a Book Value analysis that adjusts the assets to their market value. This valuation allows valuation of goodwill, real estate, inventories and other assets at their market value.
BOOKKEEPING is the art, practice, or labor involved in the systematic recording of the transactions affecting a business.
BOOK PROFIT see BOOK INCOME.
BOOT is money received during an exchange to equalize values, e.g. if a person sells his business for an assumption of liabilities and for some cash the cash is 'boot.'
BORROWING COSTS is the financial costs incurred by an enterprise in connection with the borrowing of funds, i.e. interest, amortization of discounts or premiums arising on the issue of debt securities, loan fees, gains and losses on foreign currency differences related to borrowed funds and regarded as an adjustment to interest costs.
BOTTOM LINE, in accounting/finance, is specifically net income after taxes. In general, it is an expression as to the end results of something, e.g. the net worth of a corporation on a balance sheet, sales generated from a marketing campaign, or final decision on most any subject (Often said: “give me the bottom line”).
BOTTOM UP is a concept of analyzing a subject, such as costs or revenue, starting from the lowest level working towards the top.
BOUGHT LEDGER see LEDGER.
BOUNCED CHECK is a check written for an amount exceeding the checking account balance that is subsequently rejected for payment due to insufficient funds.
BOY is Beginning Of Year.
BPO, dependent upon usage, could mean Business Process Outsourcing, Business Process Optimization, Blanket Purchase Order, Broker Price Opinions, Business Process Object, or Bank Payment Order.
BR could be Backward Reporting or Bad Register.
BRANCH ACCOUNTING is accounting for geographically separated sections of enterprises. The accounting system adopted depends upon the degree to which the branch is controlled from its head office.
BRAND IMAGE is the view held by consumers about a particular brand of good or service. The stronger the brand image the more inelastic the demand for the product is likely to be.
BRAND LOYALTY is a situation when a consumer is reluctant to switch from consumption of a favored good. The consumer is "loyal" to the brand.
BRAND NAME is a name given to a product or service.
BREACH OF CONTRACT is the failure to perform provisions of a contract.
BREAK-EVEN ANALYSIS is an analysis method used to determine the number of jobs or products that need to be sold to reach a break-even point in a business.
BREAK-EVEN EQUATION is the equation that determines BREAK-EVEN POINT. Let p = unit selling price, v = unit variable cost, FC = total fixed costs, x = sales in units. The equation: px = vx + FC.
BREAK-EVEN POINT is the volume point at which revenues and costs are equal; a combination of sales and costs that will yield a no profit/no loss operation.
BREAK-EVEN SALESsee BREAK-EVEN POINT.
BRIDGE LOAN (BRIDGING LOAN) is an equity loan secured to solve short-term financing problem.
BRITISH-AMERICAN MODEL is an accounting model. There are other accounting systems which differ from the
BROKERAGE, dependent upon usage, is the business of a broker; charges a fee to arrange a contract between two parties, or, the place where a broker conducts his/her business.
BROUGHT FORWARD is the recognition of a value that was determined in the past, e.g. an accumulated balance brought forward at the start of a new accounting period.
BSP is Business Service Provider, Billing and Settlement Plan (airlines), Business Systems Planning, or Bank Settlement Plan.
BUDGET is an itemized listing of the amount of all estimated revenue which a given business anticipates receiving, along with a listing of the amount of all estimated costs and expenses that will be incurred in obtaining the above mentioned income during a given period of time. A budget is typically for one business cycle, such as a year, or for several cycles (such as a five year capital budget). Of the many kinds of budgets, a CASH BUDGET shows CASH FLOW, an EXPENSE BUDGET lists expected payments of money, and a CAPITAL BUDGET shows the anticipated payments for CAPITAL ASSETS. See FORECAST, PROJECTION.
BUDGETARY ACCOUNTING, contrary to financial accounting, looks forward: it measures the cost of planned acquisitions and the use of economic resources in the future.
BUDGETARY DEFICIT occurs when expenditures are greater than revenues.
BUDGET CONTROL is actions carried out according to a budget plan. Through the use of a budget as a standard, an organization ensures that managers are implementing its plans and objectives. Their actual performance is measured against budgeted performance.
BUDGETING is the documenting of intended expenditures over a specified time period (normally one year) along with proposals for how to meet them. See also ZERO BASED BUDGET.
BUDGET PERFORMANCE REPORT is the comparison of planned budget and actual performance.
BUDGETING PROCESS is a systematic activity that develops a plan for the expenditure of a usually fixed resource, such as money or time, during a given period to achieve a desired result.
BUFFER is anything that stands between two other things. For example, an inventory buffer would be additional inventory over and above committed or planned inventory. The inventory buffer will act as an inventory reserve to ensure that sufficient inventory is available when and if required, i.e., the buffer inventory stands between committed inventory and 'out-of-stock' status.
BUFFER STOCK see STOCK RESERVE.
BURDEN RATE, when referring to personnel burden, is the sum of employer costs over and above salaries (including employer taxes, benefits, etc.). When referring to factory or manufacturing see OVERHEAD.
BURN RATE is the rate at which a new company uses up its venture capital to finance overhead before generating positive cash flow from operations. It is the rate of negative cash flow, usually quoted as a monthly rate.
BURSARY is the treasury of a public institution or religious order.
BUSINESS ENTITY is a selection of the legal form under which a business is to operate: sole proprietorship, general partnership, corporation, S corporation (in the
BUSINESS ENTITY PRINCIPLE is where the business is seen as an entity separate from its owner(s) that keeps and presents financial records and prepares the final accounts and financial statements. The accounting is kept for each entity as a whole (groups of companies must present consolidated accounts and consolidated financial statements).
BUSINESS MATRIX, often used in business incubators, is where separate business entities join forces to advance the development of a start-up, e.g.., one firm may offer offices, another marketing/sales assistance or manufacturing expertise, etc. Such a matrix may receive compensation in the form of equity from the start-up being assisted by that business matrix.
BUSINESS PUBLICATIONS AUDIT (BPA) is similar to the Audit Bureau of Circulation; the BPA is a third-party organization that verifies the circulation of print media through periodic audits.
BUSINESS RISK see OPERATING RISK.
BUSINESS SEGMENT is a component of an enterprise that (a) provides a single product or service or a group of related products and services and (b) that is subject to risks and returns that are different from those of other business segments.
BUSINESS TRANSACTION see TRANSACTION.
BUSINESS UNIT is equivalent to a wholly owned subsidiary except that it is not treated as a separate legal entity. It is an organization within a firm that could operate separately because it has all support functions contained within the business unit. The internal financial reporting from a business unit to the corporate office is basically identical to a separate legal entity.
BUYER'S MARKET is where the quantity of goods for sale exceeds the amount consumers are willing and able to buy at the current market price. It is characterized by low prices. For example, a market condition that occurs in real estate where more homes are for sale than there are interested buyers.
BVAL is Business Valuator Accredited for Litigation.
BVI is an acronym for
B/W is Black & White, Between, or Bundled With.
B/(W) is Better or Worse.
BYLAWS are the provisions of corporate policies.
BY-PRODUCTS are incidental products resulting from the processing of another product.
CAD see CASH AGAINST DOCUMENTS.
CAGR see COMPOUND ANNUAL GROWTH RATE.
CALL can be 1. process of redeeming a bond or preferred stock issue before its normal maturity. A security with a call provision typically is issued at an interest rate higher than one without a call provision. Investors look at yield-to-call rather than yield-to-maturity; 2. right to buy 100 shares of stock at a specified price within a specified period; or, 3. option to buy (call) an asset at a specified price within a specified period.
CALLABLE BOND is a bond the issuer has the right to pay off at issuer's discretion.
CALL PREMIUM is a premium in price above the par value of a bond or share of preferred stock that must be paid to holders to redeem the bond or share of preferred stock before its scheduled maturity date.
CALL PROVISION is a. a provision of a bond or preferred stock issue, listed in its indenture (the formal agreement between the bond issuer and the holder) that allows the issuer to redeem the bond before the maturity date either at par or at a premium to par; or, b. a clause in a mortgage giving the lender the right to demand and receive payment of the balance of the unpaid principal in full under certain conditions. A call provision is similar to an acceleration clause.
C&C can mean: Cash and Carry or Collection & Classification.
C&F (COST & FREIGHT) includes all shipping costs but insurance. Generally used in statement of terms, stating cost and freight are paid by the exporter from his warehouse to a port in the importer's country. In this case, the buyer is responsible for insurance.
C&I (COST & INSURANCE), in a price that is quoted “C&I”, means that the cost of the product and insurance are included in the quoted price. In this case, the cost of shipping would be borne by the buyer.
CANDY DEAL is a slang term that refers to an illegal business practice to inflate revenue/sales numbers by selling product to distributors with a pledge to buy them back later, in addition to providing a percentage kickback to the distributor for assisting in falsifying the sale.
CAP is a series of European interest rate call options used to protect against rate moves above a set strike level.
CAPEX see CAPITAL EXPENDITURE.
CAPITAL, in economics, can mean: factories, machines, and other man-made inputs into a production process. In finance, capital is money and other property of a corporation or other enterprise used in transacting the business.
CAPITAL ACCOUNT, in finance, is an account of the net value of a business at a specified date; in economics, it is that part of the balance of payments recording a nation's outflow and inflow of financial securities.
CAPITAL ADDITION is a. new (as opposed to replacement) part added to an existing non-current productive asset (e.g., equipment) used for business purposes that increases the useful life and service potential of the asset; or, b. in taxation, cost of capital improvements and betterments made to the property by a taxpayer.
CAPITAL ASSET is a long-term asset that is not purchased or sold in the normal course of business. Generally, it includes fixed assets, e.g., land, buildings, furniture, equipment, fixtures and furniture.
CAPITAL ASSET PRICING MODEL (CAPM) is an equilibrium model which describes the pricing of assets, as well as derivatives. The model concludes that the expected return of an asset (or derivative) equals the riskless return plus a measure of the assets non-diversiable risk ("beta") times the market-wide risk premium (excess expected return of the market portfolio over the riskless return). That is: expected security return = riskless return + beta x (expected market risk premium). It concludes that only the risk which cannot be diversified away by holding a well-diversified portfolio (e.g. the market portfolio) will affect the market price of the asset. This risk is called systematic risk, while risk that can be diversified away is called diversifiable risk (or "nonsystematic risk"). Unfortunately, The CAPM is more difficult to implement in practice than the binomial option pricing model or the Black-Scholes formula because to price an asset it requires measurement of the asset's expected return and its beta. But, on the other hand, it also attempts to answer a more difficult question: The binomial option pricing model or the Black-Scholes formula asks what is the value of a derivative relative to the concurrent value of its underlying asset. The CAPM asks what is the value of an asset (or derivative) relative to the return of the market portfolio. Because of this, the option models are often referred to as "relative" valuation models, while the CAPM is considered an "absolute" valuation model. William Sharpe won the Nobel Prize in Economics principally for his role in the development of the CAPM.
CAPITAL BUDGET is the estimated amount planned to be expended for capital items in a given fiscal period. Capital items are fixed assets such as facilities and equipment, the cost of which is normally written off over a number of fiscal periods. The capital budget, however, is limited to the expenditures that will be made within the fiscal year comparable to the related operating budgets.
CAPITAL CHARGE is a monetary amount, calculated by multiplying the money the business has tied up in capital, by the weighted average cost of capital (WACC). Capital charge is deducted from net operating profit after tax to arrive at Economic Profit.
CAPITAL COMMITMENT is an agreement to undertake capital expenditure at some set time in the future which has not yet become an actual liability.
CAPITAL CONTRIBUTION is cash or property acquired by a corporation from a shareholder without the receipt of additional stock.
CAPITAL EMPLOYED is the value of the assets that contribute to a company's ability to generate revenue, i.e, fixed assets plus current assets minus current liabilities.
CAPITAL EXPENDITURE (CAPEX) is the amount used during a particular period to acquire or improve long-term assets such as property, plant or equipment.
CAPITAL EXPENDITURE RATIO is the ratio of capital expenditure and other investments to total assets. It is used as a proxy for growth opportunities in a financial analysis.
CAPITAL FUNDS is the total of capital debentures, if any, capital stock, if any, surplus, undivided profits, unallocated reserves, guaranty fund, and guaranty fund surplus.
CAPITAL GAIN is the excess of selling price over purchase price, which may be given special treatment for tax purposes provided the sale takes place more than a given number of months after purchase.
CAPITAL IMPROVEMENT, in real estate, is any permanent structure or other asset added to a property that adds to its value. In general, it is any value added activity or cost to a long-term or permanent asset that increases its value.
CAPITAL IN EXCESS OF PAR see ADDITIONAL PAID IN CAPITAL.
CAPITAL INFUSION often refers to the cross-subsidization of divisions within a firm. When one division is not doing well, it might benefit from an infusion of new funds from the more successful divisions. In the context of venture capital, it can also refer to funds received from a venture capitalist to either get the firm started or to save it from failing due to lack of cash.
CAPITAL INTENSIVE is used to describe industries or sectors of the economy that require large investments in capital assets to produce their goods, such as the automobile industry. These firms require large profit margins and/or low costs of borrowing to survive.
CAPITAL INVESTMENT see CAPITAL EXPENDITURE.
CAPITALIZATION is the statement of capital within the firm - either in the form of money, common stock, long-term debt, or in some combination of all three. It is possible to have too much capital (in which case the firm is overcapitalized) or too little capital (in which case the firm is undercapitalized).
CAPITALIZATION OF MAINTAINABLE EARNINGS is a valuation method; perhaps the most generally accepted method that involves capitalizing the future maintainable earnings by the application of a suitably chosen capitalization rate or multiple. The definition of earnings may be profit after tax ("PAT") or earnings before interest and tax ("EBIT"). This methodology, which in reality is a surrogate for the discounted cash flow method, requires consideration of several factors, including: a. an estimate of future maintainable earnings having regard to historical operating results and forecasts of future earnings; b. determination of an appropriate capitalization rate which will reflect the risks inherent in the business including sensitivity to industry risk factors, growth prospects, the general economic outlook and alternative investment opportunities; and c. a separate assessment of any surplus or unrelated assets and liabilities which are not essential to the continuing earning capacity of the business operations.
CAPITALIZATION RATE, also known as CAP RATE, is the rate of return a property will produce on the owner's investment. It is stated as a rate of interest or discount rate used to convert a series of future payments into a single 'present value'. In real estate, the rate includes annual capital recovery in addition to interest.
CAPITALIZE, in general business, it is to supply with capital, as of a business by using a combination of capital used by investors and debt capital provided by lenders; or, to consider expenditures as capital assets rather than expenses. Specifically, it is to: a) convert a schedule of income into a principal amount, called capitalized value, by dividing by a rate of interest; b) record capital outlays as additions to asset accounts, not as expenses; c) convert a lease obligation to an asset/liability form of expression called a capital lease, i.e., to record a leased asset as an owned asset and the lease obligation as borrowed funds; or d) turn something to one’s advantage economically, e.g., sell umbrellas on a rainy day.
CAPITALIZED COSTS are business expenses that are written off or deducted over a period of time through depreciation or amortization schedules.
CAPITALIZED INTEREST is the accrued interest added to the principal balance of a loan while you are not making payments or your payments are insufficient to cover both the principal and interest due. When this occurs, you are paying interest on interest, sometimes called "negative amortization".
CAPITALIZED LABOR means all direct costs of labor that can be identified or associated with and are properly allocable to the construction, modification, or installation of specific items of capital assets and, as such, can thereby be written down over time via a depreciation or amortization schedule as capitalized costs.
CAPITAL LEASE is a lease obligation that has to be capitalized on the balance sheet. It is characterized by: it is non-cancelable; the life of lease is less than the life of the asset(s) being leased; and, the lessor does not pay for the upkeep, maintenance, or servicing costs of the asset(s) during the lease period.
CAPITAL LOSS is the excess of purchase price over selling price when the assets have been held for more than a certain period of time and which is given a special treatment for tax purposes.
CAPITAL MAINTENANCE contains two concepts, a financial concept and a physical concept. Most entities adopt a financial concept of capital maintenance. Under this concept a profit is earned only if the monetary amount of net assets at the end of the period, excluding distributions/contributions to/from owners, exceeds the monetary amount of net assets at the beginning of the period. Financial capital maintenance is usually measured in monetary units; however, the requirement to report the impact of hyperinflation results in the measurement of assets and liabilities in monetary units of constant purchasing power.
CAPITAL MARKET is a market where equity or debt securities are traded.
CAPITAL OUTLAY see CAPITAL EXPENDITURE.
CAPITAL PROFIT is a synonym for: 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.
CAPITAL RATIONING is restrictions put of the amount planned for new expenditures.
CAPITAL RECEIPTS is proceeds from the sale of capital assets. They may be used to finance new capital expenditure or repay existing loan debt. Receipts available to finance capital expenditure in future years are normally held in the usable capital receipts reserve.
CAPITAL REDEMPTION RESERVE, in Great Britain, the S170 Companies Act 1985 provides that where shares of a company are redeemed or purchased wholly out of the company’s profits, or by a fresh issue the amount by which the company’s issued share capital is diminished on cancellation of the shares shall be transferred to a reserve called the ‘capital redemption reserve’. It also provides that the reduction of the company’s share capital shall be treated as if the capital redemption reserve were paid up capital of the company.
CAPITAL REDUCTION means reducing a company's stated capital base.
CAPITAL REPLACEMENT, or economic depreciation, is the portion of the value of machinery and equipment, in addition to repairs, that is used up in the production of a particular commodity. It is based on the current value of the machinery. Capital replacement may be regarded as a discretionary expense in any particular year. It may be deferred when income is low but ultimately must be paid to maintain the capital stock so that over the long term, the operation remains in business.
CAPITAL RESERVE is a fund set aside for specific purposes, thereby cannot be distributed for other uses. See also REVENUE RESERVE.
CAPITAL SPARE is the parts within inventory that are purchased as spare parts for depreciable assets (e.g., capital equipment). As such, the capital spares within inventory are depreciable and should not be treated as normal inventory.
CAPITAL STOCK is the ownership shares of a corporation authorized by its articles of incorporation, including preferred and common stock.
CAPITAL STRUCTURE refers to the permanent long-term financing of a company. Capital structure normally includes common and preferred stock, long-term debt and retained earnings. It does not include accounts payable or short-term debt.
CAPITAL SURPLUS is an archaic term. See PREMIUM ON CAPITAL STOCK.
CAPITAL TO RISK ASSET RATIO (CRAR) is one of the most widely used analytical measures of bank capital adequacy and a tool for controlling bank risk. Since risk assets are always less than total assets, the capital/risk asset ratio is naturally higher than the capital/total asset ratio for any given computational period.
CAPITATION, generally, is a tax or payment levied on the basis of a fixed amount per person. In medical insurance, it is a method of paying for healthcare services on the basis of the number of patients who are covered for specific services over a specified period of time rather than the cost or number of services that are actually provided.
CAPM see CAPITAL ASSET PRICING MODEL.
CAP RATE see CAPITALIZATION RATE.
CAPS, FLOORS AND COLLARS: CAP is a series of European interest rate call options used to protect against rate moves above a set strike level; FLOOR a series of European interest rate put options used to protect against rate moves below a set strike level; and, COLLAR is the simultaneous purchase of an interest rate cap and sale of an interest rate floor on the same index for the same maturity and notional principal amount.
CAPTIVE DISTRIBUTOR is one held under control of another but having the appearance of independence; especially: owned or controlled by another concern and operated for its needs rather than for an open market.
CARNET is a customs document which permits you to send or carry merchandise into a country duty and tax free for a short period, for use as samples or as display merchandise in a trade show, for example.
CARRY FORWARD (CF) is data items that will always carry forward into subsequent transactions. If the item is allowed per the required/conditional matrix and no entry is made, the new transaction will reflect the data from the most current record. For example, if the new transaction to be added is current (in sequence), the CF data item will carry forward the data from the prior active record. If the new transaction to be added is out-of-sequence and no entry is made, the CF data item will reflect the data from the current status record. If the item is not allowed, the new transaction will reflect the data from the prior active record.
CARRYING VALUE, also known as "book value", it is a company's total assets minus intangible assets and liabilities, such as debt.
CARTE BLANCHE is unrestricted power to act at one's own discretion, i.e. unconditional authority.
CASE-BASED REIMBURSEMENT, in healthcare, is a hospital payment system in which a hospital is reimbursed for each discharged inpatient at rates prospectively established for groups of cases with similar clinical profile and resource requirements.
CASH is money, in the form of notes and coins, which constitutes payment for goods at the time of purchase.
CASH AGAINST DOCUMENTS (CAD) is a transaction where the buyer assumes ownership/title for the goods being purchased upon paying the agreed upon sale price in cash.
CASH & EQUIVALENTS means all cash, marketplace securities, and other near-cash items. Excludes sinking funds.
CASH BASIS OF ACCOUNTING is the accounting basis in which revenue and expenses are recorded in the period they are actually received or expended in cash. Use of the cash basis generally is not considered to be in conformity with generally accepted accounting principles (GAAP) and is therefore used only in selected situations, such as for very small businesses and (when permitted) for income tax reporting. See also Accrual Basis.
CASH BILL is a documented receipt of cash payment as opposed to an invoice or promise to pay.
CASH BOOK is a book that records all payments and receipts of business transactions – whether by cash, check or credit card.
CASH BUDGET tracks a business’s anticipated cash receipts and disbursements. This is a very detailed and important schedule that draws on information in the Operating Budget.
CASH-CARD is a credit card that entitles the holder to receive cash.
CASH CLEARING ACCOUNT represents a clearing account for voided and reissued imprest cash checks. It is also used for miscellaneous corrections of imprest cash checks.
CASH CONVERSION CYCLE see CASH CYCLE.
CASH COVERAGE RATIO see CASH DEBT COVERAGE RATIO.
CASH COWS are products that produce a large amount of revenue or margin because they have a large share of an existing market which is only expanding slowly.
CASH CYCLE is the length of time, normally stated in numbers of days, between the purchase of raw materials and the collection of accounts receivable generated in the sale of the final product.
CASH DEBT COVERAGE RATIO is the ratio of net cash provided by operating activities to average total liabilities, called the cash debt coverage ratio, is a cash-basis measure of solvency. This ratio indicates a company’s ability to repay its liabilities from cash generated from operating activities without having to liquidate the assets used in operations.
CASH DEFICIT, in accounting, is a shortage of available funds to satisfy current obligations.
CASH DISBURSEMENT see DISBURSE/DISBURSEMENT.
CASH DISBURSEMENTS/PAYMENTS JOURNAL is the journal recording all disbursements (or payments).
CASH DISCOUNT is a refund of some fraction of the amount paid because the purchase price is paid by the buyer in cash, as opposed to making the purchase on credit or, sometimes, credit card or check.
CASH DIVIDEND is the payment of earnings to shareholders.
CASH DRAW see PROPRIETORS DRAW.
CASH EARNINGS is cash revenues minus cash expenses. This differs from earnings in that it does not include non-cash expenses such as depreciation.
CASH FLOW is earnings before depreciation and amortization. Cash flow is calculated as the difference between cash inflows and outflows. Cash flow can be derived from Operating Profit by adjusting for items which do not affect payments (e.g. depreciation) and items (e.g. changes in working capital) which affect payments but are not recorded in Operating Profit.
CASH FLOW ANALYSIS is a type of financial analysis that compares the timing and amount of cash inflows with the timing and amount of cash outflows. A firm’s cash flow position can greatly affect its ability to remain in business. These effects may not be apparent from a cost-benefit analysis.
CASH FLOW / CURRENT PORTION OF LONG TERM DEBT is a measure of the firm's ability to meet its obligations with internally generated cash.
CASH FLOW PROJECTION is a forecast of the cash (checks or money orders) a business anticipates receiving and disbursing during the course of a given span of time - frequently a month. It is useful in anticipating the cash portion of your business at specific times during the period projected.
CASH FLOW STATEMENT see STATEMENT OF CASH FLOWS.
CASH FREE BALANCE AMOUNT, in the general ledger, usually represents the net amount of Balance Forward plus Allocations plus Revenue minus Expenditures minus Encumbrances.
CASH FROM FINANCING is the sum of all the individual financing activity cash flow line items.
CASH FROM INVESTING is the sum of all the individual investing activity cash flow line items.
CASH FLOW FROM OPERATIONS is the sum of all the individual operating activity cash flow line items, less cash realized from the sale of extraordinary items, e.g., fixed assets.
CASHIER'S CHECK also known as a bank check, official check, teller's check, bank draft or treasurer's check; is a check guaranteed by a bank. They are normally treated as cash because most banks clear them instantly.
CASH IN ADVANCE is when full payment is due before the merchandise is shipped. Least risk to seller, most risk to buyer.
CASH IN BANK literally means coin, currency, and cash items on deposit.
CASH IN TRANSIT is cash being transferred from one business to another or between two parts of the same business. If it is not recorded as an asset in either an adjusting entry may be necessary.
CASH MANAGEMENT is the management of the cash balances of a concern in such a manner as to maximize the availability of cash not invested in fixed assets or inventories and to avoid the risk of insolvency. According to Keynes there are three motives for holding cash: the transactions motive, the precautionary motive, and the speculative motive. The most useful technique of cash management is the cash budget.
CASH-ON-CASH RETURN is the ratio of annual before-tax cash flow to the total amount of cash invested, expressed as a percentage. It is often used to evaluate the cash flow from income-producing assets. It is generally considered a quick napkin test to determine if the property qualifies for further review and analysis. Cash on Cash analyses are generally used by investors looking for properties where cash flow is king, however, some use it to determine if a property is under priced, indicating instant equity in a property. It is calculated: Annual Before-tax Cash Flow divided by the Total Cash Invested.
CASH ON HAND literally means coin, currency, and cash items on hand. It is not possible to have negative cash on hand.
CASH PORTION is that percentage of assets consisting of the legal tender of the amounts in question; the balance of which is the non-cash portion; an example, a transaction where a corporation is acquired via a combination of cash and stock.
CASH PROFIT is profit after tax plus depreciation.
CASH RATIO is a refinement to the QUICK RATIO. It is the ratio of cash and marketable securities to current liabilities. The CASH RATIO indicates the extent to which liabilities could be liquidated immediately. Sometimes called LIQUIDITY RATIO.
CASH RECEIPTS see RECEIPTS.
CASH RECEIPTS JOURNAL is the journal for recording all cash receipts.
CASH RESERVE RATIO (CRR) is a ratio which banks have to maintain with itself in the form of cash reserves or by way of current account with the Reserve Bank, computed as a certain percentage of its demand and time liabilities. The objective is to ensure the safety and liquidity of the deposits with the banks.
CASH SHORT/OVER ACCOUNT, in retail sales, is where any differences between the cash register tape totals and the actual cash receipts is charged against the cash short and over account. If the ending balance of the account is a debit it is shown on the Income Statement as a miscellaneous expense. If the ending balance of the account is a credit it is shown on the Income Statement as Other Revenue.
CASH SWEEP is the use of surplus cash to prepay debt or provide extra security for lenders, instead of paying it out to investors.
CAVEAT, generally, is a warning against certain acts; in law, is a formal notice filed with a court or officer to suspend a proceeding until filer is given a hearing.\
CD see CERTIFICATE OF DEPOSIT.
CDPA is Certified Data Processing Auditor.
CEO is an acronym for Chief Executive Officer. The CEO is the principle individual responsible for the activities of a company.
CERTIFICATE OF DEPOSIT (CD) is a document written by a bank or other financial institution that is evidence of a deposit, with the issuer’s promise to return the deposit plus earnings at a specified interest rate within a specified time period.
CERTIFICATE OF INSPECTION is certification, generally by an independent third party, that the goods were in good condition at the time of shipment.
CERTIFICATE OF OBLIGATION is a bond issued by a city, without voter approval.
CERTIFICATE OF ORIGIN is a document that states where the goods were made. This document is legally required for many countries for the importation of merchandise.
CERTIFIED FINANCIAL PLANNER (CFP) is a financial planner who has received a license from the
CERTIFIED FINANCIAL STATEMENTS are financial statements that have undergone a formal audit by a certified public accountant and usually contain statements of certification by the CPA.
CERTIFIED PAYROLL REPORT means the record that a contractor or subcontractor engaged on a public work is required to submit to an awarding government body with a statement of compliance as required pursuant to regulations for each month in which the contractor or subcontractor employs one or more workmen in connection with the public work.
CERTIFIED PUBLIC ACCOUNTANT (CPA) is an accountant licensed to practice public accounting.
CFD see CONTRACT FOR DIFFERENCE.
CFFA is Certified Financial Forensic Analyst.
CFM, in finance / accounting, means Certified In Financial Management.
CFO is an acronym for: a. Cash Flow From Operations; or, b. Chief Financial Officer. The CFO is the officer in a corporation responsible for handling funds, signing checks, the keeping of financial records, and financial planning for the company.
CFO to DEBT see CASH FLOW / CURRENT PORTION OF LONG TERM DEBT.
C.G.A. means Certified General Accountant.
CHAIRPERSON OF THE BOARD is the head of the board of directors of a corporation, and generally considered as head of the firm.
CHANNEL COSTING is the fulfillment cost information pertaining to distribution channels.
CHARGEBACK, in the credit industry, occurs when a credit card processor “charges back” to the merchant the cost of returned items or incorrect orders that the customer claims were made to his or her credit card.
CHARGE OFF see BAD DEBT.
CHAPTER S or SUBCHAPTER S is a legal corporate entity organized under the United States Federal Tax Code that allows Subchapter S Corporations to distribute all income / loss proportionately to its shareholders, who then claim that income / loss on their personal income taxes; thereby avoiding the payment of corporate taxes.
CHARTER is the document of corporation organization.
CHARTERED ACCOUNTANT (CA) is a British accountant who is a member of the
CHARTERED FINANCIAL CONSULTANT (ChFC) is a financial planning designation for the insurance industry. ChFCs must meet experience requirements and pass exams covering finance and investing. They must have at least three years of experience in the financial industry, and have studied and passed an examination on the fundamentals of financial planning, including income tax, insurance, investment and estate planning.
CHART OF ACCOUNTS is a list of ledger account names and associated numbers arranged in the order in which they normally appear in the financial statements. The Chart of Accounts are customarily arranged in the following order: Assets, Liabilities, Owners' Equity (Stockholders' Equity for a corporation), Revenue, and Expenses.
CHATTEL MORTGAGE CONTRACT is a credit contract used for the purchase of equipment where the purchaser receives title of the equipment upon delivery but the creditor holds a mortgage claim against it.
CHECK is a draft drawn against a bank, payable upon demand to the person/entity named upon the draft.
CHECK BOOK see CHECK REGISTER.
CHECK REGISTER is the journal for recording payments by check.
CHEQUE see CHECK.
CHEQUE BOOK see CHECK REGISTER.
CHIEF ACCOUNTING OFFICER see CFO.
CHURN RATE is the percentage of customers (e.g., cellular telephone subscribers) that cancels their service per month.
CIA, in accounting, is an acronym for Certified Internal Auditor; or, Cash in Advance.
CIBT is an acronym for Cash Income Before Taxes.
CIF (COST, INSURANCE AND FREIGHT) is a shipment where all shipping costs are paid by the exporter, including insurance.
CIP could be Capital Improvement Plan, Capital Improvement Program, Capital Investment Program, or Capital Investment Proposal(s).
CIRCA means about or approximately. It is used before a year, e.g. circa 2000.
CK is Check.
CLAIM, in health care, is an itemized statement of healthcare services and their costs provided by a hospital, physician's office, or other provider facility. Claims are submitted to the insurer or managed care plan by either the plan member or the provider for payment of the costs incurred. In general law, a claim is: 1) to make a demand for money, for property, or for enforcement of a right provided by law. 2) the making of a demand (asserting a claim) for money due, for property, from damages or for enforcement of a right. If such a demand is not honored, it may result in a lawsuit. In order to enforce a right against a government agency (ranging for damages from a negligent bus driver to a shortage in payroll) a claim must be filed first. If rejected or ignored by the government, a lawsuit may be filed.
CLAIMS OUTSTANDING, in general, is the difference between claims against assets (liabilities) and claims settled/paid. Within the insurance industry it would be the difference between insurance claims filed and claims settled/paid.
CLASSIFICATION, generally, is the act of distributing things into classes or categories of the same type. In accounting, there are many ways to classify information, e.g. assets, liabilities or equity and the many subsets to those three classifications.
CLEARANCE LETTER is a documented certification from a recognized authority that the cleared entity has satisfied certain requirements, payments, actions, etc.
CLEARED ITEMS are accounts payable documents which have been paid.
CLEARING ACCOUNT, in banking, is a bank account used by a mortgage servicing company for the temporary, short-term deposit of mortgage payments that have been collected and are either awaiting transmittal to investors who bought the mortgages or awaiting deposit in escrow accounts. See CASH CLEARING ACCOUNT.
CLIENT is someone who pays for goods or services.
CLOSE is 1. The planned termination of accounting ledger activity with the resultant consolidation within a business, i.e. monthly, quarterly or annual; 2.The final half-hour of a securities trading session; 3. The price of the last transaction for a given security at the end of a given trading session. also called closing price; or, 4. To consummate a sale, contract or ownership transfer.
CLOSELY HELD is a description of a corporation whose voting stock is owned by a very small number of shareholders.
CLOSING ACCOUNT is the determining the balance of an account and posting an entry to offset such balance.
CLOSING DATE is the date the purchase of the asset becomes final and you, the new owner, obtain title.
CLOSING ENTRY is a journal entry at the end of a period to transfer the net effect of revenue and expense items from the income statement to owners' equity.
C.M.A. means Certified Management Accountant.
CMI see COST MANAGEMENT INDEX.
CMO see COLLATERIALIZED MORTGAGE OBLIGATION.
CNF is Cost and Freight
COA, in accounting, means Chart Of Accounts or Cost of Acquisition.
COD is Cash On Delivery; which is exactly what it means.
COC see COST OF CONTROL.
CODING, in accounting, is the assignation of the proper account code to invoices.
COE see COST OF EQUITY.
COGM is Cost Of Goods Manufactured. See Cost of Goods Sold.
COGNOVIT NOTE is a note in which the maker acknowledges the debt and authorizes the entry of judgment against him or her without notice or a hearing : a note containing a confession of judgment. This type of note is not valid in many states.
COGAS is Cost Of Goods Available for
COGS see COST OF GOODS SOLD
COGS (COST OF GOODS) RATIO = COGS / Total Sales.
COHORT SURVIVAL METHOD, in academia, utilizes historic enrollment data and birth records to estimate future enrollments.
COLLAR is the simultaneous purchase of an interest rate cap and sale of an interest rate floor on the same index for the same maturity and notional principal amount.
COLLATERAL is assets used as security for the extension of a loan.
COLLATERALIZED MORTGAGE OBLIGATION (CMO) or, since 1986, as a Real Estate Mortgage Investment Conduit (REMIC). CMOs and REMICs (terms which are often used interchangeably) are similar types of securities which allow cash flows to be directed so that different classes of securities with different maturities and coupons can be created. They may be collateralized by mortgage loans as well as securitized pools of loans.
COLLATERAL NOTE is a note secured by collateral. Same as secured note.
COLLECTIBLE is an amount subject to or requiring payment especially as specified, e.g. a collectible bill.
COLLECTION PAPERS are those documents specified as necessary for payment to be made, such as the commercial invoice, certificate of inspection, and bill of lading.
COLLECTION PERIOD (Period End) is used to appraise accounts receivable (AR). This ratio measures the length of time it takes to convert your average sales into cash. This measurement defines the relationship between accounts receivable and cash flow. A longer average collection period requires a higher investment in accounts receivable. A higher investment in accounts receivable means less cash is available to cover cash outflows, such as paying bills. NOTE: Comparing the two COLLECTION PERIOD ratios (Period Average and Period End) suggests the direction in which AR collections are moving, thereby giving an indication as to potential impacts to cash flow.
COLLECTION PERIOD (Period Average), also known as Days Sales Outstanding, is used to appraise accounts receivable (AR). This ratio measures the length of time it takes to convert your average sales into cash. This measurement defines the relationship between accounts receivable and cash flow. A longer average collection period requires a higher investment in accounts receivable. A higher investment in accounts receivable means less cash is available to cover cash outflows, such as paying bills. NOTE: Comparing the two COLLECTION PERIOD ratios (Period Average and Period End) suggests the direction in which AR collections are moving, thereby giving an indication as to potential impacts to cash flow.
COLLECTIVE INVESTMENT SCHEME, globally, is any arrangement for pooling several investors' funds so that the pooled fund can obtain economies of scale and a spread of investments beyond the reach of individual investors. It is usually called an investment company in the
COMBINED FINANCIAL STATEMENT is a financial statement that merges the assets, liabilities, net worth, and operating figures of two or more affiliated companies. A combined statement is distinguished from a consolidated financial statement of a company and subsidiaries, which must reconcile investment and capital accounts.
COMFORT LETTERS see KEEP-WELL AGREEMENTS.
COMMANDER THEORY holds that the goals of the managers of the entity are as equally important as the stockholders. The theory assumes that the "commander's" view will transpose the view of the investor.
COMMERCIAL BANK is a financial institution that provides commercial banking services. A commercial bank accepts deposits, gives business loans and provides other services to businesses.
COMMERCIAL ATTACHÉ is a business and trade expert on the staff of a consulate or embassy. They are responsible for promoting exports of their country's goods and are an excellent source of help.
COMMERCIAL INVOICE, generally, is the seller's bill of sale for the goods sold, specifying type of goods, quantity and price of each type and terms of sale. In import/export, it represents a complete record of the transaction between exporter and importer with regard to the goods sold. Also reports the content of the shipment and serves as the basis for all other documents about the shipment.
COMMERCIAL LOAN is a short-term business loan usually issued for a term of up to six months.
COMMERCIAL PAPER is short-term obligations with maturities ranging from 2 to 270 days issued by corporations, banks, or other borrowers to investors who have temporarily idle cash on hand. Commercial paper is usually unsecured and discounted.
COMMISSION is remuneration proportional to sales volume.
COMMITMENT is the act of standing behind a policy whose value ends when the policy is concluded. For example: " We made a commitment to do this".
COMMITMENT BASED ACCOUNTING is where spending controls are enacted that ensures that no budget executor can exceed his annual appropriation.
COMMITTED COSTS are costs, usually fixed costs, which the management of an organization has a long-term responsibility to pay. Examples include rent on a long-term lease and depreciation on an asset with an extended life.
COMMODITY is an article of commerce or product that can be used for commerce. In a narrower sense, commodity is product traded on an authorized commodity exchange. Some types of commodities: agricultural products, metals, petroleum, foreign currencies, financial instruments and indices, etc.
COMMON EQUITY is the result of subtracting redeemable and non-redeemable preferred stock from total equity.
COMMON LAW is an unwritten body of law based on general custom in
COMMON SIZE ANALYSIS, as used in vertical analysis of financial statements, an item is used as a base value and all other accounts in the financial statement are compared to this base value. On the balance sheet, total assets equal 100% and each asset is stated as a percentage of total assets. Similarly, total liabilities and stockholder's equity are assigned 100%, with a given liability or equity account stated as a percentage of total liabilities and stockholder's equity. On the income statement, 100% is assigned to net sales, with all revenue and expense accounts then related to it in percentages. See COMMON SIZE PERCENTAGES.
COMMON SIZE PERCENTAGES - In the Income Statement, each "Common Size %" is the field amount expressed as a percent of "Net Revenues." In the Balance Sheet, each "Common Size %" is the amount in the category as a percent of "Total Assets. "RATIO ANALYSIS" as prepared by VentureLine presents several standard "Key Ratios" to compare this firm to any of several standards. This firm's ratios may be compared to industry standards, to a single other firm of similar (or different) type, or to this firm's past or anticipated performance. In this analysis VentureLine uses industry data based upon the SIC Code of that particular listing (when available).
COMMON-SIZE STATEMENT see COMMON SIZE ANALYSIS.
COMMON STOCK is the most frequently issued class of stock; usually it provides a voting right but is secondary to preferred stock in dividend and liquidation rights.
COMPANY is an organized group of people to perform an activity, business or industrial enterprise.
COMPANY TAX see CORPORATION TAX.
COMPANY KIT, normally, is a for sale commercially packaged self-instruction product containing written instructions, forms, software (sometimes), for establishing an enterprise.
COMPANY LIMITED BY GUARANTEE is where the liabilities of the members will be restricted to the amount each agrees to contribute to the assets of the company in the event of dissolution or liquidation.
COMPANY LIMITED BY SHARES is where the members personal liabilities are limited to the par value of their shares. a company limited by guarantee.
COMPARABILITY is the quality or state of being similar or alike.
COMPARATIVE STATEMENT is a form of financial-statement presentation in which current period results and positions are presented with corresponding figures for previous periods.
COMPENSATING BALANCES are the funds a business might be required to keep in a deposit or reserve account to help offset what the bank perceives as risk. The lender might require that an amount based on the business’ average account balance or a certain percentage of the face value of the loan be maintained in a deposit account.
COMPENSATING ERROR is the name given to the situation where one mistake cancels out the effect of a second mistake.
COMPETITIVE PRICING generally is where firms must be able to offer the best price in the market and meet price erosion without compromising quality. This is normally met whenever a firm finds acceptable a prices-production combination such that: a. At these prices, there is no other production plan yielding higher profits and using fewer capital goods; namely, firms behave as constrained profit maximizers at given prices; and, b. There is no price vector satisfying "a." with higher prices for capital goods. In other words, the prices of capital goods are maximal within those satisfying constrained profit maximization
COMPILATION is the presentation of financial statement information by the entity without the accountant’s assurance as to conformity with Generally Accepted Accounting Principles (GAAP). In performing this accounting service, the accountant must conform to the AICPA Statements on Standards for Accounting and Review Services (SSARS).
COMPLETED CONTRACT METHOD OF ACCOUNTING is a method of revenue recognition for long-term contracts (i.e., contract which span more than one accounting period) whereby the total contract revenue and related cost of performance are recognized in the period in which the contract is completed. This method stands in contrast to the percentage-of-completion method of accounting and is most often used when significant uncertainty exists with respect to the total cost of performing the contract and, accordingly, the ultimate amount of profit to be recognized thereon.
COMPLIANCE AUDIT is the review of financial records to determine whether the entity is complying with specific procedures or rules.
COMPLIANCE PANEL is a multi-member committee chartered to investigate conformance to laws, rules or regulations. On many occasions they may be empowered by government agencies to make rulings as to compliance or non-compliance of any entity under their perusal.
COMP0SITE DEPRECIATION is the grouping of similar assets or dissimilar assets within the same class together for the purpose of computing a single depreciation rate to be applied to all assets within the group.
COMPOSITE FINANCIAL STATEMENT is an average or index of financial statements of multiple accounting periods or companies, e.g., industry averages.
COMPOUND ANNUAL GROWTH RATE (CAGR) is the year over year growth rate applied to an investment or other part of a company's activities over a multiple-year period. The formula for calculating CAGR is (Current Value/Base Value) ^ (1/# of years) - 1.
COMPOUND INTEREST is interest calculated from the total of original principal plus accrued interest.
COMPOUND INTEREST PRINCIPLE is where the interest is computed on principal plus interest earned in previous periods.
COMPOUND JOURNAL ENTRY is a journal entry that involves more than one debit or more than one credit or both.
COMPREHENSIVE INCOME is change in equity (net assets) of an entity during a period from transactions and other events and circumstances from non-owner sources. It includes all changes in equity during a period, except those resulting from investments by owners and distributions to owners.
COMPTROLLER is the misspelling of the word CONTROLLER caused by confusion in the root of the word in French and Latin. Comptroller is sometimes used within titles in the government, e.g. Comptroller of the Currency.
COMPULSORY LIQUIDATION is the winding-up of a company by a court. A petition must be presented both at the court and the registered office of the company. Those by whom it may be presented include: the company, the directors, a creditor, an official receiver, and the Secretary of State for Trade and Industry. The grounds on which a company may be wound up by the court include: a special resolution of the company that it be wound up by the court; that the company is unable to pay its debts; that the number of members is reduced below two; or that the court is of the opinion that it would be just and equitable for the company to be wound up. The court may appoint a provisional liquidator after the winding-up petition has been presented; it may also appoint a special manager to manage the company's property. On the grant of the order for winding-up, the official receiver becomes the liquidator and continues in office until some other person is appointed, either by the creditors or the members.
CONDITIONAL SALES CONTRACT is a credit contract used for the purchase of equipment where the purchaser doesn't receive title of the equipment until the amount specified in the contract has been paid in full.
CONDUCIVE is tending to bring about or being partly responsible for, e.g. current working conditions may not be conducive to productivity.
CONDUIT is a primary means by which something is transmitted,
CONDUIT DEBT is issued by a state agency or public corporation on behalf of borrowers which include businesses, health care institutions, private higher education institutions, local governments, and qualified individuals (loans for higher education and housing purposes). No State credit support is provided.
CONGLOMERATE is a group of diverse companies under common ownership and run as a single organization.
CONSERVATISM PRINCIPLE provides that accounting for a business should be fair and reasonable. Accountants are required in their work to make evaluations and estimates, to deliver opinions, and to select procedures. They should do so in a way that neither overstates nor understates the affairs of the business or the results of operation.
CONSERVATIVE INVESTOR, dependent upon the degree of conservatism, is one that protects and preserves their principal above consideration of capital gains to the point that in the extreme they can be described as being risk averse.
CONSIGNMENT is when goods are offered for sale on behalf of another without the seller actually purchasing or taking title to the goods. Only when there is a subsequent sale does the owner receive any payment.
CONSIGNMENT STOCK is vendor supplied stock that is only paid for when it is used. Consignment stock should change nothing except cash flow. Holding any more stock than is necessary is always inefficient whether it is consignment stock or not.
CONSISTENCY is using the same accounting procedures by an accounting entity from period to period. That means using similar measurement concepts and procedures for related items within the company’s financial statements for one period.
CONSISTENCY PRINCIPLE requires accountants to apply the same methods and procedures from period to period. When they change a method from one period to another they must explain the change clearly on the financial statements.
CONSOLIDATED CAPITAL is the value of all money and other assets, on a consolidated basis, used directly in business operations.
CONSOLIDATED ENTITY is a user-defined combination of several consolidation units, grouped together for consolidation and reporting purposes.
CONSOLIDATED FINANCIAL STATEMENTS is the end financial statement that accounts for all assets, liabilities and operating accounts of a parent and all subsidiaries.
CONSOLIDATED NEXUS is a consolidation of a connected series or group (usually contracts).
CONSOLIDATION is similar to refinancing, but there is no loan fee. It simplifies loan repayment by combining several types of federal education loans into one new loan. (In the case of Direct Loan consolidation, the interest rate may be lower than one or more of the underlying loans.).
CONSORTIA see CONSORTIUM.
CONSORTIUM is an association of companies for some definite purpose.
CONSTANT DOLLAR is when the dollar amount is adjusted for inflation.
CONSTRAINT is a limiting factor to business activity.
CONSTRUCTION IN PROGRESS is capital assets under construction or development that have not yet been placed into service, such as a building or parking lot. Capital assets are not subject to depreciation while in a construction in progress status.
CONSTRUCTIVE FRAUD is an act, statement, or omission which operates as a fraud, although perhaps it was not intended to be such.
CONSTRUCT OF UTILITY THEORY is a scientific calculation that has an underlying concept of utility in that it is used to rank a series of alternatives and, in the case of a simple choice, identify the single alternative, which has higher utility, or out ranks, all other alternatives. The primary implication of this ranking or ordering of alternatives is that there is no absolute reference, zero point, for utility values. Thus, the only valuation that is important is the difference in utility between pairs of alternatives; particularly whether that difference is positive or negative. Any function that produces the same preference orderings can serve as a utility function and will give the same predictions of choice, regardless of the numerical values of the utilities assigned to individual alternatives. It also follows that utility functions, which result in the same order among alternatives, are equivalent.
CONSULAR DECLARATION is a formal statement to the consul of a foreign country declaring the merchandise to be shipped.
CONSUMABLE is a resource attribute representing a type of capacity. A resource with consumable capacity can have its capacity value permanently altered as a result of being tasked, e.g. chemicals in a manufacturing process or office supplies.
CONSUMER is an individual who purchases, uses, maintains, and disposes of products and services.
CONSUMER PRICE INDEX (CPI) is the measure of change in consumer prices as determined by a monthly survey by the U.S. Bureau of Labor Statistics. Among the CPI components are the costs of food, housing, transportation, and electricity (i.e., the average cost of a "basket" of goods and services). Also known as the cost-of-living index.
CONSUMMATE is to bring to completion or fruition; conclude, e.g., consummate a business transaction.
CONSUMPTION SMOOTHING is aimed at protecting consumption patterns from the impact of shocks, and can take effect either before or after their occurrence. Post-shock responses include modifying consumption, raising income by mobilizing labor or selling assets, drawing on informal or formal sources of savings, or activating claims on informal insurance mechanisms.
CONTINENTAL MODEL is an accounting model. There are other accounting systems which differ from the
CONTINGENCY BUDGET is the amount of money required to implement a contingency plan. If an authorized entity approves a contingency plan, it would normally set aside a contingency budget, which would only be called upon if the contingency plan had to be implemented.
CONTINGENCY PLAN is a plan that provides an outline of decisions and measures to be taken if defined circumstances, outside the control of the affected organization, should occur.
CONTINGENT is a result that is determined by conditions or circumstances not yet established.
CONTINGENT ASSET is a possible asset from past events whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the enterprise.
CONTINGENT LIABILITY is: (a) A possible obligation from past events that will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the enterprise; or (b) A present obligation from past events but is not recognized because (i) it is not probable that an outflow of resources will be required to settle the obligation; or (ii) the obligation cannot be measured reliably. Some examples: in corporate reports are pending lawsuits, judgments under appeal, disputed claims, and the like, representing potential financial liability.
CONTINUITY ASSUMPTION see GOING CONCERN CONCEPT.
CONTINUOUS BUDGET is a budget that rolls ahead each time period (e.g., month) without regard to the fiscal year, i.e., a twelve-month or other periodic forecast is always available; also called a ROLL FORWARD BUDGET.
CONTINUOUS INVENTORY see PERPETUAL INVENTORY.
CONTRA ACCOUNT 1. is the reduction to the gross cost of an asset to arrive at the net cost; also known as a valuation allowance; e.g., accumulated depreciation is a contra account to the original cost of a fixed asset to arrive at the book value; or, 2. reduction of a liability to arrive at its carrying value; e.g., bond discount, which is a reduction of bonds payable.
CONTRA REVENUE ACCOUNT is an account that is offset against a revenue account on the income statement.
CONTRACT ALLOWANCE is the limit set within an agreement as to what is the maximum allowed of any given item covered under contract, e.g., home construction with a builder may have allowances or "limits" set in your contract that tell you how much the price of your house "allows" for things such as floor coverings, countertops, and cabinets.
CONTRACT COSTING is mainly associated with civil engineering works, although sometimes also with the manufacture of a major engineering structure over a considerable time (for example, a contract to manufacture a turbine generator).
CONTRACTEE is the person or entity who will receive the goods or services under the provisions of the contract.
CONTRACT FOR DIFFERENCE (CFD) is an agreement to exchange the difference between the opening and closing price of the position under the contract on various financial instruments. CFD trading is an effective and convenient speculative instrument for trading shares, indices, futures and commodities. Contracts for differences allow investors to take long or short positions, and unlike futures contracts have no fixed expiry date or contract size. Trades are conducted on a leveraged basis with margins typically ranging from 1% to 30% of the notional value for CFDs on leading equities.
CONTRACT LAW is that body of law which regulates the enforcement of contracts. Contract law has its origins thousands of years ago as the early civilizations began to trade with each other, a legal system was created to support and to facilitate that trade. The English and French developed similar contract law systems, both referring extensively to old Roman contract law principles such as consensus ad idem or caveat emptor. There are some minor differences on points of detail such as the English law requirement that every contract contain consideration. More and more states are changing their laws to eliminate consideration as a prerequisite to a valid contract thus contributing to the uniformity of law. Contract law is the basis of all commercial dealings from buying a bus ticket to trading on the stock market.
CONTRACTOR is the person or entity who will provide the goods or services under the provisions of the contract.
CONTRACT RATE OF INTEREST is the interest rate specified in a contract.
CONTRACT REVENUES are the revenues recognized under % of completion method.
CONTRACTUAL ALLOWANCE, in healthcare, is the difference between what hospitals bill and what they receive in payment from third party payers, most commonly government programs; also known as contractual adjustment.
CONTRA ENTRY, in accounting, is a ledger entry which is offset by an opposite entry, either a debit or credit.
CONTRIBUTED ASSETS are those assets, including real property assets, that are owned, leased or licensed by the contributing entity. Such contributions are normally associated with the contributing entity receiving equity interest (in a commercial exchange) or tax relief (in a charitable donation) in recognition of the value for those contributed assets.
CONTRIBUTED CAPITAL see PAID-IN-CAPITAL.
CONTRIBUTED SURPLUS is money a company receives by selling shares above par value or their stated value, or from government donation of land to the company, etc. Contributed Surplus is a balance sheet item that is part of the shareholders’ equity.
CONTRIBUTION see CONTRIBUTION MARGIN.
CONTRIBUTION MARGIN (CM) is the difference between sales and the variable costs of the product or service, also called marginal income. It is the amount of money available to cover fixed costs and generate profits.
CONTRIBUTION MARGIN ANALYSIS is a technique used in brand marketing and product management to help a company decide what product(s) to add to its product portfolio. The manager asks what will happen to profits if a new product is added or an existing product is discontinued. Calculations take into account additional revenues, additional costs, effects on other products in the portfolio (referred to as cannibalization), and competitors' reactions.
CONTRIBUTION MARGIN RATIO is the computation showing CONTRIBUTION MARGIN as a percentage of sales.
CONTRIBUTION/SALES RATIO (C/S RATIO) is a tool used in profit management. It is important to establish the C/S RATIO: C/S ratio = (Sales revenue – Variable cost of sales)/Sales revenue x 100. If a company achieves a high average marginal profit ratio of say, 40%, it does not mean that it will achieve high profits. The eventual profit will be dependent on the level of fixed costs within the organization.
CONTROL is the process of directing operations to achieve a goal.
CONTROLLABILITY, COST is the financial policy of controlling, limiting or curbing the cost of materials, labor, and overhead.
CONTROL ACCOUNT is a summary account in the General Ledger that is supported by detailed individual accounts in a subsidiary ledger. See CREDITORS CONTROL ACCOUNT, DEBTORS CONTROL ACCOUNT, and STOCK CONTROL ACCOUNT.
CONTROLLABLE COST see CONTROLLABLE EXPENSE.
CONTROLLABLE EXPENSE expenses that can be controlled or restrained by management. Some of the costs of doing business can be postponed or spread out over a longer period of time (e.g., personnel costs, travel & entertainment, marketing expense).
CONTROLLABLE MARGIN technically is the excess of contribution margin over controllable fixed costs. Managerially it is that margin that you can reasonably expect from a process that is balanced and controlled. Controllable margin is considered to be the best measure of a manager's performance in efforts to control revenues and costs.
CONTROLLER is usually an experienced accountant who directs internal accounting processes and procedures, including cost accounting.
CONTROLLERSHIP is the position of controller. See CONTROLLER.
CONVENTION is an agreement, principle or statement expressed or implied that is used to solve given types of problems. Conventions allow a standardized approach to problem solving and behavior in certain situations. For example, placing debits on the right and credits on the left of an account is termed an accounting convention.
CONVERSION COSTS is Direct Labor + Manufacturing Overhead.
CONVERSION DATE, dependent upon usage, there are likely many definitions varying within the industries in which the term is being used. Basically, it is a date on which an asset is converted into a similarly valued but different asset.
CONVERTIBLE is a corporate security (usually bonds, notes or preferred stock) that can be exchanged for another form of security (usually common stock).
CONVERTIBLE BOND is a bond that can be converted to other securities under certain conditions.
CONVERTIBLE CURRENCY is any national currency that can be easily exchanged for that of another country.
CONVERTIBLE DEBENTURE is any type of debenture that can be converted into some other security, e.g. conversion of a convertible bond into stock.
CONVERTIBLE DEBT is a debt instrument which can be exercised into the security of the debtor in accordance with the conditions set forth in the debt instrument.
CONVERTIBLE NOTE see CONVERTIBLE DEBT.
CONVERTIBLE PREFERRED STOCK is preferred stock which can be converted into common stock at the option of the holder of the preferred stock.
COO is an acronym for Chief Operating Officer. The COO is responsible for the day-to-day management of a company. The COO usually reports to the CEO.
COOKIE JAR RESERVES is an overly aggressive accrual of operating expenses and the creation of liability accounts done in an effort to reduce future year operating expenses.
COOKING THE BOOKS is when a company fraudulently misrepresents the financial condition of a company by providing false or misleading information.
COOPERATIVE ADVERTISING is a joint advertising strategy under which costs are shared; e.g. by a manufacturer and another firm that distributes its products.
COPYRIGHT is a form of legal protection used to safeguard original literary works, performing arts, sound recordings, visual arts, original software code and renewals.
CORE BUSINESS is the sector(s) of business activity that is the reason or purpose for being, e.g. providing communications services within a telephone company would be considered core, while real estate holdings and the securities investment portfolio will likely be considered non-core business activities.
CORE PROCESS - A process is a set of related and interdependent activities that transform an input to a system to an output with added value to a customer. It is the transformation of people, money, materials or information that is the value-added work of the organization. The CORE PROCESSES are those by which the organization creates its most value-added and essential transformations for the customers.
CORPORATE GOVERNANCE is the system by which business corporations are directed and controlled. The corporate governance structure specifies the distribution of rights and responsibilities among different participants in the corporation, such as, the board, managers, shareholders and other stakeholders, and spells out the rules and procedures for making decisions on corporate affairs. By doing this, it also provides the structure through which the company objectives are set, and the means of attaining those objectives and monitoring performance.
CORPORATION is a type of business organization chartered by a state and given many of the legal rights as a separate entity.
CORPORATION TAX refers to direct taxes charged by various jurisdictions on the profits made by companies or associations. As a general principle, this varies substantially between jurisdictions. In particular allowances for capital expenditure and the amount of interest payments that can be deducted from gross profits when working out the tax liability vary substantially. Also, tax rates may vary depending on whether profits have been distributed to shareholders or not.
CORPUS is often confused and misunderstood. The literal meaning of the term corpus is the main part/organ of a body. The term corpus also denotes the sum and substance of an issue/entity.
CORPUS FUND is the capital of the organization; the funds generated and kept for the existence and sustenance of the organization. Normally a corpus fund denotes a permanent fund kept for the basic expenditures needed for the administration and survival of the organization.
CORRECTING ENTRY, a type of ADJUSTING ENTRY, is required at the end of an accounting period if a mistake was made in the accounting records during the period. See REVERSING ENTRY.
CORRESPONDENT BANK is a bank having communications and business links with the seller's bank.
COST is the amount of money that must be paid to take ownership of something; expense or purchase price.
COST ACCOUNTING is a managerial accounting activity designed to help managers identify, measure, and control operating costs.
COST ACCUMULATION METHODS are the various ways in which the entries in a set of cost accounts may be aggregated to provide different perspectives on the information.
COST ALLOCATION is the assignment to each of several particular cost-centers of an equitable proportion of the costs of activities that serve all of them, i.e. shared cost pools.
COST ASSIGNMENT involves assigning costs of an account to the accounts that are responsible or accountable for incurring the cost. For example, the cost of issuing purchase orders is allocated to the various objects procured. The cost assignment is done through assignment paths and cost drivers. The assignment path identifies the source account (the account whose cost is being assigned—"Issue Purchase Orders" in the above example) and destination accounts (the accounts to which the costs are being allocated—the various cost objects procured by issuing purchase orders in the above example). The cost driver identifies the measure or rationale on the basis of which the assignment needs to be done—that is, whether the costs of issuing purchase orders need to be assigned to various cost objects evenly, based on some defined percentage values, or based on some criterion, like the number of purchase orders of each cost object issued. Defining the cost drivers and assignment paths (i.e., source and destination accounts) enable proper assignment and accounting of the various costs incurred in the organization.
COST AVOIDANCE is an action taken in the present designed to decrease costs in the future.
COST BASIS, in securities, is the purchase price after commissions or other expenses. It is used to calculate capital gains or losses when the security is eventually sold.
COST-BENEFIT ANALYSIS is the method of measuring the benefits anticipated from a decision by determining the cost of the decision, then deciding whether the benefit outweighs the cost of that decision.
COST CEILING, in project management, is the sum of the Project Cost Target plus the project's Contingencies cost allowances.
COST CONTROL is the process of controlling the cost of a project within a predetermined sum throughout its various stages from inception to completion.
COST DRIVER is any activity or series of activities that takes place within an organization and causes costs to be incurred. Cost drivers are used in a system of activity-based costing to charge costs to products or services. Cost drivers are applied to cost pools, which relate to common activities. Cost drivers are not restricted to departments or sections, as more than one activity may be identified within a department.
COST EFFECTIVE is when a judgement is made that something is economical in terms of the goods or services received for the money spent.
COST ELEMENT, in cost accounting, is the lowest level component of a resource activity, or cost object.
COST IMPLOSION is a cost rollup using the quantities and costs of low-level items through a where used chain to determine total cost of the finished item. See COST ROLLUP.
COST/INCOME RATIO is total expenses divided by the sum of total income.
COST IN EXCESS OF BILLINGS, in percentage of completion method, is when the billings on uncompleted contracts are less than the income earned to date. These underbillings result in increased assets. Conversely, where billings are greater than the income earned on uncompleted contracts, a liability, billings in excess of costs, results.
COST MANAGEMENT INDEX (CMI) is a method for determining cost management benchmarks for public companies using published financial data. It is used to establish realistic cost reduction goals by conducting a definitive comparison of single company performance against others in that industry combined with a thorough internal expenditure analysis. This provides realistic parameters for cost cutting objectives as well as insight into which categories of products and services to target. The CMI equals cost of goods sold plus sales, general and administrative expenses, divided by your operating revenue (CMI = (COGS+SG&A)/Revenue). It is expressed as a percentage.
COST OBJECT is anything for which cost data is desired, e.g., products, product lines, customers, jobs, and organizational sub-units such as departments or divisions of a company.
COST OF CAPITAL/FUNDS is the rate of return that a business could earn if it so chose other investments with the equivalent risks. Also can be stated as opportunity cost of the funds used due to the investment decision.
COST OF CONTROL (COC) is the amount paid by a holding company, sometimes at a premium, for shares in its subsidiary company over and above the value they would command as an investment, in recognition of the particular benefit, which the company gains through control.
COST OF DEBT is interest rate times 1 minus the marginal tax rate (because interest is a tax deduction). An increase in the tax rate decreases the cost of debt.
COST OF EQUITY (COE) is the minimum rate of return a firm must offer owners to compensate for waiting for their returns, and for bearing risk. It is calculated: COE = Dividends per Share (for next year) / Current Market Value of Stock + Growth Rate of Dividends.
COST OF GOODS SOLD (COGS) is a figure representing the cost of buying raw material and producing finished goods. Included are precise factors, i.e. material and factory labor; as well as others that are variable, such as factory overhead.
COST OF 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. See OPERATING BUDGET.
COST-OF-LIVING LEASE is a lease where yearly increases are tied to the cost of living index.
COST OF MONEY is a form of indirect cost incurred by investing capital in facilities employed on government contracts.
COST OF REVENUE see COST OF GOODS SOLD.
COST OF SALES see COST OF GOODS SOLD.
COST OVERRUN is the amount by which an entity exceeds or expects to exceed the estimated cost to completion of: a. a product; b. a process; or, c. the final limitations of costs stipulated in a contract.
COST PER OUTCOME links the unit-level economics of an operation with the impact that the organization wishes to have. For example, a nonprofit that delivers meals to the elderly might measure its impact by the number of meals served. To arrive at its cost per outcome, therefore, it would divide the full cost of its meals program by the number of meals it serves.
COST PER OUTPUT see OBJECT COST.
COST PER THOUSAND (CPM) is advertising terminology used in buying media. CPM refers to the cost it takes to reach a thousand people within your target market.
COST-PLUS is determining payment based on the actual cost of production or service provisioning plus an agreed-upon fee or rate of profit; for example, a cost-plus government contract.
COST PRINCIPLE is the principle where a company is obliged to record its fixed assets at their actual purchase price or production cost.
COST REDUCTION is actions taken in the present designed to decrease costs in the present. See COST AVOIDANCE.
COST ROLLUP is a determination of all cost elements within total cost. A cost rollup will normally but not always allow for the dissection of cost by material by a where used chain to the individual component, labor by operation and overheads applied. See COST IMPLOSION.
COST SPLIT is the breakdown of the costs associated with producing a product, providing a service, ... The makeup is dependent upon what costs are being analyzed, e.g. in manufacturing a company would track the cost split between materials, direct labor, and production overhead.
COST SYNERGY is the savings in operating costs expected after two companies, who compliment each other's strengths, join.
COST-TO-COST METHOD, in construction contracts, is an estimate of completion in which the state of completion is the ratio of costs incurred as of a given date divided by the estimated total project cost. See also PERCENTAGE OF COMPLETION METHOD OF ACCOUNTING.
COST UNIT is a functional cost unit which establishes standard cost per workload element of activity, based on calculated activity ratios converted to cost ratios.
COST-VOLUME-PROFIT ANALYSIS (CVPA) examines the behavior of total revenue, total costs and profit as changes occur in the output level, selling price and variable costs per unit or fixed costs.
COUNTERBALANCE is a compensating equivalent or to oppose and mitigate the effects of something by contrary actions.
COUPON BOND pays the holder of the bond a fixed interest payment (a coupon payment) every year until the bond reaches maturity. It is named a coupon payment, because a bondholder had to obtain their interest payment by clipping a coupon off of a bond and send it to the bond issuer, the bond issuer then sent the bondholder the payment. This process is no longer necessary for most coupon bonds. Examples of coupon bonds: Treasury bonds, Treasury notes and corporate bonds.
COUPON RATE is the annual interest rate of a bond.
COVENANT is a clause in a contract that requires one party to do, or refrain from doing, certain things. It is usually a restriction on a borrower imposed by a lender.
COVERAGE OF FIXED CHARGES is computed by taking your net income, before taxes and fixed charges (debt repayment, long-term leases, preferred stock dividends etc.), and dividing by the amount of fixed charges. The resulting number shows your ability to meet your fixed obligations of all types — the higher the number, the better.
COVERAGE RATIO is a measure of a corporation's ability to meet a certain type of expense. In general, a high coverage ratio indicates a better ability to meet the expense in question. Examples: dividend coverage, fixed-charge coverage, interest coverage, preferred dividend coverage.
CP is an acronym with many possible meanings, e.g., Capacity Planning, Central Procurement, Change of Plan (insurance), Claims Procedure (insurance), Commercial Paper, Community Property, Consumer Products, Contingency Plan, Contract Price, Change Proposal, etc.
CPA is Certified Public Accountant, Cost Per Action, or Critical Path Analysis.
CPFF is Cost Plus Fixed Fee.
CPI see CONSUMER PRICE INDEX.
CPLTD is Current Portion of Long-Term Debt.
CPT is Cost Per Thousand.
CR, in accounting, is an acronym for Credit Record. See CREDIT RECORD.
CRAR see CAPITAL TO RISK ASSET RATIO.
CRAT is an acronym for Charitable Remainder Annuity Trust.
CREATIVE ACCOUNTING is slang for the concept of maintaining accounts giving possibly illegal or dubious benefits to the entity for which the accounts are maintained.
CREDIT, in accounting, is an accounting entry system that either decreases assets or increases liabilities; in general, it is an arrangement for deferred payment for goods and services.
CREDIT CARD is a card authorizing purchases on credit at a predetermined interest rate and payment conditions.
CREDIT CARD RECEIPTS is sales revenue where payment has been made through the use of recognized/authorized credit cards versus cash or check receipts/payments.
CREDIT CONTROL is policies and procedures aimed at controlling the granting of credit.
CREDIT LINE is the maximum credit that a customer is allowed.
CREDIT LOSSES PROVISION see PROVISION FOR CREDIT LOSSES.
CREDIT MEMO is a document used to issue a vendor credit.
CREDIT NOTES are issued to indicate a positive action within an account. Credit notes are issued for reasons such as overpayment, duplicate payment, damaged goods, returned merchandise, etc.
CREDITOR DAYS is the number of days it takes the company to pay trade creditors. This ratio provides an indication of the amount of credit given to the business by its suppliers. The formula is trade creditors divided by sales multiplied by 365 days.
CREDITORS are the entities to which a debt is owed by another entity.
CREDITORS CONTROL ACCOUNT reflects the total amount owed to all the individual creditors. The balance of the creditors control account must equal the total of the creditors list, which represents the amounts owed by the individual creditors obtained from the individual balances in the various subsidiary ledger accounts for each creditor. This subsidiary ledger is known as the creditors' ledger.
CREDITORS LEDGER see LEDGER.
CREDITORS TURNOVER = Average creditors / (Credit Sales / 365).
CREDIT RECORD (CR) is an entry in a double-entry bookkeeping system recording an increase in a liability; an owner's equity item or revenue; or a decrease in an asset or an expense. Credit entries are conventionally made on the right-hand side of T accounts.
CREDIT RISK is the risk of loss from an unfulfilled payment or delivery, i.e. the possibility that a borrower will default on any monies that are owed.
CREDIT SALES are merchandise or services sold on the promise to pay later.
CRITICAL ACCOUNTING ESTIMATE is when a company must make assumptions about matters that are “ highly uncertain” when the company makes the accounting estimate and either of the following conditions would have a material effect on the company’s financial condition, changes in financial condition or results of operations: 1. the company could reasonably have used a different estimate for the current period; or, 2.changes in the estimate are reasonably likely to occur from period to period in the future.
CRITICAL FEW see 80 - 20 RULE.
CROSS-ACCOUNTING is non-cash payment through the delivery of goods or services to satisfy a liability; a very common practice between subsidiaries of a company. See IN-KIND.
CROSS-AGED RECEIVABLE means all accounts receivable due from a Customer if more than 50% of the aggregate amount of all accounts receivable due from such Customer are aged more than 90 days.
CROSS-FOOTING is the addition of columns of figures in different ways to check the accuracy of the totals, e.g. vertically and horizontally deriving the same total in a spreadsheet.
CROWN CORPORATION is a corporation that has been established by a nation’s government.
CRR see CASH RESERVE RATIO.
CRUT is an acronym for Charitable Remainder Unitrust.
C/S RATIO see CONTRIBUTION/SALES RATIO.
CTP is Certified Treasury Professional.
CUMULATIVE EARNINGS is the sum of all earnings over the time periods in question.
CUMULATIVE PREFERRED STOCK is preferred stock which gives holder a right to dividends if they have not been paid in a given year.
CURRENCY DENOMINATION see DENOMINATION.
CURRENCY MEASUREMENT is part of determining the "functional currency" that mainly influences sales prices for goods / services. It will often be the currency in which denominated and settled: a. of country whose competitive forces and regulations mainly determine sales prices for goods / services; b. that mainly influences labor, material and other costs of providing goods / services; or, as stated, c. will often be the currency in which transactions are denominated and settled.
CURRENCY TRANSLATION see FOREIGN CURRENCY TRANSLATION.
CURRENT ACCOUNT in a national economy it is a category in the balance of payments account that includes all transactions that either contribute to national income or involve the spending of national income.
CURRENT ASSETS are those assets of a company that are reasonably expected to be realized in cash, or sold, or consumed during the normal operating cycle of the business (usually one year). Such assets include cash, accounts receivable and money due usually within one year, short-term investments, US government bonds, inventories, and prepaid expenses.
CURRENT CAPITAL see WORKING CAPITAL.
CURRENT CASH DEBT RATIO measures ability to pay current liabilities in given year with cash derived from operating activities. Calculated using net cash from operating activities divided by average current liabilities.
CURRENT COST is the cost which would be incurred for replacement of an asset.
CURRENT COST ACCOUNTING is a system of accounting which adjusts for changing pricing.
CURRENT DEBT TO TOTAL DEBT shows Current Liabilities as a percent of Total Debt. Smaller firms carry proportionally higher level of current debt to total debt than larger firms.
CURRENT LIABILITIES are liabilities to be paid within one year of the balance sheet date.
CURRENT MATURITIES-L/T/D is that portion of long term obligations which is due within the next fiscal year.
CURRENT PORTION OF LONG-TERM DEBT is only that portion of long-term obligations (payable in more than one year) which are owed and payable in the current year; e.g. the portion of a five-year loan or lease that is due in the current calendar/fiscal year.
CURRENT RATIO, a comparison of current assets to current liabilities, is a commonly used measure of short-run solvency, i.e., the immediate ability of a firm to pay its current debts as they come due. Current Ratio is particularly important to a company thinking of borrowing money or getting credit from their suppliers. Potential creditors use this ratio to measure a company's liquidity or ability to pay off short-term debts. Though acceptable ratios may vary from industry to industry below 1.00 is not atypical for high quality companies with easy access to capital markets to finance unexpected cash requirements. Smaller companies, however, should have higher current ratios to meet unexpected cash requirements. The rule of thumb Current Ratio for small companies is 2:1, indicating the need for a level of safety in the ability to cover unforeseen cash needs from current assets. Current Ratio is best compared to the industry.
CURTAIL is to terminate or abbreviate before an intended or proper end or its full extent, e.g. the national product launch was curtailed due to lack of acceptance in the rural market place.
CUSTODIAN is an entity entrusted with guarding and keeping property or records.
CUSTODIAN BANK is the bank that acts a custodian to a mutual fund. Does not manage anything, just holds the cash and securities and does the clerical.
CUSTOMER ACQUISITION COST is calculated by dividing total acquisition expenses by total new customers. However, there are different opinions on what constitutes an acquisition expense, e.g. rebates and special discounts do not represent an actual cash outlay, yet they have an impact on cash (and, presumably, on the customer). There is no set standard, i.e. acquisition costs vary across industries. When acquisition data is available, it is best to try to determine if you are comparing apples to apples. This is not easy, as customer acquisition data is usually scarce and the methodology is often questionable.
CUSTOMS are the authorities charged with collecting duty and controlling the entry of merchandise into a country.
CUSTOMS BROKER is an individual or firm licensed to process entry and clear goods into the country for another.
CUT-OFF RATE is the predetermined maximum rate and/or minimum rate at which the subject is still acceptable, but where a rate above the proscribed higher or below the proscribed lower rate is no longer acceptable.
CUT-OFF YIELD, in securities, is the yield at which or below which the bids are accepted.
CUT SCORE is a point on a score scale in which scores at or above the point are in a different category or classification than scores below the point (e.g. pass versus fail).
CVP see COST-VOLUME-PROFIT ANALYSIS.
CVPA see COST-VOLUME-PROFIT ANALYSIS.
CYCLE COUNT is a partial count of a single inventory location as opposed to a Complete Count, i.e., a complete count of a single inventory location. An organization should not wait to do a complete count; usually once a year. The best way to ensure that a minimum of 97% accuracy is maintained in inventory on an ongoing basis is to continually count your products. That is, count part of your inventory every day, and count each item several times per year. This process is called "cycle counting."
DAC, in accounting, is an acronym for Deferred Acquisition Costs.
DAIRY QUEEN ACCOUNTING is a figure of speech from the steel industry meaning that some people don't know if they are doing accounting for Dairy Queen or a steel mill.
DATA EVENT ANALYSIS is the examination of something which happens within the business environment which the company needs to know about and which must be recorded in the company memory, that is, the company files. A data event may be externally or internally generated and may occur through some action being taken or merely as a result of the passage of time. The occurrence of data events recorded in some manner. Data event analysis determines what information must be recorded such that the event can be recalled and acted upon. It must also determine how that event became known to the company; that is, what triggered the company awareness of the event?
DATA FIXATION, in behavioral accounting, is a compulsive preoccupation to focus only upon the numbers without looking beyond for the meaning behind the results themselves.
DATE DRAFT is a payment option draft that matures in a specified number of days after the date issued.
DATE OF RECORD is the date which determines which shareholders receive dividends.
DAY BOOK is a written record/ledger in which transactions have been recorded as they occurred.
DAYS CASH ON HAND is calculated: Cash/([operating expense - depreciation expense]/365).
DAYS' INVENTORY shows the average length of time items are in inventory, i.e., how many days a business could continue selling using only its existing inventory. The goal, in most cases, is to demonstrate efficiency through having a high turnover rate and therefore a low days’ inventory. However, realize that this ratio can be unfavorable if either too high or too low. A company must balance the cost of carrying inventory with its unit and acquisition costs. The cost of carrying inventory can be 25% to 35%. These costs include warehousing, material handling, taxes, insurance, depreciation, interest and obsolescence.
DAYS PAYABLE OUTSTANDING (DPO) is an estimate of the length of time the company takes to pay its vendors after receiving inventory. If the firm receives favorable terms from suppliers, it has the net effect of providing the firm with free financing. If terms are reduced and the company is forced to pay at the time of receipt of goods, it reduces financing by the trade and increases the firm's working capital requirements. It is calculated: Days Payable Outstanding = 365 / Payables Turnover (Payables Turnover = Purchases / Payables).
DAYS SALES OUTSTANDING (DS0), also known as Collection Period (period average), is a financial indicator that shows both the age, in terms of days, of a company's accounts receivable and the average time it takes to turn the receivables into cash. It is compared to company and industry averages, as well as company selling terms (e.g., Net 30) for determination of acceptability by the company. DSO is calculated: DSO = (Total Receivables/Total Credit Sales in the Period Analyzed) x Number of Days in the Period Analyzed. Note: Only credit sales are to be used. Cash sales are excluded.
DBA (doing business as) is a legal entity (sole proprietorship, partnership, corporation) conducting business under any chosen name for which a business license has been issued.
DCAA is the Defense Contract Audit Agency.
DCR see Debt Coverage Ratio.
DDA, among others, can mean: Disability Discrimination Act (1995, UK), Dividend Disbursing Agent (finance), Demand Deposit Account, Direct Deposit Advance (Wells Fargo), Direct Deposit Advice, Deposit Demand Account, or Design Development Activity.
DEBENTURE is a corporate IOU that is not backed by the company's assets (unsecured) and is therefore somewhat riskier than a bond.
DEBIT is a record of an indebtedness; specifically : an entry on the left-hand side of an account constituting an addition to an expense or asset account or a deduction from a revenue, net worth, or liability account.
DEBIT CARD is a banking card enhanced with automated teller machine (ATM) and point-of-sale (POS) features so that it can be used at merchant locations. A debit card is linked to an individual's checking account, allowing funds to be withdrawn at the ATM and point-of-sale without writing a check. Each financial institution creates an identity for its debit card to customize the product and differentiate it in the market. Debit cards can also be called deposit access cards.
DEBIT MEMORANDUM can be either a) a form or document given by the bank to a depositor to notify that the depositor's balance is being decreased due to some event other than the payment of depositor originated check, e.g. bank service charges; or b) a form of document used by a seller to notify a buyer that the seller is debiting (increasing) the amount of the buyer's accounts payable due to errors or other factors requiring adjustments.
DEBIT NOTES are issued to indicate a short payment.
DEBIT RECORD (DR) is an entry in a double-entry bookkeeping system recording an increase in an asset or an expense, or a decrease in liability, or owner's equity item. Debit entries are conventionally made on the left-hand side of T accounts.
DEBT COVENANT is one of many terms used to describe rules governing the loans that a company has outstanding. Other related phrases would be "loan terms" "credit agreement," "loan agreement."
DEBT COVERAGE RATIO is the ratio between the net income of an investment and the amount of debt service of the investment: expressed as (NOI / DS = DCR), i.e. it is the relationship of net operating income divided by annual debt service.
DEBT FINANCING is raising money through selling bonds, notes, or mortgages or borrowing directly from financial institutions. You must repay borrowed money in full, usually in installments, with interest. A lender incurs risk and charges a corresponding rate of interest based on that risk. The lender usually assesses a variety of factors such as the strength of your business plan, management capabilities, financing, and your past personal credit history, to evaluate your company’s chances of success.
DEBT INSTRUMENT is a written promise to repay a debt. Examples: notes, bills, bonds, CDs, GICs, commercial paper, and banker's acceptances.
DEBTOR is the party against who one has a claim.
DEBTOR DAYS is a ratio used to work out how many days on average it takes a company to get paid for what it sells. It is calculated by dividing the figure for trade debtors shown in its accounts by its sales, and then multiplying by 365.
DEBTORS CONTROL ACCOUNT reflects the total amount owed by the all the individual debtors. The balance of the debtors control account must equal the total of the debtors list, which represents the amounts owed by the individual debtors obtained from the individual balances in the various subsidiary ledger accounts for each debtor. This subsidiary ledger is known as the debtors' ledger.
DEBTORS LEDGER see LEDGER.
DEBT RATIO measures the percent of total funds provided by creditors. Debt includes both current liabilities and long-term debt. Creditors prefer low debt ratios because the lower the ratio, the greater the cushion against creditor's losses in liquidation. Owners may seek high debt ratios, either to magnify earnings or because selling new stock would mean giving up control. Owners want control while "using someone else's money." Debt Ratio is best compared to industry data to determine if a company is possibly over or under leveraged. The right level of debt for a business depends on many factors. Some advantages of higher debt levels are:
- The deductibility of interest from business expenses can provide tax advantages.
· Returns on equity can be higher.
· Debt can provide a suitable source of capital to start or expand a business.
Some disadvantages can be:
· Sufficient cash flow is required to service a higher debt load. The need for this cash flow can place pressure on a business if income streams are erratic.
· Susceptibility to interest rate increases.
· Directing cash flow to service debt may starve expenditure in other areas such as development which can be detrimental to overall survival of the business.
DEBT SECURITY is a security representing a loan given by an investor to an issuer. In return for the loan, the issuer promises to pay interest and to repay the debt on a specified date. Debt security issuers may include corporations, municipalities, the federal government, or a federal agency. See CONVERTIBLE and CONVERTIBLE DEBT.
DEBT SERVICE COVERAGE is the ratio of cash flow available to pay for debt to the total amount of debt payments to be made (interest and principal payments).
DEBT SERVICE RATIO is the measurement of debt payments to gross income.
DEBT TO EQUITY measures the risk of the firm's capital structure in terms of amounts of capital contributed by creditors and that contributed by owners. It expresses the protection provided by owners for the creditors. In addition, low Debt/Equity ratio implies ability to borrow. While using debt implies risk (required interest payments must be paid), it also introduces the potential for increased benefits to the firm's owners. When debt is used successfully (operating earnings exceeding interest charges) the returns to shareholders are magnified through financial leverage. Depending on the industry, different ratios are acceptable. The company should be compared to the industry, but, generally, a 3:1 ratio is a general benchmark. Should a company have debt-to-equity ratio that exceeds this number; it will be a major impediment to obtaining additional financing. If the ratio is suspect and you find the company's working capital, and current / quick ratios drastically low, this is a sign of serious financial weakness.
DEBT TO TOTAL ASSETS RATIO measures the percentage of assets financed by all terms of debt, includes both current and long term debt.
DECISION THEORY is a body of knowledge and related analytical techniques of different degrees of formality designed to help a decision maker choose among a set of alternatives in light of their possible consequences.
DECLINING-BALANCE DEPRECIATION METHOD is an accelerated depreciation method in which an asset's book value is multiplied by a constant depreciation rate (such as double the straight-line percentage, in the case of double-declining-balance.). This depreciation method is allowed by the
DECRETION is a decrease. See also ACCRETION.
DEDICATED TRANSACTIONS, in securities, is a list all the transactions (including cash) for each portfolio together with any relevant fees and notes. And, not only can one monitor profit/loss but you can also chart the historical valuation of a portfolio, monitor the annualized rate of return, compare portfolio performance against indices or sectors and chart the performance of different constituents of a portfolio on a single chart.
DEDUCTION is the act of deducting; subtraction. It is an amount that is or may be deducted, e.g. tax deductions.
DEDUCTIVE ACCOUNTING THEORY (mathematical method) assumes that optimal accounting standards and reporting rules can be derived by deduction much in the way that Pythagoras derived the rule for measuring the hypotenuse of a triangle based upon square root of the summed squares of the other two sides (assuming one angle is a perfect 90-degree angle).
DEED OF TRUST see TRUST DEED.
DEFAULT, in finance, default is what occurs when a party is unwilling or unable to pay their debt obligations. This can occur with all debt obligations including bonds, debentures, mortgages, loans, and notes. Default can also occur with sovereign bonds, that is, governments can default on their payments to creditors. In corporate finance, a default is typically a prelude to bankruptcy. With most mortgages and loans the total amount owing becomes immediately payable on the first instance of a default of payment.
DEFEASANCE is the release of a debtor from the primary obligation for a debt. A legal defeasance could take place in absolute terms, i.e., the debt could cease to exist for anyone (by being forgiven or set aside), or the creditor could formally recognize that another party has taken over the primary obligation for the debt.
DEFEASANCE CLAUSE is the clause in a mortgage that permits the mortgagor to redeem his or her property upon the payment of the obligations to the mortgagee.
DEFENSE INTERVAL see BASIC DEFENSE INTERVAL.
DEFERMENT see DEFERRED.
DEFERRAL see DEFERRED.
DEFERRED, in accounting, is any account where the asset or liability is not realized until a future date, e.g. annuities, charges, taxes, income, etc. The deferred item may be carried, dependent on type of deferral, as either an asset or liability.
DEFERRED ANNUITY is an annuity in which the income payments/withdrawals begin at some future date
DEFERRED ASSET is an amount owed to an entity that is not expected to be received by that entity within one year from the date of the balance sheet.
DEFERRED CREDITOR see DEFERRED INCOME.
DEFERRED DEVELOPMENT COSTS is the non-recognition of costs of development until such until some condition(s) is satisfied.
DEFERRED EXPENDITURE is a expenditure for which payment has been made or a liability incurred but which is carried forward on the presumption that it will be of benefit over a subsequent period or periods. This is also referred to as deferred revenue expenditure.
DEFERRED EXPENSES see PREPAID EXPENSES.
DEFERRED INCOME is that income for which the cash has been collected by the company, but have yet to be "earned". For example, a customer pays their annual software license upfront on the 1st Jan. As the company financial year-end is 31st May, the company would only be able to record five months of the income as turnover in the profit and loss account. The rest would be accrued in the balance sheet as a "deferred" creditor.
DEFERRED MAINTENANCE is asset maintenance that was not performed when it should have been or was scheduled to be performed and was delayed until a future period, i.e. in most cases it is a nice way to say that the asset has not been kept up and is depreciating both in value and physically.
DEFERRED PAYMENT CREDIT is a type of a letter of credit where payment is made at a specified interval after collection papers are submitted.
DEFERRED REVENUE see DEFERRED INCOME.
DEFERRED REVENUE EXPENDITURE see DEFERRED EXPENDITURE.
DEFERRED TAX ASSETS have an effect of decreasing future income tax payments, which indicates that they are prepaid income taxes and meet definition of assets. Whereas deferred tax liabilities have an effect of increasing future year's income tax payments, which indicates that they are accrued income taxes and meet definition of liabilities.
DEFERRED TAXES refers to all deferred taxes.
DEFERRED TAX LIABILITIES have an effect of increasing future year's income tax payments, which indicates that they are accrued income taxes and meet definition of liabilities. Whereas deferred tax assets have an effect of decreasing future income tax payments, which indicates that they are prepaid income taxes and meet definition of assets.
DEFICIT is a debit balance in the Retained Earnings account resulting from accumulated losses.
DEFICIT BUDGET is where the estimates of expenses are greater than estimates of revenue.
DEFICIT SPENDING is an excess of government expenditures over government revenue, resulting in a shortfall that must be financed through borrowing.
DEFINED CONTRIBUTION is a pension design that defines the amount of contributions, usually a percentage of salary. The benefits payable at retirement depend on factors such as future investment return and annuity rate at retirement. If a plan is registered for tax purposes, the maximum contribution amount (usually a percentage of earnings or income up to a dollar limit) is defined by tax regulations.
DEFLATION is a contraction of economic activity resulting in a decline of prices.
DELINQUENCY RATIO is the ratio of past-due loans to total number of loans serviced.
DELIVERY NOTE is a document, issued by the suppliers, which accompanies a delivery of goods, specifying their type and quantity.
DELIVERY ORDER is a document from the consignee, shipper, or owner of freight ordering the release of freight to another party.
DELTA, in securities trading, is the relationship between an option price and the underlying futures contract or stock price. In general usage, it is the difference between two empirical data points, e.g. the delta between 4 and 6 is 2.
DEMAND DEPOSIT is a bank deposit f rom which withdrawals may be made without notice.
DEMAND DRAFT, also known as sight draft, is a draft payable on demand from the date of issue, e.g. a payroll check.
DEMAND NOTE is a note payable on demand from the person who is owed the money.
DEMAT ACCOUNT is an account offered by a bank in its capacity as a depository participant. The demat account reduces brokerage charges, makes pledging/hypothecation of shares easier, enables quick ownership of securities on settlement resulting in increased liquidity, avoids confusion in the ownership title of securities, and provides easy receipt of public issue allotments. It also helps you avoid bad deliveries caused by signature mismatch, postal delays and loss of certificates in transit. Further, it eliminates risks associated with forgery, counterfeiting and loss due to fire, theft or mutilation. Demat account holders can also avoid stamp duty, avoid filling up of transfer deeds, and obtain quick receipt of such benefits as stock splits and bonuses.
DEMINIMUS, root is 'De minimis non curat lex' (Latin), a common law principle whereby judges will not sit in judgement of extremely minor transgressions of the law. It has been restated as "the law does not concern itself with trifles". It is commonly used to include a test of anyone judging conformance to accounting principles, regulations or rules.
DEMOGRAPHICS are the attributes such as income, age, and occupation that best describe your target market.
DEMUTUALIZATION refers to the demutualizing of an insurance company. The proceeds from such an event are normally distributed to the policyholders in the form of either cash, shares, or a combination thereof in the surviving entity.
DENOMINATION is one of a series of kinds, values, or sizes, as in a system of currency or weights, e.g.
DEPARTMENTAL ACCOUNTING is where departments within an entity have varying degrees of autonomy, but are not usually separated geographically from the rest of the business. They may be concerned with manufacturing or, in the case of a department store, with retailing. Departmental accounts usually include a trading account and may also include a profit and loss account to which overheads are allocated or imputed.
DEPENDENT, generally, is a person who relies on another person for support (especially financial support); in U.S. tax law, it means a dependent as defined in tax code Section 152 which excludes those individuals who do not qualify for a dependent deduction on the employee’s tax return including domestic partners and parents.
DEPLETION is the process of cost allocation that assigns the original cost of a natural resource to the periods benefited. For example: a mining company purchases mineral rights to a deposit for $5 million for a period of ten years. The cost of the natural resource, $5 million, will be depleted over the ten years of the benefit; i.e., it is the physical exhaustion of a natural resource (e.g., timber, oil and coal).
DEPOSIT can mean a variety of things: a. a payment given as a guarantee that an obligation will be met; b. the act of putting money into a bank account; c. a partial payment made at the time of purchase with the balance to be paid later; or, d. money given as security for an article acquired for temporary use.
DEPOSITS IN TRANSIT is deposits made to a bank account that have not been credited to the bank statement.
DEPOSITORY ACCOUNT are those accounts where assets; e.g. cash or securities; are placed on deposit in favor of the depositor.
DEPRECIABLE COST is fixed asset cost that is subject to depreciation. Depreciable cost equals acquisition cost less salvage value.
DEPRECIATED HISTORICAL COST (DHC) is he method of valuation of certain assets at the actual cost of their acquisition and subsequent enhancement less a reduction for depreciation to date.
DEPRECIATION is the amount of expense charged against earnings by a company to write off the cost of a plant or machine over its useful live, giving consideration to wear and tear, obsolescence, and salvage value. If the expense is assumed to be incurred in equal amounts in each business period over the life of the asset, the depreciation method used is straight line (SL). If the expense is assumed to be incurred in decreasing amounts in each business period over the life of the asset, the method used is said to be accelerated. Two commonly used variations of the accelerated method of depreciating an asset are the sum-of-years digits (SYD) and the double-declining balance (DDB) methods. Frequently, accelerated depreciation is chosen for a business' tax expense but straight line is chosen for its financial reporting purposes.
DEPRECIATION ALLOCATION is the allocation of the cost of capital expenditures so that revenue is matched
with expenses for items that will last more than one year (land is not depreciable). The methodolgy is to allocate plant and equipment cost to expense through the use of accelerated, straight line and units of production amortization methods; as well as the disposal of assets; and, repairs and betterments to assets.
DEPRECIATION CONVENTION is utilized to determine how much depreciation to charge the first year when an item is bought part way through the year. Three different conventions are used: 1. Half year convention - All property placed in service is considered to be placed in service half way through the year. During the first year, half of the "normal" depreciation is taken. At the end of the depreciation period, the other half of the "normal" depreciation is taken; 2. Mid-quarter convention - If the amount of depreciation claimed on new items during the last 3 months of a year exceeds 40% of the total depreciation claimed during the year, then the mid-quarter convention is used. The amount of depreciation of each item is figured for one year then multiplied by 87.5% if was placed in service during Jan. - March, 62.5% if it was placed in service during April - June, 37.5% for items placed in service during July-Sept, and 12.5% for items placed in service during Oct. - Dec.; or, 3. Mid-month convention - All property is considered to be placed in service during the midpoint of the month. This requires some calculations.
DEPRECIATION METHOD see DEPRECIATION.
DEPRECIATION RECAPTURE is a provision contained in the Internal Revenue Code that makes excess depreciation taken on real property subject to income tax upon the sale or disposition of the property.
DEPRECIATION RESERVE in the process of allocating the cost of a fixed asset over its effective service life in a systematic and rational manner (depreciation schedule), the value of each depreciable asset is reduced by its depreciation amount. To match this, the depreciation amounts are added to a "depreciation reserve" in the long-term liabilities.
DEPRECIATION REVERSAL is the reversal of a depreciaton amount in the depreciation reserve account.
DEPRECIATION SCHEDULE is the statement, over time, as to the schedule (timing and amounts) of depreciation of any long-term asset. A depreciation schedule is used for any type of depreciation applicable, i.e., either straight line or accelerated depreciation. See DEPRECIATION.
DERIVATIVE is a transaction or contract whose value depends on or, as the name implies, derives from the value of underlying assets such as stock, bonds, mortgages, market indices, or foreign currencies. One party with exposure to unwanted risk can pass some or all of the risk to a second party. The first party can assume a different risk from a second party, pay the second party to assume the risk, or, as is often the case, create a combination. Derivatives are normally used to control exposure or risk. See DERIVATIVE CONTRACT.
DERIVATIVE CONTRACT is, generally, a financial contract the value of which is derived from the values of one or more underlying assets, reference rates, or indices of asset values, or credit-related events. Derivative contracts include interest rate, foreign exchange rate, equity, precious metals, commodity, and credit contracts, and any other instruments that pose similar risks. See DERIVATIVE.
DERIVATIVE LIABILITIES are financial instruments under contracts that have one or more underlying and one or more notional amounts. See DERIVATIVE.
DESCRIPTIVE THEORY, in property rights, describes how property rights are created or initiated, how they are transferred from party to party, and finally how property rights are terminated.
DESIGNATED is something selected or named for a duty, e.g., designated receipts.
DESIGNATED RECEIPTS is that revenue which is identified for a specific purpose.
DETAIL, in accounting, is extended treatment of particulars of an accounting entry e.g., the from or to, date, amounts, purposes, balances, and, if needed, comments.
DEVALUATION, in economics, is the lowering in value of one currency in relation to other currencies.
DEVELOPMENT normally refers to a) improving a product or producing new types of products; or b) in real estate, process of placing improvements on or to a parcel of land.
DEVOLUTION is the delegation of authority from higher to lower levels.
DEVOLVE is to pass on or delegate to another, e.g. a devolved letter of credit.
DEVOLVED BUDGETING follows from devolving managerial responsibility, and assumes that those who are closest to the point of delivery of product/service and other activities will normally be in the best position to make informed choices between alternative courses of action. For devolved budgeting to be fully effective, the budget holder should maintain proper control of the costs being charged to him or her and be accountable for performance against budget. The budget structures are being scrutinized continuously, the aim being to establish what further scope exists for useful devolution of authority and responsibility
DILUTED EARNINGS PER SHARE are earnings per share, including common stock, preferred stock, unexercised stock options, and some convertible debt. Diluted earnings per share are usually a more accurate reflection of the company's real earning power.
DILUTED SHARE see DILUTED EARNINGS PER SHARE.
DILUTION is the decrease, weakening, or loss in a financial statement related item. For example, share value may be diluted through the issuance of additional common shares.
DIO is Days Inventory Outstanding.
DIRECT ATTRIBUTION is the most precise method of costing an output. It seeks to capture accurately the volume and cost of resources used by particular activities. This can be expensive unless the information is already available because it requires detailed measurement of actual costs. Such direct measurement is seldom justifiable solely to improve the accuracy of a cost system, but many institutions use this method to obtain efficiency gains and cost savings.
DIRECT COST is that portion of cost that is directly expended in providing a product or service for sale and is included in the calculation of COST OF GOODS SOLD, e.g. labor and inventory (it can be traced to a given cost object in an economically feasible manner). Opposite of indirect cost.
DIRECT EXPENSE is that portion of expense that is directly expended in providing a product or service for sale and is included in the calculation of COST OF GOODS SOLD, e.g. labor and inventory.
DIRECT FINANCING LEASE is one in which the lessor’s only source of revenue isinterest. The lessor (generally a bank or other financial institution) buys anasset and leases it to the lessee. This transaction is an alternative to the morecustomary lending arrangement in which a borrower uses the loan proceedsto purchase an asset. A direct financing lease is the functional equivalent of a loan.
DIRECT JOURNAL PAYMENT is a payment that is recognized that is not included in the Accounts Receivable ledger, e.g. a double payment on a mortgage that has a monthly payment due and payable will cause a split-payment posting: one in the Accounts Receivable ledger for one half of the payment (principal and interest that is invoiced), with the other half of the payment being posted to the Long Term Loan ledger as a direct journal payment.
DIRECT LABOR is work performed by individuals which is directly related to a specific cost objective. This work is readily identifiable with a particular product or service.
DIRECT LABOR BUDGET is a budget of planned expenditures for direct labor. The direct labor budget indicates the rate per hour and the number of hours necessary to meet production requirements. See OPERATING BUDGET.
DIRECT LABOR RATE VARIANCE reveals the difference between the standard rate and actual rate for the actual labor hours worked [(standard rate - actual rate) X actual hours].
DIRECT LABOR UTILIZATION RATE is total payroll charged directly to job numbers in the period divided by the total payroll (direct and indirect) expended in the period. Since payroll is by far the single largest cost to operate a firm, generally speaking, the higher the direct labor rate, the more efficiently economically managed is the firm.
DIRECT MATERIAL is the cost of raw materials and components that can easily and economically be identified either with individual units of production or with a responsibility center.
DIRECTOR'S REPORT is written by the Directors of a company and forms part of the company's financial statements. This report must support and elaborate on the information contained in the Income Statement, Balance Sheet and Source and Application of Funds Statement.
DIRECTORS RESPONSIBILITY STATEMENT contains written assurances from the board of directors that all company policies are followed: i) in the preparation of the Annual Accounts, the applicable Accounting Standards and there are no material departures; ii) selected such accounting policies and applied them consistently and made judgments and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the Company at the end of the financial year and of the profit of the Company for that period.
DIRECTORS VALUATION is a valuation that is not an independent valuation.
DIRECT WRITE-OFF METHOD is a method of accounting for bad debts that records the loss from an uncollectible account receivable at the time it is determined to be uncollectible; no attempt is made to estimate uncollectible accounts or bad debt expense.
DISABILITY INSURANCE, in the
DISBURSE/DISBURSEMENT is the paying out of money to satisfy a debt or an expense.
DISCLOSURE DOCUMENT PROGRAM, in the
DISCLOSURE NOTE see DISCLOSURE PRINCIPLE.
DISCLOSURE PRINCIPLE states that any and all information that affects the full understanding of a company's financial statements must be include with the financial statements. Some items may not affect the ledger accounts directly. These would be included in the form of accompanying notes. Examples of such items are outstanding lawsuits, tax disputes, and company takeovers.
DISCOUNT is a decrease in value (often due to interest to be earned) or decrease in price.
DISCOUNT ALLOWED, normally, is a reduction of the invoice amount for early payment of the invoice value.
DISCOUNTED CASH FLOW is a valuation method best used to evaluate a business established for the purpose of fulfilling a specific project, in certain startup and other companies where cash flow is more important than net income, and when a certain time frame is set where an investor wishes to see his investment returned over a specific period of time. In discounted cash flow, the present value of liabilities is subtracted from the combined present value of cash flow and tangible assets, which determines the value of the business.
DISCOUNTED CASH FLOW METHOD is a budgeting method for project evaluation and selection.
DISCOUNTED EARNINGS determines the value of a business based upon the present value of projected future earnings, discounted by the required rate of return (capitalization rate). Usually, the question is how well earnings are projected.
DISCOUNTED PAYBACK is the period of time required to recover initial cash outflow when the cash inflows are discounted at the opportunity cost of capital.
DISCOUNTING is the selling of accounts receivable to a financial entity.
DISCONTINUED OPERATIONS is the sale, disposal, or planned sale in the near future of a business segment (product line or class of customer).
DISCOUNT RATE is the interest rate that the Federal Reserve of the U.S. Government charges a U.S. bank to borrow funds when a bank is temporarily short of funds. Collateral is necessary to borrow, and such borrowing is quite limited because the Fed views it as a privilege to be used to meet short-term liquidity needs, and not a device to increase earnings.
DISCREPANCY is a difference between conflicting facts or claims or opinions. In import / export, it is situations relating to official documents that are presented that do not conform to what is required within the Letter of Credit.
DISCRETIONARY means it is not mandatory, it is up to the individual or company.
DISCRETIONARY ACCRUAL is a non-mandatory expense/asset that is recorded within the accounting system that has yet to be realized. An example of this would be management bonus.
DISCRETIONARY COST can be increased or decreased at the discretion of the decision maker (e.g., advertising and business travel).
DISCRETIONARY INCOME means the amount of a company's income available for spending after the essentials have been met. See DISPOSABLE INCOME.
DISHONORED NOTE is a note on which a debtor has defaulted.
DISINTERMEDIATION is the diversion of savings from accounts with low fixed interest rates to direct investment in high-yielding instruments.
DISPATCH, in shipping, is the amount paid by a vessel's operator to a charterer if loading or unloading is completed in less time than stipulated in the charter party.
DISPOSABLE INCOME is the amount of an individual's income left after taxes which is available for spending and / or savings. See DISCRETIONARY INCOME.
DISSOLUTION is the act of ending, terminating or winding-up a company or state of affairs. For example, when the life of a company is ended by normal legal means, it is said to be "dissolved". The same is said of marriage or partnerships which, by dissolution, ends the legal relationship between those persons formally joined by the marriage or partnership.
DISTRIBUTABLE CASH is a common term used by income funds to describe the amount of cash that is available to meet distribution obligations of the fund. Distributable cash does not have a standard meaning and may be calculated differently by different income funds.
DISTRIBUTION COST is any cost incurred to fill an order for a product or service. It includes all money spent on warehousing, delivering and/or shipping products and services to customers.
DISTRIBUTIONS are payments from fund or corporate cash flow. May include dividends from earnings, capital gains from sale of portfolio holdings and return of capital. Fund distributions can be made by check or by investing in additional shares. Funds are required to distribute capital gains (if any) to shareholders at least once per year. Some corporations offer Dividend Reinvestment Plans (D.R.P.).
DISTRIBUTION TO OWNERS is payment of earnings to owners of a business organization in the form of a dividend. A dividend is a distribution to a corporation's stockholders usually in cash; sometimes in the corporation's stock and much less frequently in property (usually other securities).
DIT is Depreciation, Interest and Taxes.
DIVESTITURE is the sale by a company of a product line, a subsidiary or a division.
DIVIDEND is that portion of a corporation's earnings which is paid to the stockholders.
DIVIDEND CAPITALIZATION: Since most closely held companies do not pay dividends, when using dividend capitalization valuators must first determine dividend paying capacity of a business. Dividend paying capacity based on average net income and on average cash flow are used. To determine dividend paying capacity, near term capital needs, expansion plans, debt repayment, operation cushion, contractual requirements, past dividend paying history of a business and dividends of a comparable company should be investigated. After analyzing these factors, percent of average net income and of average cash flow that can be used for the payment of dividends can be estimated. What also must be determined is the dividend yield, which can best be determined by analyzing comparable companies. As with the price earnings ratio method, this usually produces a subjective result.
DIVIDEND COVER see DIVIDEND PAYOUT RATIO.
DIVIDEND PAYOUT RATIO is a measure of the percentage of earnings paid out in dividends; computed by dividing cash dividends by the net income available to each class of stock.
DIVIDENDS PER SHARE (DPS) ratio is very similar to the EPS: EPS shows what shareholders earned by way of profit for a period whereas DPS shows how much the shareholders were actually paid by way of dividends. The formula: Dividends per share = Dividends paid to equity shareholders / Average number of issued equity shares.
DIVIDEND YIELD is the annual rate of return, expressed as a percentage, on an investment.
DIVIDEND YIELD RATIO allows investors to compare the latest dividend they received with the current market value of the share as an indictor of the return they are earning on their shares. The formula for the dividend yield is: Dividend yield = Latest annual dividends / Current market share price.
DIVISION is a self sufficient unit within a company. A division contains all the functions necessary to operate indepently from the parent company.
DMP is Direct Material Productivity, Debt Management Plan, Debt Management Program, or Data Management Plan.
DOCK RECEIPT is a document issued by the ocean carrier of a shipment acknowledging receipt of the goods to be shipped.
DOCTRINE is a. something that is taught; b. a principle or position or the body of principles in a branch of knowledge or system of beliefs; c. a principle of law established through past decisions; d. a statement of fundamental government policy especially in international relations.
DOCUMENTARY CREDIT is an arrangement by banks for settling international business transactions. A letter of credit is a form of documentary credit.
DOCUMENT CONTROL is a function or department which keeps track of all documentation, specifications and processes. The purpose is to ensure that everyone uses the correct and most current processes and specifications.
DOCUMENT MAINTENANCE is a formalized system of ensuring that all controlled documents are to the latest configuration or version.
DOCUMENT RECONCILIATION is the synchronization of formalized documents to approved or changed requirements or specifications.
DOCUMENT RETENTION POLICY is a set of guidelines that a company follows to determine how long it should keep certain records, including e-mail and web pages. The policy is important for many reasons, including legal requirements that apply to some documents. For example: a. for tax-related items - the recommended retention is seven years; and, b. for real estate records - the recommended retention is twenty years.
DOCUMENT REVIEW is a formalized technique of data collection involving the examination of existing records or documents.
DOH is Days on Hand (inventory).
DOLLAR CONTROL SYSTEMS are systems used in inventory management that reveals the cost and gross profit margin on individual inventory items.
DOLLARIZATION is the use of U.S. dollars by a country as its own currency; the linking of a currency’s value to that of the U.S. dollar; or, the use of the U.S. dollar for accounting purposes.
DOLLAR VALUE LIFO, in the
DOLLAR-WEIGHTED RATE OF RETURN is also called the internal rate of return; the interest rate that makes the present value of the cash flows from all the sub-periods in an evaluation period plus the terminal market value of the portfolio equal to the initial market value of the portfolio.
DONATED ASSETS are assets received in a voluntary non-reciprocal transfer from another entity such as gifts of capital assets; usually voluntary contributions of resources to a governmental entity by a non-governmental entity.
DONATED CAPITAL is a gift of assets to a company, usually by state or local governments, to induce a business to relocate to their jurisdiction.
DOOMSDAY RATIO is related to the quick (acid test) ratio in that it is a conservative approach to debt coverage. The doomsday ratio only considers the cash on hand when evaluating if an entity can cover their current liabilities. The approach is that if the business were to go bankrupt today, would the business have enough cash on hand to cover current debts. The ratio is considered a good indicator of the cash cushion of safety. It may spot cash shortages, thereby assisting in avoiding a credit crisis. It is calculated: Cash divided by Current Liabilities.
DOUBLE ACCOUNTING is the un-intentional, or sometimes fraudulently intentional, double counting of assets or liabilities, or any other datasets, which, in the end, give an inaccurate view of what the data really means. In accounting, this is usually caused by a multiplicity of entries of the same data which, in the end, causes confusion or financial reporting inaccuracies.
DOUBLE DECLINING BALANCE DEPRECIATION see DECLINING BALANCE DEPRECIATION.
DOUBLE DIPPING is two incomes received from the same source (as by holding a government job and receiving a government pension.
DOUBLE-ENTRY ACCOUNTING is a system of recording transactions in a way that maintains the equality of the accounting equation. The accounting technique records each transaction as both a credit and a debit. Double-entry bookkeeping (DEB) or accounting was developed during the fifteenth century and was first recorded in 1494 as a system by the Italian mathematician Luca Pacioli.
DOUBLE LEVERAGE usually refers to a situation where a holding company raises debt and downstreams it as equity capital, or subordinated debt, to a subsidiary, i.e. it is the use of debt by both the parent company and the subsidiary, in combination with the company's equity capital, to finance the assets of the subsidiary.
DOUBTFUL DEBT is a debt where circumstances have rendered its ultimate recovery uncertain. Conservatism requires that doubtful debts should be treated in the same way as bad debts. They should thus be recorded as an expense in the profit and loss account and to be credited to a provision to set off against ultimate default if it occurs.
DOW JONES INDUSTRIAL AVERAGE is an index that tracks the daily share value of 30 large
DOWN PAYMENT is a partial payment made at the time of purchase; the balance to be paid later as stipulated by contract; written or oral.
DOWNSTREAM / UPSTREAM SALES see UPSTREAM / DOWNSTREAM SALES.
DPO see Days Payables Outstanding.
DPS see DIVIDENDS PER SHARE.
Dr is an ancient Italian abbreviation for the Italian word ‘debare’; meaning ‘debit’ (not to be confused with the acronym DR with both letters in uppercase).
DR, in accounting, is an acronym for Debit Record. See DEBIT RECORD.
DRAFT, in import / export, is a contract between buyer and seller that the buyer will pay a certain amount of money, within a specified period of time, for the goods purchased.
DRAFT, DEMAND OR SIGHT, in import / export, is a draft payable upon presentation to the drawee. It may be used when the exporter wishes to retain control of the shipment for credit or title retention reasons. The buyer must pay the bank before receiving the documents to take custody of the goods. A COD shipment is similar.
DRAW see PROPRIETORS DRAW.
DRAWDOWN is the magnitude of a decline in account value, either in percentage or currency terms.
DRAWEE is the buyer of a draft instrument.
DRAWING ACCOUNT see PROPRIETORS DRAW.
DRAWINGS see PROPRIETORS DRAW.
DROP SHIP is where the seller/retailer of a product ships the product directly from the manufacturer to the customer without requiring inventory carrying by the seller/retailer.
DSO, in accounting, is an acronym that usually means 'Days Sales Outstanding'.
DTD can be: Dated, Day-to-day, or Document Type Description, among others.
DUALITY CONCEPT is the foundation of the universally applicable double entry book keeping system. It stems from the fact that every transaction has a double (or dual) effect on the position of a business as recorded in the accounts. For example, when an asset is bought, another asset cash (or bank) is also and simultaneously decreased OR a liability such as creditors is also and simultaneously increased. Similarly, when a sale is made the asset of stock is reduced as goods leave the business and the asset of cash is increased (or the asset of debtors is increased) as cash comes into the business (or a promise to pay is made and accepted). Every financial transaction behaves in this dual way.
DUE DILIGENCE usually refers to an internal audit of a target firm by an acquiring firm.
DUMPING is the selling of merchandise in a foreign country at, or, below cost in order to seize market share.
DUN is when you importune (beg or are insistent upon) a debtor for payment: a dunning letter.
DUN & BRADSTREET (D&B) is a
DUPONT ANALYSIS is a method for analyzing Return on Equity (ROE). The formula: ROE = Net Margin x Asset Turnover x Leverage Factor.
DURATION DRIVERS represent the amount of time required to perform an activity.
DUTY is a tax imposed by a customs authority on imported goods. Often used interchangeably with the term "tariff."
EA is Enrolled Agent (IRS designation).
E&O INSURANCE is an errors and omissions, or E&O, liability policy (often called malpractice insurance) covers liability for negligent acts, errors and omissions committed by professionals, including physicians, accountants, lawyers, etc.
E&OE is a British acronym that stands for "Errors and Omissions Excepted". E&OE is a legal disclaimer that notifies the reader that, without prejudice, that the content and/or validity of the subject data may change without notice.
E&P is Earnings and Profits.
EARNED INCOME is that income realized by the provisioning of goods and services.
EARNED SURPLUS see RETAINED EARNINGS.
EARNING ASSET is an asset which provides income (e,g, rental property).
EARNING CAPACITY is the net average earnings at a given moment in time: past, current or future.
EARNING CAPACITY, LOSS OF “Loss of earning capacity” means the difference between the worker’s net average earnings before the incident, and the net average amount of wages the deciding body determines the worker is capable of earning after the incident.
EARNING POWER is earnings before interest and taxes (EBIT) divided by total assets.
EARNING QUALITY is best determined through the inverse relationship between the amount of time elapsed between revenue recognition and cash collection.
EARNINGS is a term that refers to the financial capacity of a corporation to make distributions to shareholders other than return of capital, e.g., dividends. See also RETAINED EARNINGS.
EARNINGS BEFORE TAXES see PROFIT BEFORE TAXES.
EARNINGS FROM OPERATIONS (EFO) represent earnings before other operating items less (i) depreciation and amortization plus (ii) other income less (iii) other expense.
EARNINGS MANAGEMENT occurs when managers use judgment in financial reporting and in structuring transactions to alter financial reports to either mislead some stakeholders about the underlying economic performance of the company, or to influence contractual outcomes that depend on reported accounting numbers.
EARNINGS PER SHARE (EPS) is either: a. Basic EPS is earnings before extraordinary gains and losses, less preferred-share dividends, divided by all common shares outstanding at the most recent fiscal year end. Net income, or earnings, refers to the company's after-tax profits before extraordinary gains or extraordinary losses for the most recent annual period; or, b. Diluted EPS is where the number of shares used in the calculation is increased to account for outstanding dilution such as options, warrants, in-the-money convertibles, etc.
EARNINGS RETENTION is the proportion of net income that is not paid in dividends. A firm earning $80 million after taxes and paying dividends of $20 million has a retention rate of $60 million/$80 million, or 75%. A high retention rate makes it more likely a firm's income and dividends will grow in future years.
EBIT is Earnings Before Interest and Tax. EBIT is an indicator of a company's financial performance calculated as revenue less expenses excluding tax and interest. It is sometimes referred to as operating earnings.
EBITDA means Earnings Before Interest, Taxes, Depreciation and Amortization, but after all product / service, sales and overhead (SG&A) costs are accounted for. Sometimes referred to as Operational Cash Flow.
EBITDARM is an acronym for Earnings Before Interest, Taxes, Depreciation, Amortization, Rent and Management fees.
E.C. (EUROPEAN COMMUNITY or EUROPEAN COMMON MARKET) is a trading block of countries in
ECONOMETRICS literally means 'economic measurement'. It is the branch of economics that applies statistical methods to the empirical study of economic theories and relationships. It is a combination of mathematical economics, statistics, economic statistics and economic theory.
ECONOMICALLY FEASIBLE means that the benefit of tracing the cost (greater accuracy) outweighs the cost of doing so.
ECONOMIC BOOK VALUE allows for a book value analysis that adjusts the assets to their market value. This valuation allows valuation of goodwill, real estate, inventories and other assets at their market value.
ECONOMIC DEPRECIATION is the decline in real estate property value caused by external forces, such as neighborhood blight or adverse development.
ECONOMIC ENTITY accounting concept that provides context or “point of view” for the economic events (i.e., transactions) captured by the financial statements. In short, it answers the questions, “Whose asset is it?”; “Whose liability is it?”
ECONOMIC EVENT is the transfer of control of an economic resource from one party to another party.
ECONOMIC EXPOSURE, in foreign exchange, is the extent to which the value of the firm, as measured by the present value of all expected future cash flows, will change when exchange rates change.
ECONOMIC INCOME is the maximum amount that can be distributed to owners during the accounting period and leave the business as well off at the end of the accounting period as it was at the beginning of the period; i.e. cash flow based.
ECONOMIC ORDER QUANTITY is the order quantity that minimizes total inventory costs. A total inventory cost is the sum of ordering, carrying and stock-out costs.
ECONOMIC PROFITS is the difference between the total revenue and the total opportunity costs.
ECONOMIC RESOURCES is the profitable extraction or production, under defined investment assumptions, of returns that are analytically demonstrable or can be assumed with reasonable certainty.
ECONOMIC SUBSTANCE refers to the application of income tax laws, i.e., the substance of the transaction, rather than its form, determines the tax consequences, with few exceptions. The "form" of a transaction is only the label the interested parties attach to their arrangement. For instance, an arrangement might be called a compensation agreement, loan, lease or sale. Documents may support the form, but the courts are not concerned with these labels or papers that purport to govern the transaction -- they focus on its substance. The "substance over form" analysis is used to dissect self-serving transactions between parties, including loans and payments to family members; transactions between related corporations and their shareholders, partnerships and their partners; and between trusts and their beneficiaries. For instance, sale of a home by a parent to a child may be recharacterized by the court as a gift, if the child never pays for it. Related-party transactions provide fertile territory for self-dealing, with the tax benefit as the real motivating purpose, disguised by the form of the transaction. In contrast, arm's-length transactions with independent third parties are far less vulnerable.
ECONOMIC VALUE (EV) is the value of an asset deriving from its ability to generate income.
ECONOMIC VALUE ADDED (EVA) measures the difference between the return on a companies capital and the cost of that capital. A positive EVA indicates that value has been created for shareholders; a negative EVA signifies value destruction.
ECONOMIES OF SCALE is based upon the theory that the more you produce of a good, the less that it costs for each additional unit, i.e., efficiency. Specifically, it is the reduction of the costs of production of goods due to increasing the size of the producing entity and the share of the total market for the good/product.
EEO is Equal Employment Opportunity or Equal Employment Office.
EF&L is Errors, Fines and Losses.
EFFECTIVE DATE OF INTEREST is the market rate at time of a debt issue.
EFFECTIVE INTEREST RATE is the cost of credit on a yearly basis expressed as a percentage. Includes up-front costs paid to obtain the loan, and is, therefore, usually a higher amount than the interest rate stipulated in the note.
EFFECTIVE TAX RATE is the net rate a taxpayer pays on income that includes all forms of taxes. It is calculated by dividing the total tax paid by taxable income.
EFFICIENCY is the ratio of the output to the input of any system.
EFFICIENT MARKET THEORY is the hypothesis that market prices reflect the knowledge and expectations of all investors. Within this theory, investors who adhere to it believe it to be highly improbable that market movement can be predicted, i.e., using darts to chose stocks are just as effective as stock or market analysis.
EFFORT-EXPENDED METHOD measures the percentage of labor hours incurred to date as compared to estimated total labor hours for each contract.
EFO see EARNINGS FROM OPERATIONS.
EFT see Electronic Funds Transfer.
EI&DO is Extraordinary Items and Discontinued Operations.
EITF see Emerging Issues Task Force.
ELECTRONIC FUNDS TRANSFER is a payment executed through computers.
ELIMINATION is the the act of removing a mathematical quantity by combining equations. This is common practice in accounting when consolidating financial reports; one example would be inter-company transactions, currency translations, and account balances.
EMBEZZLEMENT is the fraudulent appropriation and personal use of funds or property entrusted to that persons care but actually owned by someone else, e.g. an employee can embezzle money from his or her employer, a civil servant can embezzle funds from the treasury, or a pastor can embezzle funds from a church. See also THEFT and WHITE COLLAR CRIME.
EMC (EXPORT MANAGEMENT COMPANY) is a private company that serves as the export agent for manufacturers, being paid by commission or retainer. Merchandise is not normally purchased by the EMC.
EMERGING ISSUES TASK FORCE (EITF) was formed in 1984 in response to the recommendations of the FASB's task force on timely financial reporting guidance and an FASB Invitation to Comment on those recommendations. The mission of the EITF is to assist the FASB in improving financial reporting through the timely identification, discussion, and resolution of financial accounting issues within the framework of existing authoritative literature.
EMI is Equal Monthly Installments (finance/business).
EMPLOYED, generally, is having your services engaged for; or having a job especially one that pays wages or a salary. In a more specific sense employed means: to put to use, e.g. funds employed or ideas employed.
EMPLOYEE BENEFITS is non-wage compensation provided to employees, such as group insurance, retirement benefits, day care, tuition reimbursement, and specialized benefits.
EMPLOYEE COMPENSATION is wage and salary payments as well as benefits including health and life insurance, retirement payments, and any other non-cash compensation.
ENCUMBERED is when an asset is owned by one party subject to the legal claims of another party. One example is a homeowner that owns a home that is subject to (encumbered by) the claims of the mortgage holder.
ENCUMBRANCE is a) a right or interest in land owned by someone other than the owner of the land itself; examples include easements, leases, mortgages, and restrictive covenants; or, b) in accounting, an encumbrance is an anticipated expenditure, or funds restricted for anticipated expenditures, such as for outstanding purchase orders.
ENDING INVENTORY is inventory at the end of the accounting period.
ENDORSE, depending upon usage, can be: a. application of legal signature to documents or checks; b. a guarantee as meeting a certain standard; c. to be behind or approve of; or, d. to give active support or one's approval to.
ENDORSEMENT, dependent upon usage, can be: a. a signature that validates something, e.g. a bank cashier will not cash a check without an endorsement; b. a promotional statement, e.g. as found on the dust jackets of books; or, c. formal and explicit approval.
ENDOWMENT is a permanent fund where gifts to the fund are held in perpetuity and where earnings are used in accordance with the donor’s specified wishes.
ENGINEERED COSTS are those costs having a clear linkage to output, e.g., direct materials costs.
ENHANCED DISCLOSURE, in securities, is an in-depth open disclosure of any activity taken or proposed by the securities issuer that may have any relevance, positive or negative, to the securities in question.
ENROLLED AGENT is any individual who is enrolled under the provisions of Treasury Department Circular No. 230 to practice before the IRS.
ENTERPRISE RESOURCE PLANNING (ERP) is an information system or process that integrates all operational data and related applications for an entire enterprise. ERP systems permit organizations to manage resources across the enterprise.
ENTERPRISE VALUE (EV) is a measure of a company's value.
ENTERPRISE ZONE is a depressed neighborhood, usually in an urban area, where businesses are given tax incentives and are not subject to some government regulations. These advantages are designed to attract new business in the zone.
ENTITY, in business, is a separate or self-contained existence that provides goods or services.
ENTITY BOUNDARY is that which is legally included within or excluded from a defined entity.
ENTITY ASSUMPTION is the assumption that financial statements are prepared for an entity that is separate and distinct from its owners.
ENTITY CONCEPT is the concept that financial accounting and reporting relates only to the activities of a specific business entity and not to the activities of the owners of that entity.
ENTITY THEORY is where a legal entity is regarded as having a separate existence from the owners. The financial statements are prepared from the perspective of the entity, not its owners. See PROPRIETARY THEORY.
ENTREPRENEUR is the person who assumes the financial risk of the initiation, operation and management of a given business or undertaking. He/She is primarily a financial and/or professional risk taker almost to the extreme.
EOM is End of Month.
EOY is End Of Year.
EOZ is Environmental Opportunity Zones.
EPS see EARNINGS PER SHARE.
EPU see EQUIVALENT UNIT OF PRODUCTION.
EQUILIBRIUM POINT is one of the fundamental concepts in economics describing the market price of a good or service as being determined by the quantity of both supply and demand for it. In 1890, the English economist Alfred Marshall published his famous work, Principles of Economics.
EQUIPMENT is generally determined by the meeting of three tests: a. Has an acquisition cost that is equal to or more than the cost hurdle for classifying capitalized assets. Includes: Invoice amount, sales tax, freight costs, installation costs, costs for the initial complement of supplies needed to place the asset into service, accessory and auxiliary apparatus necessary to make it usable for the purpose for which it was acquired; less trade or trade in discounts and/or educational allowances Excludes: Federal Excise tax, duty, insurance, maintenance and warranty costs; and, b. Has a useful life of two or more years If the item will not have a useful life of more than two years it is considered expendable material, even if it costs more than the level for determining a capital asset; and, c. Is a stand alone item. The item is not permanently attached to or integrated into a building or structure.
EQUIPMENT LOAN is a loan used for the purchase of capital equipment.
EQUITY is, normally, ownership or percentage of ownership in a company or items of value.
EQUITY ACCOUNTING is the practice of showing in a company's accounts the share of undistributed profits of another company in which it holds equity ownership (usually below 50%). The share of profit shown is usually equal to its share of the equity in the other company. The profit may not actually be paid over, but the equity holding company has a right to this share of the undistributed profit.
EQUITY CAPITAL is a form of financing where equity in a business is sold to private investors.
EQUITY FINANCING is a method of an entity obtaining funds by issuing either common or preferred stock, or both. Receipts can be through cash, services, or property. It is in the entities best interest to issue shares when the market price for the stock is at its highest.
EQUITY FUND is a mutual fund whose portfolio consists primarily of common stocks.
EQUITY FUNDING see EQUITY CAPITAL.
EQUITY HOLDING is a holding of the nominal share capital in a company where the shareholding entitles the shareholder to a right to votes, to profits available for distribution to shareholders and to assets available for distribution on a winding up of that company. A holding of shares held as trading stock for the purpose of a trade does not constitute a participating holding.
EQUITY INSTRUMENT covers any share (or part thereof) in the equity share capital of a company (or a comparable member’s interest in a close corporation). The term also includes share options and any other financial instrument convertible into a share (such as a convertible debenture).
EQUITY METHOD is a method of accounting for investments in associated companies.
EQUITY MULTIPLIER (EM) shows the amount of assets owned by the firm for each equivalent monetary unit owner claims held by stockholders, i.e., the equity multiplier measures how many dollars of assets an institution supports with each dollar of capital. If a firm is totally financed by equity, the equity multiplier will equal 1.00, while the larger the number the more highly leveraged is the firm. EM compares assets with equity: large values indicate a large amount of debt financing relative to equity. EM, thus, measures financial leverage and represents both profit and risk measurement. EM affects a firm’s profit because it has a multiplier impact on Return on Assets (ROA) to determine the firm’s Return on Equity (ROE). EM is also a risk measure because it reflects how many assets can go into default before a company becomes insolvent. The EM ratio is best compared to industry averages.
EQUITY SHARE is a. a share or class of shares whether or not the share carries voting rights, b. any warrants, options or rights entitling their holders to purchase or acquire the shares referred to under (a), or c. other prescribed securities. An equity share is a perpetual liability because it signifies an owner's legal demand upon the assets of the entity in which the equity share if held. See also COMMON STOCK.
EQUITY SHARE CAPITAL is capital raised by an entity through the sale of common shares.
EQUITY OFFERING see EQUITY CAPITAL.
EQUITY-TO-ASSET RATIO expresses the proportion of total assets financed by the owner’s equity capital. It is the reciprocal of the debt-to-asset ratio.
EQUIVALENT UNIT OF PRODUCTION (EPU) is based on the idea that if 100 units are all 40% complete, then 40 whole units could have been completed.
ERISA, in the
ERP can mean either Enterprise Resource Planning or Early Retirement Program. See
ERROR OF COMISSION is an error that occurs as a result of an action taken. In accounting, the error occurs when one or both of the double entries are made in the correct class of account but the wrong account within that class.
ERROR OF OMISSION is an error which occurs as a result of an action not taken. In accounting, the error occurs when both the entries required for a transaction are completely omitted from the books.
ERROR OF ORIGINAL ENTRY, in accounting, occurs when the double entry is made but using an incorrect figure.
ERROR OF PRINCIPLE, in accounting, occurs when one or both of the entries are made in the wrong class or category of account.
ESCHEAT is the reversion of property to the state (government) in the absence of legal heirs or claimants.
ESCROW ACCOUNT see TRUST ACCOUNT.
ESTATE is the entire group of assets owned by an individual at the time of his or her death. The estate includes all funds, personal effects, interests in business enterprises, titles to property-real estate and chattels, and evidences of ownership such as stocks, bonds and mortgages owned, notes receivable, etc. All claims against an estate must be duly filed with the Executor or Administrator of the estate, and approved by the court of law under which the will is being probated or the line of heritage is being determined before the indebtedness may be satisfied.
ESTATE TAXES are the Federal taxes levied on the transfer of property from the deceased to his or her heirs, legatees or devisees.
ETC (EXPORT TRADING COMPANY) is a private company that usually purchases items from domestic manufacturers, then sells them to foreign markets. The difference between an EMC and an ETC is sometimes insignificant, i.e., an EMC may occasionally take title of goods, while an ETC may sometimes work strictly on commission without purchasing the goods. The difference is what the company normally does.
ETHICAL STANDARDS, in accounting, is a written document containing basic principles and essential procedures together with related guidance in the form of explanatory and other material.
ETHICS, in business, are moral and professional principles.
EUROBOND see GLOBAL BOND.
EUROIZATION is the use of the euro by a country as its own currency; the linking of a currency’s value to that of the euro; or, the use of the euro for accounting purposes.
EV (economic value) is the value of an asset deriving from its ability to generate income.
EVA see ECONOMIC VALUE ADDED.
EVENT RISK is the risk that the ability of an issuer to make interest and principal payments will change because of rare, discontinuous, and very large, unanticipated changes in the market environment such as (1) a natural or industrial accident or some regulatory change or (2) a takeover or corporate restructuring.
EX is not including or without, e.g. a stock price ex dividend. In business: free of any transport or handling charges incurred before removal from a given location, e.g., bought the goods ex warehouse.
EXCEPTIONAL ITEMS are material items which derive from events or transactions that fall within the ordinary activities of the reporting entity and which individually or, if of a similar type, in aggregate, need to be disclosed by virtue of their size or incidence if the financial statements are to give a true and fair view.
EXCESS OF REVENUE OVER EXPENSES in the not-for-profit sector. There is a common misconception that not-for-profit organizations are not allowed to have a financial cushion as they are “not-for-profit”. In this context it is useful to remember that not-for-profit organizations are also “not-for-loss” organizations. An organization cannot sustain losses over the long term without ceasing to operate or going bankrupt. Excess of revenue over expenses is the planned financial position that there will always be a sufficient amount of funds on hand to continue to run the not-for-profit entity for some period without additional funding; usually 3-4 months.
EXCHANGE is a. a workplace for buying and selling; open only to members, e.g. New York Stock Exchange; or, b. reciprocal transfer of equivalent sums of money especially the currencies of different countries, e.g. foreign exchange markets.
EXCHANGE RATE is the rate at which one currency can be traded for another.
EXCHANGE RATE RISK, in foreign exchange, is the variability of a firm’s value due to uncertain changes in the rate of exchange.
EXCISE TAX is a tax imposed by federal, state, and local governments on an act, occupation, privilege, manufacture, sale, or consumption that is not deductible (e.g., tobacco, gasoline and spirits). This term is in increasing usage to describe almost every tax other than income tax and property tax.
EXECUTOR is a legal entity, frequently an individual, known before death to a testator, who is named in the testator's will to carry out the desires of the deceased after his death as designated in the will. Executors must be approved by the court of law probating the will. An executor pays all indebtedness as claimed by creditors of the estate, with the approval of the court of law, and then carries out or executes the will according to the terms set forth by the testator.
EXEMPT is being freed from or not subject to an obligation, liability, tax, etc.; excused. Examples: exempt gifts or tax-exempt bonus.
EX-FACTORY is where a seller's responsibility ends when the buyer at point of origin, i.e., factory, accepts merchandise. This can also be written as Ex-Warehouse, Ex-works, etc.
EXISTING USE VALUE (EUV) is the price at which a property can be sold on the open market assuming that it can only be used for the existing use for the foreseeable future.
EXPECTATION GAP, in accounting, is the gap between an auditors' actual standard of performance and the more rigorous public expectation of what an auditors' performance should be. The users of financial statements should be allowed to expect that the auditors' materiality levels correspond with their own. If this is not the case an expectation gap will arise. Especially if the financial statements contain non-corrected known errors or omissions classified as immaterial by the auditor, but classified as material by the users. The unknown material errors and omissions are still a part of the audit risk.
EXPECTED ANNUAL CAPACITY is the planned activity levels or output for a given year taking into account efficiency and idle capacity.
EXPECTED VALUE OF PERFECT INFORMATION (EVPI) is the difference between the expected value with (additional) perfect information and the expected value with current information. The expected value of perfect information is the maximum amount a decision maker should pay for additional information that gives a perfect signal as to the state of nature.
EXPENDABLE is something that can be used and discarded without hurting the end product or the company's viability.
EXPENDABLE NET ASSETS are those assets not required to be retained in perpetuity, i.e. those assets available for use for operations.
EXPENDABLE TRUST FUND is a governmental fiduciary fund held in a trustee capacity by a governmental agency that accounts for assets and activities restricted to a specific purpose in accordance to formal intent. The principal of the fund can be expended towards only the activity specified, e.g., Unemployment Compensation Fund, Employee Benefits Fund, etc.
EXPENDITURE is a cost incurred in the normal course of business to generate revenues. See expenses.
EXPENSE is the amount of assets or services used during a period.
EXPENSES are the daily costs incurred in running and maintaining a business. See expenditure.
EXPIRATION DATE is the date on which something; e.g. a security or bond offering, warranty or license; is no longer valid or in effect.
EXPIRED EXPENSE is an expense having come to an end or become void after passage of a period of time.
EXPLORATORY RESEARCH is a method used when gathering primary information for a market survey where targeted consumers / customers are asked very general questions geared toward eliciting a lengthy answer.
EXPORT BROKER is an entity that brings together foreign buyers with domestic manufacturers for a fee, generally providing little other services. An EMC, who is also a middleman, often provides extensive services to complete the transaction as well.
EXPORT DECLARATION is the official paperwork required of exporters so trade transactions and goods can be tracked.
EXPORT LICENSE is the governmentally issued legal permit to export merchandise. In the
EXPOSURE, generally, is the extent to which a product is kept in the public eye through the press, radio, television, and public appearances. In finance, exposure refers to the amount that a business or person can lose. For example: in foreign exchange, it refers to the degree to which a company is affected by exchange rate changes.
EXPOSURE DRAFT is a proposed statement of financial accounting standards issued by the FASB for public comment. The exposure draft represents the FASB's considered judgment on a specific accounting issue. Subject to comments received and possible additional deliberation, an exposure draft may become a Statement of Position (SOP), mandating a Financial Accounting Standard (FAS).
EXPROPRIATION is the taking of property or rights by governmental authority such as eminent domain, possibly including an emergency situation, such as taking a person's truck or bulldozer to build a levee during a flood. In such a case just compensation eventually must be paid to the owner, who can make a claim against the taker.
EXTERNAL is from or between other countries, e.g. external commerce; or, happening, arising or located outside or beyond a company, e.g. external influences.
EXTERNAL AUDIT is an audit conducted by an individual or firm that is independent of the company being audited. These independent auditors audit the books of a company generally once per year (see INTERIM AUDIT) after the completion of the company's fiscal year. Their role is to give an opinion of the financials statement's reflection of the status and operations of the company being audited. Based on what they witness during the audit they will also produce, for management and board utilization, a management letter. Although a financial statement audit is the most common type of external audit, external auditors may also conduct special purpose audits which might include; performing specific tests and procedures and reporting on the results, a less intensive review, and compilations.
EXTERNAL AUDITOR is an auditor, usually working for an audit firm, that is completely independent of the company it is auditing. External auditors should always be certified by a professional association of accountants, and should be selected by, and report to, the corporation’s board of directors.
EXTERNAL DEBT is the total private and public debt owed by a country to individuals, households, firms, and governments in other countries.
EXTERNAL ENVIRONMENT is factors (conditions, trends, and forces) essentially outside the control of organizational members. External environmental scans are conducted to identify important factors in the external environment. This analysis is often a critical aspect in all business or strategic plans.
EXTINGUISHMENT OF DEBT is the debtor's satisfaction of the obligation to a creditor, either legally or in-substance. A debt shall be accounted for as having been extinguished in a number of circumstances, including when it has been settled through repayment or replacement by another liability.
EXTRAORDINARY EXPENSE see EXTRAORDINARY ITEMS.
EXTRAORDINARY ITEMS are material items that are unusual in nature and occur infrequently. Both characteristics must exist for an item to be classified as an extraordinary item on the income statement.
EXTRATERRITORIAL INCOME EXCLUSION is the amount excluded from a taxpayer's gross income for certain transactions that generate foreign trading gross receipts. In general, foreign trading gross receipts include gross receipts from the sale, exchange, lease, rental, or other disposition of qualifying foreign trade property. Foreign trading gross receipts also include receipts from certain services provided in connection with such property, as well as engineering and architectural services for construction projects outside the
FA, dependent upon usage, can mean Fixed Assets, Financial Advisor, Feasibility Analysis, Funds Allocated, Financial Assurance, Financial Agent, Financial Aid, or Factor Analysis.
FACE VALUE is the value printed or written on the face of a asset, e.g. on a bill or bond.
FACTORING is the practice of buying debt at a discount, e.g., if somebody owes you $10,000 payable within a year, a factoring lender may pay you $9,000 for the debt. You receive $9,000 cash quickly, but at the cost of the $1,000 discount.
FACTORY OVERHEAD is the costs of operating a factory which cannot be assigned directly to a specific department or product.
FAIR LABOR STANDARDS ACT is a
FAIR MARKET VALUE is the price at which a willing seller will sell and a willing buyer will buy, in an arms- length transaction, when neither is under compulsion to sell or buy and both have reasonable knowledge of relevant facts.
FAIR VALUE, under GAAP, is the amount at which an asset could be bought or sold in a current transaction between willing parties, other than in liquidation. On the other side of the balance sheet, the fair value of a liability is the amount at which that liability could be incurred or settled in a current transaction between willing parties, other than in liquidation.
F&A is Facilities and Administrative Costs (aka Indirect Costs or Overhead), Fabrication & Assembly, Finance & Administration, or Finance & Accounting.
F.A.S. (FREE ALONG SIDE), e.g. “F.A.S. New York”, means that, for instance, if goods are shipped from the State of Nevada in the U.S. to Madrid, Spain, no charges for shipment are made to the importer until the goods are "free alongside the vessel" in New York. After this point, charges may be applied to the importer.
FASB see Financial Accounting Standards Board.
FAVORABLE VARIANCE is a variance created by using or spending less of a given resource than specified by the standard, often categorized as rate (spending less per hour for labor for a given amount of production), efficiency (using less hours for a given amount of production), usage (using less materials for a given amount of production) or price (paying less to a vendor for a given purchased item).
FBWT, in finance, is Fund Balance With Treasury.
FCIA (FOREIGN CREDIT INSURANCE ACT) is an EximBank program that offers credit insurance against losses due to political conflict or buyer default.
FCPA, in
FDI is Foreign Direct Investiment.
FEDERAL UNEMPLOYMENT TAX ACT (FUTA) is a U.S, federal law providing guidelines for the unemployment compensation system. A Federal tax is paid by all liable employers to fund the administration of Federal and State unemployment insurance programs and the extended benefits program. FUTA provides for payments of unemployment compensation to workers who have lost their jobs. Most employers pay both a federal and a state unemployment tax.
FEE ABSOLUTE see FEE SIMPLE.
FEE ACCOUNTANT is an individual who performs manual or automated bookkeeping services and/or maintains the official accounting records.
FEEDBACK is the process in which part of the output of a system is returned to its input in order to regulate its further output, e.g. a management feedback system would assess the effectiveness of management or a given process and feed the analyzed results back into management for development of positive change.
FEE SCHEDULE is a schedule or list of fees to be paid or benefits that will be received under listed professional procedures or benefits.
FEE SIMPLE is absolute ownership of real property; owner is entitled to the entire property. This includes unencumbered right of disposition during his/her life and upon death the real property passes to his/her heirs. Also known as FEE SIMPLE ABSOLUTE and FEE ABSOLUTE.
FEE SIMPLE ABSOLUTE see FEE SIMPLE.
FEE SIMPLE DETERMINABLE is a fee simple which automatically comes to an end when a stated event occurs or, perhaps, fails to occur.
FF&E is Furniture, Fixtures & Equipment (in real estate).
FFO - FUNDS FROM OPERATIONS is used by real estate and other investment trusts to present the cash flow from trust operations i.e., earnings plus depreciation and amortization.
FGAR is Florida Government Accountability Report.
FGI see FINISHED GOODS INVENTORY.
FICA (FEDERAL INSURANCE CONTRIBUTIONS ACT) is the
FICTITIOUS ASSET is debit balance includes on balance sheets as assets that do not conform to the definition of an asset. Intentional includes of assets known to be fictitious assets may be ruled as fraud.
FICTITIOUS NAME is often referred to as a DBA, "Doing Business As," a fictitious name is frequently used by sole proprietors or partnerships to provide a name, other than those of the owners or partners, under which the business will operate.
FIDDLY is requiring close attention to detail, i.e. to be fussy (primarily used in
FIDUCIARY is a person or business (for example, a bank or stock brokerage) who has the power and obligation to act for another (often called the beneficiary) under circumstances which require total trust, good faith and honesty.
FIFO (first-in, first-out) is an inventory cost flow whereby the first goods purchased are assumed to be the first goods sold so that the ending inventory consists of the most recently purchased goods.
FINANCE, dependent upon usage, is a. the management of money, credit, banking and/or investments; b. the commercial activity of providing funds and capital; c. the branch of economics that studies the management of money and other assets; or, d. to sell or provide on credit.
FINANCE CHARGE is the total dollar amount your loan will cost you. It includes all interest payments for the life of the loan, any interest paid at closing, your origination fee and any other charges paid to the lender and/or broker. In real estate, appraisal, credit report and title search fees are normally not included in the finance charge calculation.
FINANCE LEASE, typically, is a full-payout, non-cancelable agreement, in which the lessee is responsible for maintenance, taxes, and insurance.
FINANCIAL ACCOUNTABILITY tells you what policies your board should adopt or has adopted to meet their responsibility for ensuring that the organization they govern is financially sound. They would then hold those who manage the organization accountable for implementing these policies. Policy areas covered: Finances, Budgets, Asset Protection and Major Risks.
FINANCIAL ACCOUNTING is the area of accounting concerned with reporting financial information to interested external parties.
FINANCIAL ACCOUNTING STANDARDS BOARD (FASB) is a professional organization which develops accounting principles.
FINANCIAL ANALYSIS is analysis of a company's financial statement, usually by accountants or financial analysts.
FINANCIAL BUDGET is focused on capital expenditures and on a business’s budgeted cash position:
1. CAPITAL BUDGET forecasts large expenditures for items such as machinery. Different companies set different thresholds for what qualifies as a capital expenditure (versus an expense). If the purchase of an item (such as a piece of machinery) is classified as a capital expenditure, it is then depreciated (or amortized in some cases) over a predetermined period of time. The Capital Budget covers Capital Expenditures, Disbursements for Capital Expenditures, and Depreciation Budgets.
2. CASH BUDGET tracks a business’s anticipated cash receipts and disbursements. This is a very detailed and important schedule that draws on information in the Operating Budget.
FINANCIAL CONSULTANT see CHARTERED FINANCIAL CONSULTANT.
FINANCIAL ENGINEERING is a process involving the creation and combination of a variety of financial instruments in order achieve a defined financial objective within certain cost, tax and legal constraints, e.g. combining or dividing existing financial products to create new financial products.
FINANCIAL EXPENSE can mean a. generally in the corporate world, it is a company's interest expense on long-term debt; or, in greater depth it is b. it includes interest and related charges; foreign exchange losses on debt; net expense on the disposal of marketable securities; amortization of bond redemption premiums; additions to provisions for financial liabilities and charges and impairment losses on investments.
FINANCIAL GEARING reflects any borrowing that the company may have undertaken. Operating income will become more volatile with increased financial gearing (borrowing). Thus the shares will have more risk attached to them. More borrowing, more risk. See GEARING and OPERATIONAL GEARING.
FINANCIAL GUARANTEE INSURANCE is insurance created to cover losses from specified financial transactions.
FINANCIAL INCOME is that income that is contained within the financial statements of an entity. Financial income normally is not in alignment with taxable income reported in income tax returns. See TAXABLE INCOME.
FINANCIAL INSTITUTION is an institution (public or private) that collects funds (from the public or other institutions) and invests them into financial assets.
FINANCIAL LEVERAGE is the use of debt to increase the expected return on equity. Financial leverage is measured by the ratio of debt to debt plus equity.
FINANCIAL MANAGEMENT is the process of managing financial resources, including management decisions concerning accounting and financial reporting, forecasting, and budgeting.
FINANCIAL PLANNER is a investment professional who assists individuals with long- and short-term financial goals.
FINANCIAL POSITION is the status of a firm's or individual's assets, liabilities, and equity positions as reflected on its financial statement.
FINANCIAL REPORTING RELEASE (FRR), in the
FINANCIAL RESTRUCTURING is a process geared at avoiding the liquidation of the Company. Usually it involves agreement by third parties to satisfy creditors' claims under certain terms and conditions. Financial restructuring may also be carried out by concluding an agreement with all creditors of the Company under which creditors will be paid on somewhat different terms than those initially accepted by the Company when credit and loans were extended. This form of financial restructuring enables the Company to continue its operations and minimize creditors’ losses. See also RESTRUCTURING.
FINANCIAL RESULTS usually refers to the summary financial statements provided in compliance to the GAAP guidelines. They can cover any period(s), but usually cover either: single month, quarter, or annual periods.
FINANCIAL RISK is the possibility of whether a bond issuer will default, by failing to repay principal and/or interest in a timely manner. Usually bonds issued by the federal government, for the most part, are immune from default (if the government needs money... more is printed). Bonds issued by corporations are more probable to be defaulted on, since companies often go bankrupt. Municipalities occasionally default as well, but it is much less common. Can also be called default risk or credit risk.
FINANCIALS see FINANCIAL STATEMENT.
FINANCIAL SCHEDULE, contained in an audited annual report, summarizes the audited financial position of the audited entity. Other application of the term is the scheduling of amounts, not necessarily by date, of major financial events by any given category as to projected receipts, payments, costs, etc.
FINANCIAL VIABILITY is the ability of an entity to continue to achieve its operating objectives and fulfill its mission over the long term.
FINANCING COST is the difference between the cost of financing the purchase of an asset and the assets cash yield. Positive carry means that the yield earned is greater than the financing cost; negative carry means that the financing cost exceeds the yield earned.
FINANCING MARGIN RATIO (FMR) is the margin to be maintained between the debit balance and the actual security value as stipulated in the Facility Letter or any other margin as stipulated by a lending bank from time to time as the FMR.
FINISHED GOODS INVENTORY is that portion of goods in inventory which have completed manufacture and are available for sale.
FIRM is members of a business organization that owns or operates one or more establishments, e.g. a legal or accounting firm.
FISCAL is belonging to the public treasury; or, pertaining to public finance and financial transactions.
FISCALIST is an economist who prefers that the government affect the economy by raising and lowering taxation and/or government spending.
FISCAL LEVERAGE is the ability of a government to affect economic conditions and/or actions of others through fiscalist policies.
FISCAL PERIOD is a unit of time (corresponding to calendar months) into which the fiscal year is divided. Period 1 is July 1st through July 31st, and so on. An extra accrual period also exists (see 13TH PERIOD).
FISCAL QUARTER is any of the four financial accounting quarters within a fiscal year. See FISCAL YEAR.
FISCAL YEAR is the declared accounting year for a company, but it is not necessarily in conformance to a calendar year (January through December). However, it does cover twelve months, 52 weeks, 365 days. For example, the
FIT is Federal Income Tax.
FIXED ASSET is a long-term tangible asset that is not expected to be converted into cash in the current or upcoming fiscal year, e.g., buildings, real estate, production equipment, and furniture. Sometimes called PLANT.
FIXED ASSET INVESTMENT see TRADE INVESTMENT.
FIXED ASSETS are those assets of a permanent nature required for the normal conduct of a business, and which will not normally be converted into cash during the ensuring fiscal period. For example, furniture, fixtures, land, and buildings are all fixed assets. However, accounts receivable and inventory are not. Sometimes called PLANT.
FIXED ASSETS (NET) is all property, plant, leasehold improvements and equipment, net of accumulated depreciation or depletion.
FIXED ASSETS (NET) / NET WORTH measures liquidity by comparing "fixed" assets with "fixed" capital. A lower ratio indicates proportionately smaller investment and a better "cushion" for creditors in case of liquidation. This may be important if the fixed assets are not easily used in other businesses. The presence of substantial leased fixed assets (not shown on the balance sheet) may deceptively lower this ratio. Therefore smaller is better, i.e., greater than .75 (75%) should merit caution.
FIXED ASSET TURNOVER measures management's ability to generate revenues from investments in fixed assets. FAT considers only the firm's investment in property, plant and equipment and is extremely important in high asset firms such as manufactures and telecommunications companies. Generally, the higher this ratio:
· the smaller the investment required to generate sales, thus the more profitable the firm.
· indicates the firm has less money tied up in fixed assets for each dollar of sales revenue.
A declining ratio may indicate that the firm has over-invested in plant, equipment, or other fixed assets.
FIXED BOND pays an income stream and redemption payment at maturity than is fixed in monetary terms; however, high inflation will erode the real value of these payments.
FIXED BUDGET is a budget that is not adjusted for changes in the volume of service. See FLEXIBLE BUDGET.
FIXED CHARGE is those expenses incurred each time a batch of product is produced. Primarily consists of ordering cost for the raw material, engineering costs for machine setup and preparation for the production run, and work order processing cost; also known as SETUP COST.
FIXED CHARGE RATIO is calculated: total fixed costs/total expenses.
FIXED COST is a cost that does not vary depending on production or sales levels, such as rent, property tax, insurance, or interest expense.
FIXED COSTS are operating expenses that are incurred to provide facilities and organization that are kept in readiness to do business without regard to actual volumes of production and sales. Fixed costs remain relatively constant until changed by managerial decision. Within general limits they do not vary with business volume. Examples of fixed costs consist of rent, property taxes, and interest expense.
FIXED DEPOSIT is a specific sum of money deposited in a financial institution for a fixed term earning a pre-agreed interest rate.
FIXED FEE is a set price for the completion of a project. It is easier for the customer to budget, but provides higher risk for the contractor due to cost overruns.
FIXED INCOME is any type of investment that yields a regular (fixed) payment. For example, if you borrow money and have to pay interest once a month, you have issued a fixed income security. When a company does this, it is called a bond (although 'preferred stock' is also sometimes considered to be fixed income). The term fixed income is also applied to people's income which is invariant each period. This could include income derived from fixed income investments such as bonds and preferred stocks or pensions that guarantee a fixed income. See NON-FIXED INCOME.
FIXED OVERHEAD is those costs like rent, utilities, basic telephone, loan payments, etc., that stay the same whether sales go up or down. Variable overhead, on the other hand, are those costs which vary directly with production.
FIXED EXPENSES in the operation of a business are those expenses that remain the same regardless of production or sales volume, i.e. do not fluctuate with sales volume. Contrast with VARIABLE EXPENSES.
FLAG OF CONVENIENCE (FOC) involves the opportunistic registration of ships with national governments that do not impose or effectively administer agreed international standards regarding seaworthiness, safety and health, officer and crew competencies, and employment conditions. For the governments concerned FOC shipping is an easy way to make money. Registration comes at a price in return for turning a blind eye to maritime responsibility, decency and common sense. The classic FOC host has little to do legitimately with the sea and seafaring. For owners of FOC ships, often hidden in corporate mazes and having little to otherwise do with the registering authority, the device is a way of increasing profit margins or turning quick profits.
FLASH REPORT provides highlights of key information promptly to the responsible managerial accountant; also called EXCEPTION REPORT.
FLAT INTEREST refers to charging interest on the full original loan amount, rather than on the declining balance. With group based loans, for example, a common "interest rate" is "3% per month, flat, for 4 months". This means that a $100 principal amount lent is multiplied by 3%, and then by 4 months to come up with $12 in interest. Thus, $112 would be repaid over 4 months in equal installments.
FLAT LEASE is a lease where the cost is fixed for a specific period of time.
FLAT RATE is a per unit price that remains constant regardless of the volume purchased.
FLEXIBLE BUDGET is based upon different levels of activity. It is a very useful tool for comparing actual costs experienced to the cost allowable for the activity level achieved, i.e. it is dynamic in nature as compared to static. A series of budgets can be readily developed to fit any activity level. Flexible budgeting distinguishes between fixed and variable cost, thereby allowing for a budget that can be automatically adjusted to the level of activity actually attained.
FLOAT is 1. the time between the deposit of checks in a bank and when the amount is truly accessible; 2. the amount of funds represented by checks that have been written but not yet presented for payment. Some entities will 'play the float' by writing checks although there are insufficient funds actually on deposit to cover the checks; and, 3. to issue new securities through an underwriter.
FLOTATION COST is the percentage cost of issuing new common stock.
FLOATING RATE CONVERTIBLE NOTE (FRCN) is a debt instrument that is a short-term debt obligation where the interest rate is variable because it is linked to a market rate such as the 3-month T-bill rate or London Interbank Offer Rate (LIBOR), and conditionally allows for the note to be exercised into the security of the debtor in accordance with the conditions set forth in the debt instrument.
FLOATING RATE NOTE (FRN) is a short-term debt obligation where the interest rate is variable because it is linked to a market rate such as the 3-month T-bill rate or London Interbank Offer Rate (LIBOR).
FLOAT MANAGEMENT is to manage depository or checking accounts that do not have any returns associated with them, i.e. it is poor stewardship to leave too much money in checking accounts or other locations that do not maximize returns on that cash, i.e. do not or minimally earn interest income.
FLOOR a series of European interest rate put options used to protect against rate moves below a set strike level.
FLP is Family Limited Partnership.
FLSA is Fair Labor Standards Act.
FMLA is Family and Medical Leave Act of 1993.
FMR see FINANCING MARGIN RATIO.
FOOTING, in accounting, is the sum of a column of figures.
F.O.B. (FREE ON BOARD) is a transportation term that indicates that the price for goods includes delivery at the seller’s expense to a specified point and no further. The FOB term is used with an identified physical location to determine 1) the responsibility and basis for payment of freight charges, and 2) the point a twhich title for the shipment passes from seller to buyer.The FOB location terms, Origin and Destination, may be qualified by modifiers. The modifier determines the payment of the transportation charges. Modifiers denote nothing about the title of the goods or filing of claims. The most three common modifiers are: Collect, Prepaid & Add, and Prepaid & Allow. Collect: The carrier collects the transportation charges from the buyer. Prepaid & Add: The seller prepays the transportation charges, but adds the charges to the invoice for reimbursement from the buyer .Prepaid & Allow: The seller prepays the transportation charges and they are already included in the contract price.
F.O.B. DESTINATION is where the seller retains title and control of goods until they are delivered and the contract of carriage has been completed. The seller selects the carrier and is responsible for the risk of transportation.
FOB POINT OF ORIGIN is where the supplier is responsible for all shipping costs to the point of having the goods loaded unto the vessel for shipment to its destination. The purchaser, from that point forward, is responsible for all further shipping costs to the point of destination, e.g., insurance, transportation, etc.
FOC see FLAG OF CONVENIENCE.
FOLIO, dependent upon application, is a. a book (or manuscript) consisting of large sheets of paper folded in the middle to make two leaves or four pages; or, b. a sheet of any written or printed material (especially in a manuscript or book); or, c. the system of numbering pages; or, d. in investments, an unstructured basket of common stock that may represent a stock index, a sector or theme, or even an actively-managed portfolio at inception, but which may be modified by an investor or an advisor to meet the tax and spending needs of its owner. The rationale for the folio is to take advantage of diversification and the ability to realize tax losses in a separately managed account. In general, an investor will have to devote a fair amount of time to the folio or engage the services of a specialized advisor.
FOOTING is the sum of a column of figures.
F.O.R. (FREE ON RAILROAD) is where goods will be delivered by the exporter to a railway station. The importer is responsible from this point on.
FORECAST is to estimate or calculate expected business results in advance. To plan the business course for the future. A document that sets down the plan. See BUSINESS PLAN, PROJECTION, BUDGET.
FOREIGN is of concern to, or concerning the affairs of, other nations (other than your own) (Example: Foreign trade or companies).
FOREIGN CURRENCY TRANSLATION is the process of restating foreign currency accounts of subsidiaries into the reporting currency of the parent company in order to prepare consolidated financial statements in the native currency of the parent company.
FOREIGN SALES AGENT or REPRESENTATIVE is an entity that works to sell your merchandise in a foreign country. Equivalent to the “Manufacturer's Representative” in the
FORENSIC ACCOUNTING provides for an accounting analysis that is suitable to a court of law which will form the basis for discussion, debate and ultimately dispute resolution. Forensic accounting encompasses investigative accounting and litigation support. Forensic accountants utilize accounting, auditing and investigative skills when conducting an investigation. Equally critical is the ability to respond immediately and to communicate financial information clearly and concisely in a courtroom setting.
FORENSIC AUDIT is an examination of evidence regarding an assertion to determine its correspondence to established criteria carried out in a manner suitable to the court. An example would be a Forensic Audit of sales records to determine the quantum of rent owing under a lease agreement, which is the subject of litigation.
FOREX is Foreign Exchange Market. FOREX is a market in which brokers located in various parts of the world trade currencies for many nations. FOREX transactions are not traded in futures markets.
FORM 1065 (Schedule K-1) is the domestic partnership income tax return form used in the
FORM 1120 is the income tax return form used by corporations in the
FORESEEABLE is what may be reasonably anticipated.
FORMULA is a standard procedure for solving a class of mathematical problems.
FORWARD INTEREST RATE AGREEMENT is where two entities agree to a fixed interest rate in the future. If the actual rate is different than the fixed rate, one party will pay the other party the present value of the difference between the interest cash flows. Essentially the two entities are gambling on which way the interest rate of an index will change. These contracts are not traded on an established exchange but rather are private contracts between parties.
FORWARD LOOKING STATEMENTS, within the meaning of the
are statements made that are not historic and are thereby predictive. You can identify forward-looking statements by use of the words “believe”, “expect”, “anticipate”, “intend”, “estimate”, “assume”, “project” and other similar expressions that predict or indicate future events and trends or that do not relate to historical matters. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements.
FORWARD PREMIUM is when a currency trade forward price is higher than its spot price.
FP, among others, means Fixed Price.
FP&A is Financial Planning and Analysis.
FRA is Forward Rate Agreement, Financial Responsibility Act, Full Retirement Age (SSA), Fiscal Responsibility Act, Federal Reimbursement Allowance, or Federal Register Act.
FRANCHISE is a legal arrangement giving rights to sell a product or service.
FRAUD is intentional deception resulting in injury to another person or entity
FRCN see FLOATING RATE CONVERTIBLE NOTE.
FREE CASH FLOW is net income plus non-cash charges to income, specifically depreciation and amortization less capital expenditures, to sustain the basic business.
FREEHOLD is a. an interest in land the duration of which is restricted to the life or lives of a particular person or persons holding it, or b. an interest in property that is unconditional and represents the broadest ownership interest recognized by law.
FREE TRADE AGREEMENT is an agreement between countries that will result, over an agreed period of time, in an elimination of duties for goods flowing between the signatories.
FREE TRADE ZONE (FTZ) is an area, usually a port of entry, designated by the country for duty-free entry of goods. As long as the goods do not go into the country from the FTZ, no duty is assessed. While in the FTZ, goods may be processed, packaged, serviced or displayed.
FREIGHT is the charge for transporting something by common carrier.
FREIGHT FORWARDER is an individual or firm that provides for the packing and shipping of merchandise. Generally they also assist with export and other documentation.
FREIGHT OUT is the handling, packaging, and shipping costs of product; normally considered a selling cost.
FREQUENCY, in advertising, is the number of times you hope to reach your target audience through your advertising campaign.
FRESH START ACCOUNTING, upon emergence from bankruptcy, the consolidated financial statements of the "Successor Company" apply the provisions of fresh start accounting in accordance with Generally Accepted Accounting Principles (GAAP). Under fresh start accounting, a new reporting entity, the “Successor Company”, is deemed to be created, and the recorded amounts of assets and liabilities are adjusted to reflect their fair value. As a result, the reported historical financial statements of the “Predecessor Company” generally are not comparable to those of the "Successor Company".
FRF is an acronym for French Francs.
FRIENDLY TAKEOVER consists of a straight buyout of a company, and happens all the time. The shareholders receive cash or (more commonly) an agreed-upon number of shares of the acquiring company's stock.
FRINGE BENEFIT an incidental benefit awarded for certain types of employment (especially if it is regarded as a right) (Example: employer supplied health insurance or two weeks paid vacation per year).
FRN see FLOATING RATE NOTE.
FRR see FINANCIAL REPORTING RELEASE.
FRS is Federal Reserve System or Financial Reporting Standard.
FRS 11 sets out the principles and methodology for accounting for impairments of fixed assets and goodwill. It replaces the previous approach whereby diminutions in value were recognized only if they were regarded as permanent. Instead, the carrying amount of an asset is compared with its recoverable amount and, if the carrying amount is higher, the asset is written down.
FRS 19 is a deferred tax standard. In summary:
A. Deferred tax is provided on timing differences relating to:
- accelerated capital allowances and depreciation
- accruals for and payments of pension and other post retirement benefits
- the elimination of unrealized intra group profits
- unrelieved tax losses
- “fair value revaluations” that are taken annually to the profit and loss account
- other short-term timing differences
B. Deferred tax is not provided on timing differences relating to:
- other fixed asset revaluations, where there is no intention to sell
- gains that are rolled over
- unremitted overseas earnings, where there is no intention to remit.
The FRS 19 Standard also includes further, detailed measurement and disclosure rules.
FSA has several possible meanings, e.g. Flexible Spending Account (employee benefit offered by some companies) or Funding Standard Account.
FULL ABSORPTION COSTING see ABSORPTION COSTING.
FULL CHARGE BOOKKEEPER is someone who can do it all - including compiling the data into the General Ledger and preparing financial statements.
FULL COSTING see ABSORPTION COSTING.
FULL COST RECOVERY is adjusting fees/prices for goods/services to where all cost of operations and maintenance are covered for supplying the given goods or services.
FULL CYCLE ACCOUNTING see ACCOUNTING CYCLE.
FULL DISCLOSURE, generally, is the requirement to disclose all relevant or material facts to a transaction.
FULLY DEPRECIATED is when an asset has already been charged with the maximum amount of depreciation allowed by the taxing authority for accounting purposes.
FUNCTIONAL-BASED ACCOUNTING focuses on organizational units such as departments and plants, uses financial outcome measures and static standards and benchmarks to evaluate performance, and emphasizes status quo and organizational stability. On the other hand, activity-based accounting focuses on processes, uses both operational and financial measures and dynamic standards, and emphasizes and supports continuous improvement. Activity-based accounting adds a process perspective.
FUNCTIONAL CURRENCY, generally, is the currency of record for any given entity. Within the context of foreign currency, it is the currency which a foreign subsidiary handles on a day-to-day basis in generating net cash flows. It is normally the currency of the country in which the subsidiary operates, but may be the currency of the parent company.
FUND is a pool of money normally set apart for a purpose, for example, a pension fund to provide pensions.
FUND ACCOUNTING is a method of accounting and presentation whereby assets and liabilities are grouped according to the purpose for which they are to be used. Generally used by government entities and not-for-profits.
FUNDAMENTAL ANALYSIS is a method used to evaluate the worth of a security by studying the financial data of the issuer. Performing fundamental analysis will teach you a lot about a company, but virtually nothing about how it will perform in the stock market. Apply this analysis on two competing companies or in comparisone to its industry and it becomes clearer which the best investment choice is. See FUNDAMENTALS.
FUNDAMENTALS are factors which are “fundamental” to the working of a company’s business, its profitability, operating costs, product prices, technical innovations, etc. Company analysis taking into account these fundamental factors facilitates share valuation. See FUNDAMENTAL ANALYSIS.
FUND BALANCE is when liabilities are subtracted from assets, there is a fund balance. A positive fund balance means there are more assets than liabilities; a negative fund balance means just the opposite. Fund balance can be complicated by the fact that part of the fund balance is reserved and part unreserved. The difference between reserved and unreserved is that the unreserved can potentially be authorized for future expenditures while the reserved cannot. Additionally, the fund balance is a residual and not necessarily a cash amount.
FUNDED DEPRECIATION ACCOUNT is a reserve setup to cover the replacement cost of those capital assets covered within the depreciation schedule.
FUND MANAGEMENT is the professional, in many cases regulated, caretaker of client assets for a fee. Dependent upon type of fund, the fund may be authorized to put assets within the fund at risk in the pursuit of profits for the asset owners (clients).
FUNDS EMPLOYED, normally, is the average of Net Working Capital plus Fixed Assets held at the beginning and end of the financial year.
FUNDS FLOW is the funds generated from operations; normally expressed as 'cash flow from operations' or 'working capital from operations'.
FUNDS TRANSFER is money that is withdrawn from one account and transferred into a different account. See also ELECTRONIC FUNDS TRANSFER.
FUND THEORY views the organization as a series of funds or sub-funds represented by various services or departments.
FUTA see FEDERAL UNEMPLOYMENT TAX ACT.
FUTURES are contracts to buy or sell specific quantities of a commodity or financial instrument at a specified price with delivery set at a specified time in the future.
FUTURE VALUE is the amount of money that an investment made today (the present value) will grow to by some future date. Since money has time value, we naturally expect the future value to be greater than the present value. The difference between the two depends on the number of compounding periods involved and the going interest rate.
FX ACCOUNT (Foreign Exchange Account) is a trading account usually based in foreign currencies.
FYE is For Year Ending.
GAAP is Generally Accepted Accounting Principles or Generally Accepted Accounting Procedures (less common). See GENERALLY ACCEPTED ACCOUNTING PRINCIPLES.
G&A usually refers to the indirect overhead costs contained within the General and Administrative expense / cost categories (see also SG&A).
GAI is Guaranteed Annual Income.
GAIN is: a. the amount by which the revenue of a business exceeds its cost of operating; b. rise in rate or price; c. earn on some commercial or business transaction; d. earn as salary or wages.
GAO is the investigative arm of the United States Congress charged with examining matters relating to the receipt and payment of public funds.
GARBAGE IN, GARBAGE OUT (GIGO) is an often used computer and software industry saying meaning that if the data going into a system is suspect, the resulting data output will be suspect.
GARNISH is to take a debtor's wages under a legal order, e.g. for child support or an IRS tax liability.
GASB stands for Government Accounting Standards Board. The GASB is a nonprofit organization responsible for establishing and improving accounting and financial reporting standards for governmental units.
GASB 34 is Government Accounting Standards Board Statement 34. GASB 34 provides the broadest changes in government accounting practices since the inception of Generally Accepted Accounting Practice (GAAP) for governmental agencies dating back to the 1930s. The principal change that GASB 34 requires of government entities is the reporting of the value of capital assets on Consolidated Annual Financial Reports (CAFR).
GATT (GENERAL AGREEMENT ON TARIFFS AND TRADE) is a multilateral treaty that aims to reduce trade barriers and increase trade. The GATT was an interim treaty process that has now culminated in the World Trade Organization (WTO).
GBP is United Kingdom Pound Sterling (Currency Code).
GDP see GROSS DOMESTIC PRODUCT.
GEARING is the proportion of the capital employed of a company that is financed by lenders rather than shareholders.
GEARING RATIO measures the percentage of capital employed that is financed by debt and long term financing. The higher the gearing, the higher the dependence on borrowing and long term financing. Whereas, the lower the gearing ratio, the higher the dependence on equity financing. Traditionally, the higher the level of gearing, the higher the level of financial risk due to the increased volatility of profits. Financial manager face a difficult dilemma. Most businesses require long term debt in order to finance growth, as equity financing is rarely sufficient, on the other hand, the introduction of debt and gearing increases financial risk. A high gearing ratio is positive; a large amount of debt will give higher return on capital employed but the company dependent on equity financing alone is unable to sustain growth. Gearing can be quite high for small businesses trying to become established, but in general they should not be higher than 50%. Shareholders benefit from gearing to the extent that return on the borrowed money exceeds the interest cost so that the market value of their shares rise.
GENERAL ACCOUNTING involves the basic principles, concepts and accounting practice, recording, financial statement preparation, and the use of accounting information in management.
GENERAL EXPENSE is expense not directly connected with any single department.
GENERAL JOURNAL is the most basic of journals. It is a chronological list of transactions. It has a very specific format for recording each transaction. Each transaction is recorded separately and consists of: 1.) a date; 2.) any and all accounts to receive a debit entry are listed first with an amount in the appropriate column, then; 3.) any and all accounts to receive a credit entry are indented and listed next with an amount in the appropriate column; 4.) a clear description of the transaction. At least one line is then skipped to visually separate recorded transactions.
GENERAL LEDGER see LEDGER.
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (GAAP) is a recognized common set of accounting principles, standards, and procedures. GAAP is a combination of accepted methods of doing accounting and policy board set authoritative standards.
GENERALLY ACCEPTED AUDITING STANDARDS (GAAS), in the
GENERAL LEDGER is the ledger that contains all of the financial accounts of a business; contains offsetting debit and credit accounts (including control accounts).
GENERAL PARTNERSHIP is one or more partners who are jointly and severally responsible or liable for the debts of the partnership.
GEOGRAPHICAL SEGMENT is a component of an enterprise that (a) provides products and services within a particular economic environment and (b) that is subject to risks and returns that are different from those of components operating in other economic environments.
GFOA is Government Finance Officers' Association.
GI, among others, is an acronym for: Government Issue, General Increase, General Information, or General Issue.
GIFTS-IN-KIND are non-cash gifts of tangible or intangible property. Tangible property can fall into two distinct categories, and its value is derived from its physical existence: 1. objects, such as equipment, software, automobiles, printed materials, etc.; or, 2. services, such as providing photography services. Intangible personal property is property whose value stems from intangible elements, e.g. patents and copyrights.
GILT is a bond issued by the
GLOBAL BOND is a bond issued and traded outside the country whose currency it is denominated in, and outside the regulations of a single country; usually a bond issued by a non-European company for sale in
GLOBAL CUSTODY is a term used within the investment banking industry in defining securities/monetary instruments that are traded internationally by Global Custodians. Those securities would be held in "Global Custody". Chase Bank originated the concept of providing Global Custody trading services for institutional investors trading in foreign markets in 1974. Banks recognized as Global Custodians provide their customers with Global Custody services in respect to securities traded and settled not only in the country in which the Global Custodian is located but also in numerous other countries throughout the world.
GLOBAL DEPOSITORY RECEIPTS are receipts evidencing ownership in the underlying shares of a foreign company. Generally,
GLOBAL FUND is a (mutual) fund that can invest in companies located anywhere in the world, including the home country, e.g. the
GLOBALIZATION is the name for the process of increasing the connectivity and interdependence of the world's markets and businesses. In its literal sense, globalization is a social change, an increased connectivity among societies and their elements due to transculturation; the explosive evolutions of transport and communication technologies to facilitate international cultural and economic exchange are examples of globalization.
GMP is either Good Manufacturing Practice(s) or Gross Maximum Price.
GMROI is an acronym for Gross Margin Return On Investment (retail).
GNP see GROSS NATIONAL PRODUCT.
GOAL is the milestone the organization aims to achieve that evolves from strategic issues or operational improvement planning. They transform strategic issues into specific performance targets that impact the entire organization, or operational improvement that is more localized in nature. They can be qualitative or quantitative. Dependent upon usage, GOALS are general in nature, while OBJECTIVES are specific, measurable and time-based. In some organizations, the meanings for GOAL and OBJECTIVE are reversed.
GOING CONCERN refers to the liquidity of a concern. If the concern is illiquid, the viability of that concern being able to continue to operate is in doubt.
GOING CONCERN CONCEPT is the underlying assumption that any accountant makes when he prepares a set of accounts. That the business under consideration will remain in existence for the foreseeable future.
GOING CONCERN PRINCIPLE assumes that the accounting entity will maintain proper accounting records from the date of its establishment to the date of its liquidation.
GOING PUBLIC refers to those activities that relate to offering a private company's shares to the general investing public including registering with the SEC.
GOING RATE is an expression that means the cost of the average of suppliers of like products or services. The connotation is that the cost will be "no more expensive than the competition."
GOLDEN RULES OF ACCOUNTING are: 1. Debits ALWAYS EQUAL Credits; 2. Increases DO NOT NECESSARILY EQUAL Decreases; and, 3. Assets - Liabilities = Owner's Equity (The Accounting Equation).
GOODS, generally, is cargo shipped by land, sea or air. In asset-based finance, the term goods refers to equipment or inventory.
GOODS RECEIVED NOTE is a document produced when goods are received into the company/factory. It will usually accompany goods to any inspection and is used to check against invoices before payment.
GOODWILL is that intangible possession which enables a business to continue to earn a profit that is in excess of the normal or basic rate of profit earned by other businesses of similar type. The goodwill of a business may be due to a particularly favorable location, its reputation in the community, or the quality of its employer and employees. The evidence that goodwill exists is the proven ability to earn excess profits. Goodwill is created on the books of a newly purchased company to the extent that the purchase price of the company is greater than the value of its net tangible assets. There are a number of methods for valuing goodwill: a. Simple Capitalization - The net profit of the business is capitalized to determine the total value of the business. The value of all the tangible assets is subtracted from the total value to establish the value of the intangible assets, or goodwill. b. Excess Earnings - the amount of earnings that are in excess of those normally earned by a similar business are capitalized to determine the value of goodwill. c. Income Tax Method - The past five years net income is averaged and a reasonable expected rate of return for tangible assets and salary requirements are subtracted. The resulting value is then capitalized to arrive at the goodwill value. d. Market Value - The price a willing seller would accept and a willing buyer would pay for goodwill. e. Buy /Sell Agreement - The value of goodwill is established by a formula in the buy/ sell agreement. f. Rule of Thumb - Goodwill is worth one years gross income.
GOVERNMENT ACCOUNTABILITY OFFICE (GAO) is the organization in the U.S. Congress that investigates the performance of the federal government. GAO evaluates the use of public funds and the performance of federal programs, while also providing analytical, investigative and legal services in order to support to Congress in its policy formulation and decision making processes. Most GAO reports are initiated at the request of Congress, while some are initiated by the agency itself or are required by law.
GOVERNMENTAL ACCOUNTING STANDARDS BOARD (GASB) is a nonprofit organization responsible for establishing and improving accounting and financial reporting standards for governmental units.
GOVERNMENT PROVISION OF DEPOSIT INSURANCE affects banks’ demands for deposits and households’ (and others’) supply of deposits to banks. The banking industry models deposit insurance premiums that banks pay as a fixed share of deposits. As is the case for many government subsidies, the government subsidies attributable to the under-pricing of deposit insurance are likely to be shared with depositors (and bank customers more generally) because that subsidy lowers the cost of providing that insurance. In response to the subsidy, banks raise the deposit interest rates that they pay. In doing so, banks transfer some of the government subsidy to depositors.
GRACE PERIOD is the period of time between your statement date and the due date, i.e. it is the time period stipulated in most loan contracts and insurance policies during which a late payment will not result in penalties, default or cancellation.
GRADUATED TAX see PROGRESSIVE TAX.
GRANTEE is the person or entity to whom property or assets are transferred.
GRANTOR is the person or entity who transfers property or assets.
GREEN BOOK is a publication entitled U.S. Overseas Loans and Grants and Assistance from International Organizations. This data, which is grouped by country and geographic region, includes assistance from USAID, military assistance, P.L. 480, Export-Import Bank, etc. from 1945 to the last completed fiscal year.. This publication is released shortly after the Congressional Presentation is distributed.
GREEN SHOE OPTION is a clause contained in the underwriting agreement of an initial public offering (IPO). The green shoe option, which is also often referred to as an over-allotment provision, allows the underwriting syndicate to buy up to an additional 15% of the shares at the offering price if public demand for the shares exceeds expectations and the stock trades above its offering price.
GROSS is: a. the entire amount of income before any deductions are made; or, b. any total amount before any deductions (examples: gross income or gross labor).
GROSS CONTRIBUTION is the starting amount prior to any relevant deductions have been made to the gross amount, e.g., Gross Contribution to Margin.
GROSS DEBT, generally, is the sum total of an entities debt obligations. In corporate finance, it is usually comprised of debt financing, irrespective of its maturity, i.e. medium and long-term (various borrowings due in more than one year that have not yet been repaid) and short-term bank or financial borrowings (portion of long-term borrowings due in less than one year, discounted notes (same technique as discounting of bills of exchange), bank overdrafts, etc.).
GROSS DOMESTIC PRODUCT (GDP) is the value of all the goods and services produced by workers and capital located within a country (or region), such as the
GROSS INCOME see GROSS PROFIT.
GROSS MARGIN is the ratio of gross profit to sales revenue. (sometimes used as a synonym for gross profit). For a manufacturer, gross margin is a measure of a company's efficiency in turning raw materials into income; for a retailer it measures their markup over wholesale. GROSS MARGIN is gross income divided by net sales, expressed as a percentage.
GROSS NATIONAL PRODUCT (GNP) is the total dollar value of all final goods and services produced for consumption in society during a particular time period. The GNP does include allowances for depreciation and indirect business taxes such as those on sales and property. Gross national product is the output of labor and property of US nationals regardless of the location of the labor and property. Gross National Product includes income earned by the factors of production (assets and labor) owned by a country's residents but excludes income produced within the country's borders by factors of production owned by nonresidents.
GROSS NEGLIGENCE is any action or an omission in reckless disregard of the consequences to the safety or property of another. Sometimes referred to as "very great negligence" and it is more then just neglect of ordinary care towards others or just inadvertence. Also known as the Latin term culpa lata.
GROSS PAY is employee salary prior to the application of taxes and other deductions.
GROSS PROFIT is net sales minus cost of sales.
GROSS PROFIT MARGIN ANALYSIS indicates what the company's pricing policy is and what the true mark-up margins are. Calculated by: Revenue - Cost of Goods Sold / Revenue. See GROSS PROFIT MARGIN ON SALES for more in-depth definition.
GROSS PROFIT MARGIN ON SALES (GPM) is one of the key performance indicators. The gross profit margin gives an indication on whether the average markup on goods and services is sufficient to cover expenses and make a profit. GPM shows the relationship between sales and the direct cost of products/services sold. It measures the ability of both to control costs and to pass along price increases through sales to customers. The gross profit margin should be stable over time. A persistent gradual decrease is likely to indicate that productivity needs to be increased to return profitability back to previous levels.
GROSS PROFIT METHOD is an inventory estimate based on gross margin.
GROSS RECEIPTS is the total amount received prior to the deduction of any allowances, discounts, credits, etc.
GROSS REVENUE is income (at invoice values) received for goods and services over some given period of time. See also GROSS SALES.
GROSS SALES is the total revenue at invoice value prior to any discounts or allowances. See also GROSS REVENUE.
GROSS SURPLUS RATIO measures the margin on each dollar of operating revenue for the entity in question. The operating results before interest and depreciation, or gross surplus, are calculated as a percentage of total operating revenue. The gross surplus ratio shows the gross surplus as a percentage of the entity's turnover. If the percentage is high this could be interpreted as a sign that the entity is operating efficiently.
GROSS WEIGHT is the weight of a shipment including packing material.
GROUP is a number of individual companies assembled together; often having some unifying relationship.
GROUP ACCOUNTS are the financial statements of a group of companies. These are usually presented in the form of consolidated accounts.
GUARANTEE see WARRANTY.
GUARANTEE DEPOSIT see SELLER GUARANTEE DEPOSIT.
GUIDANCE, in corporate finance, is information that a company provides as an indication or estimate of their future earnings; sometimes known as "earnings guidance".
GULL is Georgetown University Legal Library; important resource for sales tax information.
HARD ASSETS are physical assets (land, buildings, equipment) and financial assets (cash, credit, financial instruments). Hard assets are usually on the records of account in an organization and subjected to inventory and/or custodial safeguards. See also SOFT ASSETS.
HARD COSTS is the purchase price of actual assets. For example, the purchase price of a new printing press would be the hard cost. The soft costs are additional fees for items like factoring-invoiced installation, prepaid and extended warranties, or service contracts for the new equipment.
HARMONIZED SYSTEM is an internationally agreed upon classification system for trade. It provides code numbers to specify a goods classification; thereby making customs duty determination more predictable.
HEADCOUNT is the act of counting people in a certain way or in a particular group.
HEAD OF HOUSEHOLD is a U.S. income tax filing status that can be used by an unmarried person who maintains a home for a dependent (or nondependent relative) during the tax year.
HEALTHY, from a corporate perspective, usually means that the subject entity is financially secure, positioned well within the market and functioning well.
HEDGE, in securities, is a transaction that reduces the risk of an investment.
HEDGE FUND is a special type of investment fund with fewer restrictions on the types of investments it can make. Of note is a hedge fund's ability to sell short. In exchange for the ability to use more aggressive strategies, hedge funds are more exclusive, i.e., fewer people, usually only the wealthy, are allowed to invest in hedge funds.
HEDGING is strategy focused upon reducing exposure to risk of loss resulting from fluctuations in exchange rates, commodity prices, interest rates etc. Hedging in securities is taking two positions that will offset each other if prices change, thereby limiting financial risk.
HELD TO MATURITY normally refers to a long term security (note or bond held for more than one year) that has a predetermined maturation event.
HI is Health Insurance.
HIDDEN ASSET is any valued asset that is not included in the book value of a company. Companies have hidden assets such as intellectual property, or customer lists which are of great value, but not reflected in the book value.
HIGH CREDIT is the most a debtor has ever charged with any one creditor.
HIGH-LOW METHOD of approximating cost behavior considers only two points of data, the highest and lowest, for activity within the relevant range. The method first focuses on cost changes, allowing an analyst to determine the presence of any variable cost. Next, fixed costs are determined by subtracting variable cost from the total cost at either of the two data points. The calculation is an algebraic procedure used to separate a semi-variable cost into the variable and fixed components. The method calls for using the extreme data points (highest and lowest x - y pairs) in the COST-VOLUME FORMULA y = a + bx; where a = fixed cost portion and b = the variable rate.
HIGH-YIELD DEBT is a business term referring to a corporate debt instrument (non-investment grade or junk bond), that has a higher yield (compared to investment grade debt) because of a high perceived credit risk (default risk). See also JUNK BOND.
HIRE AND PURCHASE AGREEMENT is a contract (more fully called contract of hire with an option of purchase) in which a person hires goods for a specified period and at a fixed rent, with the added condition that if he shall retain the goods for the full period and pay all the installments of rent as they become due the contract shall determine and the title vest absolutely in him, and that if he chooses he may at any time during the term surrender the goods and be quit of any liability for future installments upon the contract. In the United States such a contract is generally treated as a conditional sale, and the term hire purchase is also sometimes applied to a contract in which the hirer is not free to avoid future liability by surrender of the goods. In
HISTORICAL COST ACCOUNTING is an accounting principle requiring all financial statement items to be based on original cost. It is usually based upon the dollar amount originally exchanged in an arm's-length transaction; an amount assumed to reflect the fair market value of an item at the transaction date.
HISTORICAL COST CONVENTION is that assets are recorded at their initial cost and are not subsequently revalued upwards, and liabilities valued at the amount initially received in exchange for the obligation. The relevance of the convention is that figures remain objectively based on verifiable figures, but in times of high inflation historical cost can become a dubious convention to follow.
HISTORICAL EXCHANGE RATES are just that: The historical data on currency exchange rates.
HOLDBACK is a portion of a construction loan that is not funded until the subject project is nearing completion, or the borrower has satisfied certain contractual performance requirements, such as leasing a majority of the space in the building. The amount held back is often equal to the construction firm's projected profit when the building is completed.
HOLDING COMPANY is a company which owns or controls other companies. (Control can occur through the ownership of 50 per cent or more of the voting rights or through the exercise of a dominant influence.).
HORIZONTAL COMBINATION is a business combination of companies with similar functions in the production or sale of comparable products.
HORIZONTAL FINANCIAL ANALYSIS allows comparison of one company's ratios to the ratios of other companies as well as to average industrial ratios and internal industrial deviation of these ratios.
HOSTILE TAKEOVER occurs when a company attempts to buy out another whether they like it or not. A hostile takeover can occur only through publicly traded shares, as it requires the acquirer to bypass the board of directors and purchase the shares from other sources. This is difficult unless the shares of the target company are widely available and easily purchased (i.e., they have high liquidity). A hostile takeover may presage a corporate raid.
HUMAN CAPITAL is the unique capabilities and expertise of individuals that are productive in some economic context.
HURDLE RATE is a term used in the budgeting of capital expenditures meaning the REQUIRED RATE OF RETURN in a DISCOUNTED CASH FLOW analysis. If the expected rate of return on an investment is below the hurdle rate, the project is not undertaken. The hurdle rate should be equal to the INCREMENTAL COST OF CAPITAL.
HYBRID INSTRUMENT is a package containing two or more different kinds of risk management instruments that are usually interactive.
HYPOTHECATION, in securities, is the pledging of securities to brokers as collateral for loans made to cover short sales or purchase securities. In banking, it is the pledging of property to secure a loan.
IAS is Institute of Asset Management (UK).
IAS see INTERNATIONAL ACCOUNTING STANDARDS.
IASB see International Accounting Standards Board.
IASC is International Accounting Standards Committee.
IAW is In Accordance With or In Agreement With.
IBA, among others, can mean: Individual Brokerage Account, Individually Billed Accounts,
IBER is Institute of Business and Economic Research (
IBNR is Incurred But Not Reported.
IDENTIFIABLE ASSETS and LIABILITIES are those assets and liabilities of a business that can be disposed of without disposing of the entire business. It includes both tangible and intangible assets.
IDLE TIME is unproductive time caused by, e.g., machine breakdowns, shortages of material or inefficient scheduling. The cost of idle time is usually classified as an indirect rather a direct cost.
IFRS see INTERNATIONAL FINANCIAL REPORTING STANDARDS.
ILLIQUID is when cash flows generated by the firm are insufficient to meet the debt service. When speaking of money or an economy: being very liquid means it is driven by primarily by cash, checking/saving accounts, treasury bills, stocks and bonds, etc; while being very illiquid means it is driven primarily by human capital.
IMA, in accounting, refers to the
IMAD, dependent upon usage, is Input Messaging Accountability Data: A time stamp that is assigned to a Fedwire message when it is processed by the Federal Reserve Bank Funds Transfer application; or, Information Management Assimilation & Delivery; or, Industrial Management and Distribution System.
IMMATERIALITY is of complete irrelevance requiring no further consideration.
IMMOVABLE is a. not able to be moved or changed; or, b. assets consisting of land, buildings, or other permanent items.
IMPAIRED ASSETS, in banking, applies to all problem assets which banks hold, and is not limited to problem loans. In addition to loans, it also captures off- balance sheet exposures and assets which have come onto banks balance sheets through enforcement of security conditions. See IMPAIRMENT OF VALUE.
IMPAIRED GOODWILL is the recognition of the reduction in value of the intangible asset known as goodwill.
IMPAIRMENT see FRS 11.
IMPAIRMENT OF VALUE is the permanent decline in the value of an asset. The entry is to debit the loss account and credit the asset for the loss in utility. See also FRS 11.
IMPERSONAL ACCOUNTS represents accounts other than Personal Accounts. This may be sub-classified into: a. Real Accounts, e.g. Asset Account; and, 2. Nominal Accounts, e.g. Income and Expenditure Accounts.
IMPERSONAL LEDGER see LEDGER.
IMPLICIT RATE OF INTEREST is when the stated interest rate is not indicative of the market rate at the time a note is negotiated, the value of the asset (cash or non-cash) or service exchanged for the note establishes the market rate.
IMPOSE is to set forth authoritatively as obligatory by rule or by law, e.g. budgetary constraints imposed upon the U.S. Congress.
IMPOSTA VALORE AGGIUNTO TAX (IVA TAX), in
IMPREST see PETTY CASH.
IMPREST BASIS, in cash accounts, means that the exact amount of fund expenditures is replaced periodically.
IMPUTED COSTS refer to the cost of an asset, service, or company that is not physically recorded in any accounts but is implicit in the product.
IMPUTED VALUE is the logical or implicit value that is not recorded in any accounts, e.g., in the projection of annual figures, values are imputed for months for which the actual values are not yet known.
INBR see INCURRED BUT NOT REPORTED; could also mean Insurance Broker.
INCLUDIBLE COMPENSATION is defined in section 403(b)(3) of the Internal Revenue Service (IRS) Code as compensation, received from a qualifying employer by an employee, which is includible in the employee's gross income for the most recent period which may be counted as 1 year of service. In this connection, section 1.403(b)-1(e)(1) of the regulations provides that for purposes of computing an employee's exclusion allowance for a taxable year, such employee's includible compensation in respect of such taxable year means the amount of compensation which is includible in his gross income.
INCOME is the amount of money or its equivalent received during a period of time in exchange for labor or services, from the sale of goods or property, or as profit from financial investments.
INCOME CAPITALIZATION: First you must determine the capitalization rate - a rate of return required to take on the risk of operating the business (the riskier the business, the higher the required return). Earnings are then divided by that capitalization rate. The earnings figure to be capitalized should be one that reflects the true nature of the business, such as the last three years average, current year or projected year. When determining a capitalization rate you should compare with rates available to similarly risky investments.
INCOME GEARING RATIO is Interest Expense / Operating Profit.
INCOME SMOOTHING refers to measures taken to reduce the probability of income shocks before they occur, and includes strategies like diversifying income sources; making low-risk production and employment choices; building up physical, human, and social assets; and ensuring good financial management.
INCOME STATEMENT see PROFIT AND LOSS STATEMENT.
INCOME SUMMARY ACCOUNT is the account in the general ledger used to summarize the revenue and expenses for the fiscal period.
INCOME TAX is a tax paid on money made or profit realized from employment, business, or capital.
INCOME TAXES PAYABLE is income taxes due including current portion of deferred taxes.
INCOME THEORIES try to identify the real profit of an organization. The difficulty here is that you need to define whose income you are measuring, and that limiting income measurements to things that can be given a price devalues goods and services that are difficult or impossible to price.
INCOMPETENCE is lack of physical or intellectual ability or qualifications.
INCORPORATED is a legal entity that has undergone incorporation through approval by a state government.
INCORPORATION is a legal process through which a company receives a charter and the state in which it is based allows it to operate as a corporation.
INCREMENTAL is increasing gradually by regular degrees or additions.
INCREMENTAL COST is the increase or decrease in costs as a result of one more or one less unit of output.
INCREMENTAL COST OF CAPITAL is the weighted cost of the additional capital raised in a given period. Weighted cost of capital, also called composite cost of capital, is the weighted average of costs applicable to the issues of debt and classes of equity that compose the firm’s capital structure. Also called marginal cost of capital.
INCUR is acquiring or getting into something undesirable or making oneself subject to; bring upon oneself; become liable to, e.g. to incur a cost or debt.
INCURRED BUT NOT REPORTED (IBNR), in insurance, losses occurring over a specified period that have not been reported to the insurer. IBNR losses are often calculated as a percentage of claims paid and claims outstanding and are reported in an insurer's annual report. Reinsurers establish IBNR reserves as a part of their rating plans under a facultative reinsurance treaty, lest an overly optimistic view of treaty results lead to further under-rating on a book of business. Example: Product liability losses are seldom reported during a policy year. This "tail" of claims will upset any rating plan, unless an IBNR reserve is established and factored into the profit picture.
INDEFEASIBLE not liable to being annulled or voided or undone, usually in reference to an interest in real property (e.g., an indefeasible ownership interest in a piece of property).
INDENTURE is an agreement between lender and borrower which details specific terms of the bond issuance. Specifies legal obligations of bond issuer and rights of bondholders. There is usually a indenture document spelling out the specific terms of a bond as well as the rights and responsibilities of both the issuer of the security and the holder.
INDEX-LINKED BOND provides a secure investment in real terms, as the coupon payments and the redemption proceeds are linked to movements in the RPI (the Retail Prices Index).
INDEX STOCK is a security listed on a stock index. See STOCK INDEX.
INDIFFERENCE CURVE, in microeconomics, an indifference curve is a graph showing combinations of two goods to which an economic agent (such as a consumer or firm) is indifferent, that is, it has no preference for one combination over the other.
INDIFFERENCE POINT is that point on the indifference curve where the compared values intersect. See INDIFFERENCE CURVE.
INDIRECT COST is that portion of cost that is indirectly expended in providing a product or service for sale (cannot be traced to a given cost object in an economically feasible manner) and is included in the calculation of COST OF GOODS SOLD, e.g. rent, utilities, equipment maintenance, etc. Opposite of direct cost.
INDIRECT SHAREHOLDING is when one entity directly holds shares of another entity that owns shares of a third but different entity, for example, Shareholder A would have an indirect shareholding of Company C if Shareholder A directly owns shares of Company B while Company B owns shares of Company C.
INDUCEMENT is a reward for a specific behavior, designed to encourage that behavior; also called incentive. To provide the first months rent free would be a "lease inducement".
INDUCTIVE ACCOUNTING THEORY (scientific method) assumes accounting standards are somewhat like evolution of a species in nature --- survival of the fittest. It relies heavily upon controlled experimentation (e.g., behavioral accounting research) and statistical testing (e.g., capital markets "events" studies of the impact of accounting information on market prices and volume of transactions).
INDUSTRIAL REVENUE BOND (I.R.B.) is a bond issued by local government agencies in favor of corporations.
INDUSTRY is the people or companies engaged in a particular kind of commercial enterprise.
INFLATION is an increase in the general price level of goods and services; alternatively, a decrease in the purchasing power of the dollar or other currency.
INFLATION ACCOUNTING is a system of accounting which, unlike historical cost accounting, takes into account changing prices.
INFLATION ADJUSTMENT is whenever any figure is adjusted for inflation/deflation. It simply means that all fluctuations in price (upward or downward) that are directly attributable to inflation/deflation are reflected into that figure through either adding or subtracting the amount that is directly caused by inflation/deflation.
INFORMATION / INFORMATIONAL RETURN is one of many returns that only communicates to the Internal Revenue Service information relevant to tax liability and does not compute the actual liability of any taxpayer or accompany the actual payment of tax; used for sale of property, dividends, and others (e.g., W-2 and Forms 1099).
INFORMATION THEORY is a branch of mathematics that overlaps into communications engineering, biology, medical science, sociology, and psychology. The theory is devoted to the discovery and exploration of mathematical laws that govern the behavior of data as it is transferred, stored, or retrieved.
INFRASTRUCTURE is the resources (as personnel, buildings, or equipment) required for an activity.
INHERENT RISK, generally, it is the risk found in the environment and in human activities that is part of existence. In accounting, it is the susceptibility of an audit area to error which could be material, individually or in combination with other errors, assuming that there are no related internal controls.
INITIAL TERM is normally the first time period covered under an agreement or contract (the Term) at the end of which the agreement will either terminate or be automatically renewed under set conditions (Renewal Term), e.g. a one year contract.
INITIATE is to set going by taking the first step, e.g., initiate contract negotiations.
IN-KIND is the value of goods or services provided for which money would have otherwise been paid.
INPUT VAT is the VAT on a company's input supplies. See also VALUE ADDED TAX (VAT).
INSERTION ORDER, in marketing, is an agreement that specifies aspects related to an advertising campaign.
INSIDE INFORMATION is the information which the company temporarily withholds and has not been released to the public at large, and which is intended for use solely for a corporate purpose and not for any personal use.
INSIDERS are all persons who come into possession of material inside information before its public release. In securities, insiders are such persons who are controlling shareholders, directors, officers, managers and employees, including spouse, parents, siblings and those under the control of insiders as well as persons induced by such persons who come into possession of material inside information.
INSIDER TRADING is the trading, primarily of securities, by management or others who have special access to unpublished information. If the information is used to illegally make a profit, there may be large fines and possible jail sentences.
INSOLVENCY occurs when a business is unable to pay debts as they fall due.
INSTALLATION is 1. the act of installing something (as equipment); or, 2. a building or place that provides a particular service or is used for a particular industry.
INSTALLEMENT AGREEMENT see INSTALLMENT SALE.
INSTALLMENT SALE is selling property and receiving the sales price over a series of payments, instead of all at once at the close of the sale, is an installment sale. As the seller, unless you elect out, you will report the gain on that transaction as you receive it through the series of payments. As the buyer, you will usually pay interest on the unpaid balance.
INSURABLE EARNINGS, as it pertains to unemployment insurance, is the total amount of earnings that an insured person has from insurable employment: a. the total of all amounts, whether wholly or partly paid in legal tender, received or enjoyed by the insured person that are paid to the person by the person's employer in respect of that employment, and b. the amount of any gratuities that the insured person is required to declare under tax legislation.
INSURANCE CLAIM is a written notification to an insurance company requesting payment of an amount due under the terms of the policy.
INTANGIBLE ASSET is an asset that is not physical in nature. Examples are things like copyrights, patents, intellectual property, or goodwill. An intangible asset is the opposite of tangible asset.
INTANGIBLES (NET) are intangible assets, including goodwill, trademarks, patents, catalogs, brands, copyrights, formulas, franchises, and mailing lists, net of accumulated amortization.
INTEGRATED FINANCIAL MODEL is normally a spreadsheet based financial model that integrates all projected revenues and costs from all activity into financial performance pro-forma projections over time. Dependent upon the complexity of the model, the output can be at a very high level (non-complex) to highly granular output (higher degree of complexity).
INTEGRATED LEDGER see ENTERPRISE RESOURCE PLANNING.
INTELLECTUAL CAPITAL Intellectual capital bundles knowledge resources (how the ‘production functions”, that is the constellation of employees, users, processes and technologies, work). Intellectual capital enables a company to make a difference to users via its knowledge resources.
INTELLECTUAL CAPITAL STATEMENT (ICS) provides: a. Insights into the user’s situation (= the customers situation); b. Insight into the colleague’s skills and improvements of teamwork; c. Insight in the practical skills e.g. craftsmanship: from knowing how to develop and improve production methods to be capable of handling information technology etc.; d. Insights in the know-how represented in the company’s processes and systems and how these can be used to improve the quality of products or services; e. Insight in the motivation or commitment as regards the further development of the company’s products and services; f. Insight in the future needs for knowledge; g. Insight in the skills, competencies and qualification that can make a difference to the company.
INTELLECTUAL PROPERTY is intangible property that is the result of creativity, e.g. patents, trademarks or copyrights.
ITEMIZED DEDUCTIONS is amounts paid by an individual taxpayer for personal and quasi-business expenses that can be deducted in computing taxable income, such as medical expenses, property and income taxes, mortgage and investment interest, charitable contributions, moving expenses, casualty and theft losses, and certain miscellaneous expenses. See STANDARD DEDUCTIONS.
ITEMIZED STATEMENT is a record or transmittal that details product or services rendered and the costs incurred and payments received.
INTENSITY DRIVERS are used to directly charge for the resources used each time an activity is performed.
INTERCOMPANY or INTERCORPORATE means occurring between companies.
INTEREST, in law, is a right or legal share of something or a financial involvement with something; in finance, it is a fixed charge for borrowing money; usually a percentage of the amount borrowed.
INTEREST-BEARING means paying interest.
INTEREST COVERAGE is a ratio which indicates the ability of a company to cover net interest expenses with income before net interest and taxes. It is calculated by dividing income before interest and taxes by interest.
INTEREST EARNINGS is amounts from interest on all interest-bearing deposits and accounts; accrued interest on investment securities sold; interest on funds held for construction; and interest related public debt for private purposes. Excludes interest on deposits and investments of employee retirement and other insurance trust funds; dividends from investments; accrued interest on bonds issued by the government; recorded profits on sale of investments; and accrued interest on the purchase of investments.
INTERESTED PARTY is any person that has a real and direct interest in any proceeding or action being proposed or taken.
INTEREST EXPENSE is the cost of borrowing funds in the current period. It is shown as a financial expense item within the income statement.
INTEREST PAYABLE see PAYABLE.
INTEREST RATE is the rate of interest charged for the use of money, usually expressed as an annual rate. The rate is derived by dividing the amount of interest by the amount of principal borrowed. For example, if a bank charged $100 a year to borrow $1,000, the interest rate would be 10%. Interest rates are quoted on bills, notes, bonds, credit cards and many kinds of consumer and business loans. Rates in general tend to rise with inflation and in response to the Federal Reserve raising key short-term rates. A rise in interest rates has a negative effect on the stock market because investors can get more competitive returns from buying newly issued bonds instead of stocks. It also hurts the secondary market for bonds because rates look less attractive compared to newer issues.
INTEREST RATE SWAP (IRS) is a contractual arrangement between two counter-parties who agree to exchange interest payments on a defined principal amount for a fixed period of time.
INTEREST RATE SWAPTION is an option on an interest rate swap. It gives the holder the right but not the obligation to enter into an interest rate swap at a specific date in the future, at a particular fixed rate and for a specified term.
INTERFUND LOAN is an authorized (usually) short term loan from one fund to another.
INTERIM AUDIT is an audit conducted during the fiscal year usually as a means of minimizing the work and time involved in concluding the audit after the fiscal year. A corporation might have an interim audit covering the first nine months of the fiscal year so that at the end of the fiscal year most of the auditing will focus on the last three months of the fiscal year thus allowing for a comprehensive audit and early completion of the audit reports. An interim audit does not usually yield any formal reports from the external auditors.
INTERIM DIVIDEND is the declaration and payment of a dividend prior to annual earnings determination.
INTERIM EARNINGS see INTERIM STATEMENT.
INTERIM STATEMENT is a financial report covering only a portion of a fiscal year (prepared by accountants, but usually unaudited). Quarterly statements from publicly traded companies are one example of an interim statement. Interim statements are not as detailed or as exact as annual statements.
INTERMEDIARY is the person or institution empowered to be the intermediary in making investment decisions for others. Examples: banks, savings and loan institutions, insurance companies, brokerage firms, mutual funds, and credit unions.
INTERMEDIATION COST, in finance, is the cost involved in the placement of money with a financial intermediary. The person or institution empowered as the intermediary to make investment decisions for others. Examples: banks, savings and loan institutions, insurance companies, brokerage firms, mutual funds, and credit unions.
INTERNAL is inside the country, e.g. a nation's internal politics; or, happening, arising or located inside a company, e.g. internal requirements or transactions.
INTERNAL AUDIT is an independent appraisal function established within an organization to examine and evaluate its activities as a service to the organization. The objective of internal auditing is to assist members of the organization in the effective discharge of their responsibilities. To this end, internal auditing furnishes them with analyses, appraisals, recommendations, counsel, and information concerning the activities reviewed. The audit objective includes promoting effective control at reasonable cost. Occasionally a corporation may contract an external auditor or firm to conduct its internal audit function.
INTERNAL AUDITOR is an auditor who works directly for a company auditing its activities throughout the year. Internal auditors of corporations are often not certified auditors, though they usually have significant accounting experience. They should report directly to the board of directors of the corporation.
INTERNAL CONTROLS include policies and procedures that (a) pertain to the maintenance of accurate and reasonably detailed records, (b) provide reasonable assurance that transactions are properly recorded and authorized, and (c) safeguard assets.
INTERNAL CONTROL SYSTEM is a formalized system intended to provide reasonable assurance that the objectives of a program as a whole are met, e.g. financial control, quality control or process control.
INTERNALLY GENERATED refers to the creation of either tangible or intangible results within the confines of one entity, e.g. internally generated funds are those funds that are realized through the efforts or operations of the entity itself, i.e. the funds were not borrowed or realized through other external means.
INTERNAL RATE OF RETURN (IRR) is the discount rate that makes the project have a zero Net Present Value (NPV). IRR is an alternative method of evaluating investments without estimating the discount rate. IRR takes into account the time value of money by considering the cash flows over the lifetime of a project. The IRR and NPV concepts are related but they are not equivalent.
INTERNATIONAL ACCOUNTING is the international aspects of accounting, including such matters as accounting principles and reporting practices in different countries and their classification; patterns of accounting development; international and regional harmonization, foreign currency translation; foreign exchange risk; international comparisons of consolidation accounting and inflation accounting; accounting in developing countries; accounting in communist countries; performance evaluation of foreign subsidiaries.
INTERNATIONAL ACCOUNTING STANDARDS (IAS) see INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS).
INTERNATIONAL ACCOUNTING STANDARDS BOARD (IASB), based in
INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS), often known by the older name of International Accounting Standards (IAS), are a set of accounting standards. They are issued by the International Accounting Standards Board (IASB).
INTERNATIONAL FUND is a (mutual) fund that can invest only outside the home country, e.g. the
INTERPERIOD EQUITY is a government’s obligation to disclose whether current-year revenues were sufficient to pay for current-year benefits, or did current citizens defer payments to future taxpayers, i.e. it refers to whether current-year revenues are sufficient to pay for the services provided that year and whether future taxpayers will be required to assume burdens for services previously provided.
INTERPERIOD TAX ALLOCATION is the process of apportioning income taxes among accounting periods.
INTERSEGMENT REVENUE is revenue generated within a segment; whether it be a business or geographical segment.
IN THE BLACK means making money; the opposite of "in the red."
IN-THE-MONEY OPTION is an expression used for any option series with intrinsic value, i.e., the option's strike (exercise) price and market price of the underlying security are such that the holder can exercise the option at a profit. For example, if a call option with a strike price of 30 and the underlying stock's market price is currently 33, the call is in the money. A put option is considered in the money when the underlying stock is selling below the strike price. Premiums and other transaction costs are not considered in determining whether the option is in the money or out of the money. See OUT-OF-THE-MONEY OPTION.
IN THE RED means losing money; the opposite of "in the black."
INTRACOMPANY means occurring within or taking place between branches or employees of a company.
INTRINSIC VALUE, generally, is the value of a resource unto itself, regardless of its value to humans; often considered the ethical value of a resource, or the right of the resource to exist, e.g., in securities, it is the perceived actual value of a security, as opposed to its market price or book value.
INVENTORY for companies: includes raw materials, items available for sale or in the process of being made ready for sale (work in process); for securities: it is securities bought and held by a broker or dealer for resale.
INVENTORY ACCUMULATION is a buildup of inventory caused primarily by unplanned events, e.g., sales not meeting expectation.
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.
INVENTORY LOAN is loan that is extended based upon the, usually, discounted / factored value of a business' inventory.
INVENTORY OBSOLESCENCE is when inventory is no longer salable. Possibly due to too much inventory on hand, out of fashion or demand. The true value of the inventory is seldom exactly what is shown on the balance sheet. Often, there is unrecognized obsolescence.
INVENTORY PROFITS is a capital-gains-like element in profits. It results from an increase in inventory prices.
INVENTORY SHRINK, as used in retail, is reduction in physical inventory caused primarily by shoplifting and employee theft.
INVENTORY SHRINKAGE is a reduction in the physical amount of inventory that is not easily explainable. The most common cause of shrinkage is theft.
INVENTORY TRANSFER can be a process by which inventory is physically tracked from location to location, e.g. from warehouse to shop floor; or, the transfer of assets from one account to another within the same or an alternate entity.
INVENTORY TURNOVER is a ratio that shows how many times the inventory of a firm is sold and replaced over a specific period.
INVENTORY TURNS (Period Average) measures the average efficiency of the firm in managing and selling inventories during the last period, i.e., how many inventory turns the company has per period and whether that is getting better or worse. It is imperative to compare a company’s inventory turns to the industry average. A company turning their inventory much slower than the industry average might be an indication that there is excessive old inventory on hand which would tie up their cash. The faster the inventory turns, the more efficiently the company manages their assets. However, if the company is in financial trouble, on the verge of bankruptcy, a sudden increase in inventory turns might indicate they are not able to get product from their suppliers, i.e., they are not carrying the correct level of inventory and may not have the product on hand to make their sales. If looking at a quarterly statement, there probably are more or less turns than an annual statement due to seasonality, i.e., their inventory levels will be higher just before the busy season than just after the busy season. This does not mean they are managing their inventory any differently; the ratio is just skewed because of seasonality. NOTE: Comparing the two INVENTORY TURNS (Period Average and Period End) suggests the direction in which inventories are moving, thereby allowing an analysis of efficiency improvements and/or potential burgeoning inventory problems.
INVENTORY TURNS (Period End) measures the ending efficiency of the firm in managing and selling inventories during the last period, i.e., how many inventory turns the company has per period and whether that is getting better or worse. It is imperative to compare a company’s inventory turns to the industry average. A company turning their inventory much slower than the industry average might be an indication that there is excessive old inventory on hand which would tie up their cash. The faster the inventory turns, the more efficiently the company manages their assets. However, if the company is in financial trouble, on the verge of bankruptcy, a sudden increase in inventory turns might indicate they are not able to get product from their suppliers, i.e., they are not carrying the correct level of inventory and may not have the product on hand to make their sales. If looking at a quarterly statement, there probably are more or less turns than an annual statement due to seasonality, i.e., their inventory levels will be higher just before the busy season than just after the busy season. This does not mean they are managing their inventory any differently; the ratio is just skewed because of seasonality. NOTE: Comparing the two INVENTORY TURNS (Period Average and Period End) suggests the direction in which inventories are moving, thereby allowing an analysis of efficiency improvements and/or potential burgeoning inventory problems.
INVENTORY VALUATION is the process of assigning a financial value to on-hand inventory, based on standard cost, first-in, first-out (FIFO), last-in, first-out (LIFO), average list price or other method. The method used is determined by a requirement to meet legal or other standards specified by a third party, or by an operational measure found to be useful in analyzing inventory positions.
INVENTORY VARIANCE see VARIANCE.
INVESTEE is the legal entity into which an investor has made an equity investment.
INVESTMENT is the purchase of real property, stocks, bonds, collectible annuities, mutual fund shares, etc, with the expectation of realizing income or capital gain, or both, in the future. Investment is longer term and usually less risky than speculation.
INVESTMENT BANKER is an underwriter who serves as a middleman between a corporation issuing new securities and the public. Usually, an investment banker, or several investment bankers in a syndicate, buy the securities issue outright, then sell the securities to individuals or institutions.
INVESTMENT CAPITAL is capital realized from issuance of long term debt, common shares, or preferred shares.
INVESTMENT EXPENSE is any cost of investment realized aside from the principal investment itself. For example:, in mutual funds, investment expesne is normally contained within five types of investment costs that must be measured to determine your total investment expense: a. Annual mutual fund expenses (i.e. the expense ratio); b. Front or back end sales loads; c. Portfolio turnover and trading costs for the fund (i.e. bid/ask spread, premium for large block trades, etc.); d. Brokerage commissions; and, e. Other (i.e., wrap account fees, annuity mortality & expense charges, etc.).
INVESTMENT MANAGER is an individual, firm, or committee responsible for making day-to-day decisions to buy, hold, or sell assets; also known as money managers.
INVESTMENT OPPORTUNITY SET is a graphical depiction of the Capital Allocation Line; which depicts expected rates of return between risky and risk-free assets.
INVESTMENT TAX CREDIT is a tax credit in the
INVESTMENT TURNOVER is a profitability measure used to calculate the number of times per year an investment or assets revolve.
INVOICE is a detailed list of goods shipped or services rendered, with an account of all costs; an itemized bill.
INVOICE, COMMERCIAL is a legal document that functions internationally as a bill of sale. It usually contains the exporting company, contents of the shipment, amount charged, name of carrying vessel, order number and payment terms.
INVOICE, CONSULAR is an invoice stamped or endorsed by the consulate of the country requiring such.
IOU is an informal debt instrument in the form of a written promise to pay back money owed; e.g., personal loans and professional services.
IPO (INITIAL PUBLIC OFFERING) is the first or primary offering of stock to the public.
IRC is Internal Revenue Code of 1986 (formerly 1954).
IRCA is International Register of Certified Auditors.
IRD, dependent upon usage, can mean Interest Rate Derivatives (finance), Inland Revenue Department (New Zealand's tax revenue collection department), or Interest Rate Differential.
IRR see INTERNAL RATE OF RETURN.
IRRELEVANT COST, in managerial accounting decision-making situations, is any positive or negative implications phenomenon which is not consequent upon the production process, whether it is denominated in money terms or not.
IRREVOCABLE LETTER OF CREDIT is a letter of credit in which the specified payment is guaranteed by the issuing bank if all terms and conditions are met by the drawee. It is as good as the issuing bank.
IRS is Internal Revenue Service; also see INTEREST RATE SWAP.
ISSUE, in securities, is stock or bonds sold by a corporation or a government; or, the selling of new securities by a corporation or government through an underwriter or private placement.
ISV can mean: Independent Software Vendor, Independent Solution Vendor, or Information Service Vendor.
ITC is International Trade Commission, Investment Tax Credit, Input Tax Credit (Canadian GST refund for businesses), etc.
IVA TAX see IMPOSTA VALORE AGGIUNTO TAX.
JBO is Joint Back Office (stock trading).
JCO is Justification for Continued Operation.
JIT see JUST IN TIME.
JOB COSTING, generally, it is the allocation of all time, material and expenses to an individual project or job; specifically, JOB COSTING is normally software based and provides for budgeting, forecasting, collecting and reporting on the expenditure and revenue associated with specific projects or jobs.
JOINT ACCOUNT is a financial account owned by two or more persons who share equally in the rights and liabilities of the account.
JOINT COSTS are costs incurred to produce a certain amount of two or more products where the cost of producing one product cannot be logically isolated and cost allocation is arbitrary. Simplified, they are the costs of a single production process that yields multiple products simultaneously.
JOINT PAYEE ENDORSEMENT, normally, when a bank draft is made out to two parties both parties are required to endorse the back of the bank draft before it will be honored by the bank.
JOINT PRODUCT is a single production process that yields multiple products simultaneously.
JOINT RETURN is a
JOINT STOCK COMPANY is a company that has some features of a corporation and some features of a partnership. This type of company has access to the liquidity and financial reserves of stock markets as a corporation, however, as in a partnership; the stockholders are liable for company debts and have additional restrictions of a partnership.
JOINT VENTURE is a venture by a partnership or conglomerate designed to share risk or expertise. See also VENTURE.
JOINT VENTURES & INVESTMENTS is the total of investments and equity in joint ventures.
JOURNAL, in accounting transactions, is where transactions are recorded as they occur.
JOURNAL ENTRY is the beginning of the accounting cycle. Journal entries are the logging of business transactions and their monetary value into the t-accounts of the accounting journal as either debits or credits. Journal entries are usually backed up with a piece of paper; a receipt, a bill, an invoice, or some other direct record of the transaction; making them easy to record and to maintain traceability for each transaction.
JOURNAL PAYMENT see DIRECT JOURNAL PAYMENT.
JUNK BOND is a bond with a speculative credit rating of BB or lower. Such bonds offer investors higher yields than bonds of financially sound companies. Two agencies, Standard & Poor's and Moody's Investor Services, provide the rating systems for companies' credit.
JUST-IN-TIME (JIT) is a management philosophy that strives to eliminate sources of manufacturing waste and cost by producing the right part in the right place at the right time.
JV is Journal Voucher or Joint Venture.
KAIZEN BUDGETING is a budgeting approach that projects costs on the basis of future improvements, rather than current practices and methods. The key point is that the budget cannot be achieved unless improvements are made.
KAIZEN COSTING means "improvements in small steps" (i.e., continuous improvement). It was developed in
KEEP-WELL AGREEMENTS, also known as comfort letters, are documents from one party written to another party in regards to contingent liability. Comfort letters have been held by courts to be legally enforceable commitments if they meet certain standards criteria of language. Comfort letters meeting these standards are loss contingencies in that they are construed to guarantee a financial commitment and must be reported under Statement of Financial Accounting Standard 5 as a guarantee. Auditors should review the language of all comfort letters and seek to discover contingent liabilities not disclosed in financial statements in situations where comfort letters exist. Sources of information concerning the contingent liabilities of comfort letters include: management and third parties. Auditors should document within the client representations letter management assurances that loss contingencies have been reported.
KEOGH is a pension plan in the
KEYNESIAN GROWTH MODELS are models in which a long run growth path for an economy is traced out by the relations between saving, investing and the level of output.
KEYNESIAN MACROECONOMICS is the theory that shows how a market-based capitalist economy may reach equilibrium with large scale unemployment and how government spending may be used to raise it out of this to a new equilibrium at the full-employment level of output.
KIKIN, in
KITING, when used in the context of banking, refers to the practice of depositing and drawing checks at two or more banks and taking advantage of the time it takes for the second bank to collect funds from the first bank. Can also refer to illegally increasing the face value of a check by changing the printed amount of the check. When used in the context of securities, it refers to the manipulation and inflation of stock prices.
KNOW-HOW is the knowledge and skill required to do something correctly.
KNOWLEDGE ACQUISITION is the process of acquiring knowledge from a human expert for an expert system, which must be carefully organized into IF-THEN rules or some other form of knowledge representation.
LABOR BUDGET see DIRECT LABOR BUDGET.
LABOR INTENSIVE is used to describe industries or sectors of the economy that relies relatively heavily on inputs of labor, usually relative to capital but sometimes to human capital or skilled labor, compared to other industries or sectors.
LABOR THROUGHPUT VARIANCE reveals potential constraints on throughput caused by changes in the mix of products being produced. It is computed the way the traditional labor "efficiency" variance is computed but aggregated at a fairly high level (e.g., total plant or total department) and expressed as percent of actual clocked production hours vs. standard production hours.
LAG TIME is the period of time between two closely related events, phenomena, etc., as between stimulus and response or between cause and effect: a time-lag between the declaration of war and full war production.
LAND, in terms of accounting, is the value of real estate less the value of improvements, e.g. buildings.
LANDED COST is the total expense of receiving goods at place of retail sale, including retail purchase price, transportation costs, duties, value added taxes, excise tax and other taxes.
LANDING COST is the initial charges for landing imported goods, such as those for receiving goods from dockside vessels or from barges to lighters. They may also cover wharfage or delivery from the dock to land conveyance or warehouse.
LARGE-CAP is a stock with a level of capitalization of at least $5 billion market value.
LATIN AMERICAN MODEL is an accounting model. There are other accounting systems which differ from the
LBO see LEVERAGED BUY-OUT.
LCL see LESS THAN CONTAINER LOAD.
LCM is Lower of Cost or Market.
LCM RULE is an abbreviation for lower-of-cost-or-market rule. LCM requires that an asset be reported on the financial statements at the lower of purchase cost or market value.
LEAD SCHEDULE, in accounting, is a working paper with columnar headings similar to those in a working trial balance, set up to combine similar ledger accounts the total of which appears in the working trial balance as a single amount.
LEAD-TIME is the time between the initial stage of a project or policy and the appearance of results, for example, the long lead-time in oil production because of the need for new field exploration and drilling.
LEASE is a contract where a party being the owner (lessor) of an asset (leased asset) provides the asset for use by the lessee at a consideration (rentals), either fixed or dependent on any variables, for a certain period (lease period), either fixed or flexible, with an understanding that at the end of such period, the asset, subject to the embedded options of the lease, will be either returned to the lessor or disposed off as per the lessor's instructions.
LEASEHOLD is an agreement between the lessee and lessor specifying the lessee's rights to use the leased property for a specific purpose and given time at a specified rental payment.
LEASEHOLD IMPROVEMENTS are those repairs and / or improvements, usually prior to occupancy, made to a leased facility by the lessee. The cost is then added to fixed assets and amortized over the life of the lease.
LEASE RATE FACTOR is the periodic lease or rental payment expressed as a percentage (or decimal equivalent) of equipment cost. Used to calculate payments given the cost of equipment (e.g. A lease rate factor of 0360 on an equipment cost of $5,000.00 requires a monthly payment of $180.00 (0360x$5,000.00=$180.00).
LEAST-SQUARED METHOD of approximating cost is a statistical approach that is both objective and considers all the data points. By using mathematical formulas to arrive at the best possible cost line (i.e., the regression line), it is more accurate than the methods mentioned previously. The regression line is in the form Y=a + bX, where X is the independent variable and Y is the dependent variable. The coefficient of determination (R2) can be used to judge the line’s goodness of fit.
LEDGER is a book of accounts in which data from transactions recorded in journals are posted and thereby classified and summarized. The ledger is typically divided up into (traditionally physical separate books): a. Purchases/Creditors Ledger is the subsidiary ledger in which creditors' accounts are recorded; also known as the bought ledger. Each creditor's account is credited with purchases and debited with cash paid, discounts received and returns outward. The detail in the creditors ledger is summarized in the creditors ledger control account kept in the general ledger; b. Sales/Debtors Ledger is the subsidiary ledger in which debtors' accounts are recorded; also known as the sold ledger. Each debtor's account is debited with sales and credited with cash received, discounts allowed and returns inward. The detail in the debtors ledger is summarized in the debtors ledger control account kept in the general ledger; c. General/Impersonal Ledger is a book of final entry summarizing all of a company's financial transactions, through offsetting debit and credit accounts, e.g. liability, reserve, capital, income and expense accounts; and d. Private Ledger is confidential and records items such as capital, loans, mortgages, directors' salaries and awards, etc.
LEGAL ENTITY is a person or organization that has the legal standing to enter into contracts and may be sued for failure to perform as agreed in the contract, e.g., a child under legal age is not a legal entity, while a corporation is a legal entity since it is a person in the eyes of the law.
LEGALLY MANDATED is that which is required by law, e.g. the ratio of majority inhabitant vs. minority new-hire quotas in a legislated work environment.
LEGITIMACY THEORY posits that businesses are bound by the social contract in which the firms agree to perform various socially desired actions in return for approval of its objectives and other rewards, and this ultimately guarantees its continued existence.
LEHMAN FORMULA is a compensation formula originally developed by investment bankers Lehman Brothers for investment banking services:
• 5% of the first million dollars involved in the transaction for services rendered
• 4% of the second million
• 3% of the third million
• 2% of the fourth million
• 1% of everything thereafter (above $4 million)
NOTE: Most investment bankers now require an additional multiplier to offset inflation.
LEMON is a. an investment with a poor or negative rate of return or a purchase made where the product has continuing problems, e.g. a lemon of an automobile; or, b. an asset that is in continual need of repair, e.g. an automobile can be referred to as a lemon.
LEMONS AND PLUMS, in finance, LEMON is an investment with a poor or negative rate of return; and,
LESSEE is the party to whom the possession of specified property has been conveyed for a period of time in return for rental payments.
LESSOR is the party who conveys specified property to another for a period of time in return for the receipt of rent.
LESS THAN CONTAINER LOAD (LCL) is a shipment in which the freight does not completely fill the container; or a particular consignor's freight when combined with others to produce a full container load.
LETTER OF AUTHORIZATION (LOA) is a form that permits a Donor to provide written instructions to transfer a stock certificate in the Donor’s name in full or in part to another party, such as a charitable organization, without using a transfer agent. This form given to the charitable organization with the designated stock certificate and a separate Stock Power is usually executed by the charitable organization’s brokerage to expedite the sale and receipt of proceeds from the gift of securities.
LETTER OF AWARENESS is a formal letter written to a lender, normally by a parent company, acknowledging its relationship with another group company and its awareness of a loan being made to that company. It is the weakest form of comfort letter. Such letters do not constitute a guarantee, but may nevertheless involve a significant moral commitment on the part of the writer.
LETTER OF CREDIT (LOC) is a legal document issued by a buyer’s bank that upon presentation of required documents payment would be made. Usually confirmed by the seller's bank, protection is given to the seller that payment will be made if the goods are shipped correctly, and protection is given to the buyer that the goods will be shipped before payment is made.
LETTER OF CREDIT, CONFIRMED is a letter of credit that is guaranteed by a bank that is acceptable to a seller (usually a local bank), regardless of buyer's bank.
LETTER OF CREDIT, IRREVOCABLE is a letter of credit where payment is guaranteed as long as the seller meets all conditions stipulated. A revocable letter of credit can be cancelled or altered by the buyer without permission of the seller.
LETTER OF GUARANTEE is a written promise issued by a bank to compensate (pay a sum of money) to the beneficiary (third party, local or foreign) in the event that the obligor (customer) fails to honor its obligations in accordance with the terms and conditions of the guarantee/agreement/contract.
LETTER OF INTENT (LOI) is a document that describes the preliminary understanding between parties who intend to make a contract or join together in another action.
LEVERAGE is property rising or falling at a proportionally greater amount than comparable investments. For example, an option is said to have high leverage relative to the underlying stock because a price change in the stock may result in a relatively large increase or decrease in the value of the option. In general, in finance, leverage is the use of debt financing. Leverage, within a corporation, is the use of borrowed money to increase the return on investment. For leverage to be positive, the rate of return on the investment must be higher than the cost of the money borrowed.
LEVERAGED BUY-OUT (LBO) is a transaction used for taking a public corporation private, financed through the use of debt funds: bank loans and bonds. Because of the large amount of debt relative to equity in the new corporation, the bonds are typically rated below investment grade, properly referred to as high-yield bonds or junk bonds. Investors can participate in an LBO through either the purchase of the debt (i.e., purchase of the bonds or participation in the bank loan) or the purchase of equity through an LBO fund that specializes in such investments.
LEVERAGED LEASE is a lease arrangement under which the lessor borrows a large proportion of the funds needed to purchase the asset and grants the lender a lien on the assets and a pledge of the lease payments to secure the borrowing.
LEVERAGE HYPOTHESIS is the theory that managers have incentive to avoid technical default of loan covenants because it could result in increases in the firm’s cost of capital.
LEVERAGE RATIOS measures the relative contribution of stockholders and creditors, and of the firm's ability to pay financing charges. Value of firm's debt to the total value of the firm.
LEVIED is a charge imposed and collected.
LEVY is to impose and collect a charge.
LIABILITY, in insurance, is a term used when analyzing insurance risks that describes possible areas of financial exposure / loss. Presently, there are three forms of liability coverage that insurers will underwrite: The first is general liability, which covers any kind of bodily injury to non-employees except that caused by automobiles and professional malpractice. The second is product liability, which covers injury to customers arising as a direct result of goods purchased from a business. The third is public liability, which covers injury to the public while they are on the premises of the insured.
LIABILITY, in accounting, is a loan, expense, or any other form of claim on the assets of an entity that must be paid or otherwise honored by that entity.
LIBOR see LONDON INTERBANK OFFERED RATE.
LICENSE is a legal document giving official permission to do something.
LIEN is the right to take another's property if an obligation is not discharged.
LIFO (last-in, first-out) is an inventory cost flow whereby the last goods purchased are assumed to be the first goods sold so that the ending inventory consists of the first goods purchased.
LIFO LIQUIDATION is a reduction in the reported value of inventory below levels established in prior years under the LIFO method; arises when purchases for the period are not sufficient to offset the sale of inventory in the period.
LIFO RESERVE is the difference between the ending inventory under LIFO and FIFO (or other method that might be chosen).
LIFTING & OPERATING EXPENSE (LOE), in the oil/energy industry, within any accounting period, it is all cash costs incurred in connection with the running and maintenance of production wells.
LIKE KIND, in taxes, refers to property that is similar to another for which it has been exchanged: real estate exchanged for real estate, for instance. The definitions of like kind properties can be found in the US Tax Code at Section 1031.
LIMITATION, in contracts, is a certain period limited by statute after which actions, suits, or prosecutions cannot be brought in the courts.
LIMITED LIABILITY is one that does not go beyond the owner's investment in the business.
LIMITED PARTNER is a partner in a venture who has no management authority and whose liability is restricted to the amount of his or her investment.
LIMITING FACTOR is a factor or condition that, either temporarily or permanently, impedes goal accomplishment.
LINEAR PROGRAMMING (LP), in accounting, is the mathematical approach to optimally allocating limited resources among competing activities. It is a technique used to maximize revenue, contribution margin, profit function; or, to minimize a cost function, subject to constraints. Linear programming consists of two ingredients: (1) objective function and (2) constraints, both of which are linear. In formulating the LP problem, the first step is to define the decision variables that one is trying to solve. The next step is to formulate the objective function and constraints in terms of these decision variables.
LINE ITEM is one item from a group of many items, e.g. one inventory item from the list of all inventoried items or one budgeted item from a financial budget.
LINE ITEM BUDGET is a budget initiated by government entities in which budgeted financial statement elements are grouped by administrative entities and object. These budget item groups are usually presented in an incremental fashion that is in comparison to previous time periods. Line item budgets are also used in private industry for comparison and budgeting of selected object groups and their previous and future expenditure levels within an organization.
LINE MANAGEMENT is the administration of the line functions of an organization; administration of activities contributing directly to the organization's output.
LINE OF CREDIT is an agreement whereby a financial institution promises to lend up to a certain amount without the need to file another loan application. The borrower is required to reduce the debt whenever the limit of the full amount of credit has been reached.
LINKED ACCOUNT gives you the flexibility of opening minor or custom account(s) that are linked to your primary account. Transactions between linked accounts are usually controlled through the password of the primary account. Linked accounts are possible through either commercial or consumer accounts, e.g. a consumer may have his/her checking, savings and over-draft protection accounts linked so that transactions can be easily made between them.
LIP ACCOUNT see LOAN-IN-PROCESS ACCOUNT.
LIQUID is to be in a state of liquidity, i.e., maintain sufficient assets in the form of cash or assets easily convertible to cash to satisfy current liabilities. When speaking of money or an economy: being very liquid means it is driven by primarily by cash, checking/saving accounts, treasury bills, stocks and bonds, etc; while being very illiquid means it is driven primarily by human capital.
LIQUID ASSET is cash and any asset that can quickly be converted into cash (e.g., cash, checks and easily-convertible securities).
LIQUIDATING DIVIDENDS are dividends paid by a corporation that is in the process of liquidation/bankruptcy. Liquidating Dividends are paid from the capital of the corporation as opposed to earnings. Recipients of Liquidating Dividends are typically shareholders, bond holders and/or creditors. In the
LIQUIDATION is the selling of all the assets of a debtor and the use of the cash proceeds of the sale to pay off creditors.
LIQUIDATION VALUE is a type of valuation similar to an adjusted book value analysis. Liquidation value is different than book value in that it uses the value of the assets at liquidation, which is often less than market and sometimes book. Liabilities are deducted from the liquidation value of the assets to determine the liquidation value of the business. Liquidation value can be used to determine the bare bottom benchmark value of a business, since this should be the funds the business may bring upon valuation.
LIQUIDITY is a company's ability to meet current obligations with cash or other assets that can be quickly converted to cash.
LIQUIDITY RATIO see CASH RATIO.
LISTED COMPANY is a public company listed or quoted on a stock exchange.
LISTED INVESTMENTS are those investments which are listed or quoted on a stock exchange.
LISTING is a written contract between an agent and a principal giving authorization to the agent to perform services for the principal involving the principal’s property; or, a record of a property for sale by a broker who has been authorized by the owner of the property to be sold.
LITIGATION is legal proceeding in a court; a judicial contest to determine and enforce legal rights.
LITIGATION RISK is an assessment of the likelihood or probability that legal action may be taken, e.g. auditors may encounter an unacceptable level of litigation risk on an assignment where the client has possibly been involved with fraudulent financial reporting.
LIVING DEAD are venture capital investments that neither fail nor are easily liquidated. These are termed the "living dead" and are judged as failures by venture capitalists.
LLC is Limited Liability Corporation.
LLCR is Loan Life Coverage Ratio.
LMA, among others, is an acronym for Lease Management Agreement, Local Marketing Agreement or Legal Marketing Association.
LOADED LABOR RATE is the employee hourly rate plus employee benefits, capital expenses, and other overhead.
LOAN is an agreement under which an owner of assets (the lender) allows another entity (the borrower) to use the assets for a specified time period. In return, the borrower agrees to pay the lender a payment (interest) and return the assets (cash) at the end of the agreed upon time period.
LOAN COVENANT is a legally enforceable promise or restriction in a mortgage. For example, the borrower may covenant to keep the property in good repair and adequately insured against fire and other casualties. A breach of covenant in a mortgage usually creates a default, defined by the mortgage, and can be the basis for foreclosure.
LOAN-IN-PROCESS ACCOUNT (LIP ACCOUNT) serves as a deposit account for construction funds. The buyer's down payment is deposited into this account and is used for the initial construction draws. Disbursements of actual loan funds begin once the buyer's money is depleted. Interest on the borrowed funds will be billed monthly on the amount withdrawn. Upon completion of the house, the buyer will be asked to furnish a homeowner's insurance policy and monies for completing the escrow account. Once final disbursements to the builder are made, monthly payments begin based on amortization of the balance at that time.
LOAN STOCK is stock bearing a fixed rate of interest. Unlike a debenture, loan stock may or may not be secured.
LOAN TO VALUE RATIO, in real estate, is the percentage value for the relationship between the amount of the mortgage loan and the appraised value of the property. Loan-to-value ratio is expressed to a potential purchaser of a property in terms of the percentage a lending institution is willing to finance.
LOC see Letter of Credit.
LOCKBOX is 1. a fireproof metal strongbox (usually in a bank) for storing valuables e.g., a safety deposit box; and, 2. a service offered by banks to companies in which the company receives payments by mail to a post office box and the bank picks up the payments several times a day, deposits them into the company's account, and notifies the company of the deposit. This enables the company to put the money to work as soon as it's received, but the amounts must be large in order for the value obtained to exceed the cost of the service.
LODGEMENT, in law, is bringing a legal charge or accusation against someone.
LOE see LIFTING & OPERATING EXPENSE.
LOGGING is the practice of recording data, in some medium, sequential input, often in a time-associated format.
LOI is Letter of Intent.
LONDON INTERBANK OFFERED RATE (LIBOR) is the rate that the most creditworthy international banks that deal in Eurodollars charge each other for large loans. It is equivalent to the federal funds rate in the
LONG-LIVED ASSETS are usually those assets that are not consumed during the normal course of business, e.g. land, buildings and equipment, etc.
LONG-TERM is a long period of time. In securities, for a bond it is 10 or more years or as it relates to a buy and hold investment strategy. In accounting, it is thought of as being in excess of 12 months, e.g. long-term liabilities. See SHORT-TERM.
LONG TERM DEBT is all senior debt, including bonds, debentures, bank debt, mortgages, deferred portions of long term debt, and capital lease obligations.
LONG-TERM DEBT TO EQUITY expresses the relationship between long-term capital contributions of creditors as related to that contributed by owners (investors). As opposed to DEBT TO EQUITY, Long-Term Debt to Equity expresses the degree of protection provided by the owners for the long-term creditors. A company with a high long-term debt to equity is considered to be highly leveraged. But, generally, companies are considered to carry comfortable amounts of debt at ratios of 0.35 to 0.50, or $0.35 to $0.50 of debt to every $1.00 of book value (shareholders equity). These could be considered to be well-managed companies with a low debt exposure. It is best to compare the ratio with industry averages.
LONG-TERM LIABILITIES are liabilities of a business that are due in more than one year. An example of a long-term liability would be a mortgage payable.
LONG-TERM RECEIVABLE, in accounting, is any receivable that is scheduled or projected for receipt in greater than a 12-month period, e.g. notes receivable or a receivable in litigation.
LOSS, in finance, is when expenses exceed sales or revenues, i.e. goods or services are sold for less than their cost.
LOSS LEADER is a featured article of merchandise sold at a loss in order to draw customers.
LOT can be: 1. A group of items which are bought or sold together; 2. Multiple shares held or traded together, usually in units of 100; or, 3. A parcel of land.
LP see LINEAR PROGRAMMING.
LRIC is an acronym for Long Run Incremental Cost. A service costing methodology used primarily in the telecommunications industry.
LTM means Last Twelve Months.
LUMP-SUM is an agreed upon sum of money, which is paid in full settlement all at one time.
M1 is the narrowest measure of the
M2 is a measure of the
M3 is the broadest measure of the U.S. money stock that consists of M2, time deposits of $100,000 or more at all depository institutions, term repurchase agreements in amounts of $100,000 or more, certain term Eurodollars and balances in money market mutual funds restricted to institutional investor.
MACRS is Modified Accelerated Cost Recovery System.
MAINTENANCE is the activity involved in maintaining something in good working order. May include replacement of signifcant portions of the item(s) being maintained.
MAINTENANCE OF ACCOUNTS, in accounting, ensures that all transactions and accounting records are in accordance with generally accepted accounting principles and applicable laws, and shall be in sufficient detail to permit an annual audit.
MAKER is a. the producer of a product, or, b. the person who signs a check or promissory note, which makes him/her responsible for payment.
MALPRACTICE INSURANCE see E&O INSURANCE.
MANAGED RECEIVABLES is the total receivable amounts on which a company continues to perform billing and collection activities, including receivables that have been sold with and without credit recourse and are no longer reported on the balance sheet. See OWNED RECEIVABLES.
MANAGEMENT ACCOUNTING is the process of identification, measurement, accumulation, analysis, preparation, interpretation, and communication of financial information used by management to plan, evaluate, and control within an organization and to assure appropriate use of and accountability for its resources. Management accounting also comprises the preparation of financial reports for non-management groups such as shareholders, creditors, regulatory agencies, and tax authorities.
MANAGERIAL ACCOUNTING is a system using financial accounting records as basic data to enable better business decisions in the areas of planning and control.
MANAGEMENT BY EXCEPTION (MBE) is a management method by which only exceptional events are reported or acted upon. In this way management can focus only on those results or occurrences that deviate in some way from that what was expected.
MANAGEMENT BY OBJECTIVES (MBO) is a management theory that calls for managing people based on documented work statements mutually agreed to by manager and subordinate. Progress on these work statements is periodically reviewed, and in a proper implementation, compensation is usually tied to MBO performance.
MANAGEMENT CONTROL SYSTEM is essentially a strategic tool for holding managers accountable and responsible for their performance. Existence of such a system also provides feedback for managers to know how they perform, in which direction the organization is heading, and what type of course correction may be required to stay on course.
MANAGEMENT EXPENSE is the management fee deducted from a fund's average net assets to pay an advisor or subadvisor. This fee is normally on a sliding scale. As the net assets of the fund increase, the percentage deducted for management fees decreases. A fund can also have a fixed rate or flat fee to compensate the advisor.
MANAGEMENT INFORMATION SYSTEM (MIS) is a well-developed data management system that provides uniform organizational information from all areas of the entity within a database. Information within the database is manipulated to help management reach accurate and rapid organizational decisions.
MANAGEMENT LETTER identifies issues not required to be disclosed in the Annual Financial Report but represent the auditor's concerns and suggestions noted during the audit.
MANDATORY TRANSFERS are transfers from the current (operating) fund group to other fund groups arising out of binding legal agreements related to the financing, e.g., in education: debt retirement, interest, and grant agreements with federal agencies and other organizations to match gifts and grants. Whereas non-mandatory transfers would be transfers from the current (operating) fund group to other fund groups made at the discretion of management to serve various objectives, e.g., additions to loan funds, endowment funds, plant additions, and voluntary renewal and replacement of plant.
MANNING VARIANCE is the difference between the amount of time that was expected to be worked at a machine-paced workcenter, based on the amount of receipts of the parent part, and the actual amount of labor hours recorded at the workcenter.
MANUAL TAG SYSTEM is a inventory tracking system used in inventory management that tracks inventory using tags removed at the point of purchase.
MANUFACTURING ACCOUNT is an accounting statement that is an integral part of the final accounts of a manufacturing organization. For any particular period, it indicates, among other things, prime cost of manufacturing, manufacturing overhead, the total manufacturing cost, and the manufacturing costs of finished goods.
MANUFACTURING COMPANY see MANUFACTURING CONCERN.
MANUFACTURING CONCERN is an entity that derives its products for sale, thereby revenue, through the direct manufacture of those products.
MANUFACTURING OVERHEAD is the total cost of indirect labor, indirect materials, and other indirect expenses associated with manufacturing products.
MANUFACTURING STATEMENT see MANUFACTURING ACCOUNT.
MAP can mean Manufacturing Application Protocol, Merchant Account Provider, Minimum Advertised Price, or Major Accounts Processing among many others.
MARGIN see GROSS MARGIN.
MARGIN (Stocks) allows investors to buy securities/assets by borrowing money from a broker/banker. The margin is the difference between the market value of a stock/asset and the loan a broker/banker makes.
MARGIN ACCOUNT (Stocks) is a leverageable account in which stocks can be purchased for a combination of cash and a loan. The loan in the margin account is collateralized by the stock and, if the value of the stock drops sufficiently, the owner will be asked to either put in more cash, or sell a portion of the stock. Margin rules are federally regulated, but margin requirements and interest may vary among broker/dealers.
MARGINAL is just barely adequate or within a lower limit.
MARGINAL COST is a calculation showing the change in total cost as a result of a change in volume, e.g. if one more item of output increases the total cost by $25, the marginal cost is $25. It is usually useful to determine marginal cost because it can aid in determining if the rate of production should be altered.
MARGINAL PROFIT is the change in the total profit that results from the sale of an additional unit.
MARGINAL REVENUE is the change in total revenue as a result of producing one additional unit of output.
MARGINAL TAX RATE is the top rate of income tax that is charged to individuals on their earnings.
MARGIN ANALYSIS see CONTRIBUTION MARGIN ANALYSIS or GROSS PROFIT MARGIN ANALYSIS.
MARGIN CALL (Stocks) is a demand for additional funds because of adverse price movement is a stock.
MARGIN LENDING, in securities, is where the lender, usually a bank, will lend you between approximately 40% and 70% of the value of approved shares and managed funds. For example, if you have $30,000 in cash, you could borrow up to $70,000 and buy a $100,000 portfolio (assuming a lending ratio of 70%). This portfolio then becomes the security for your margin lending facility.
MARGIN OF SAFETY, in accounting, is how much output or sales level can fall before a business starts making a loss. In investing, it is the difference between the intrinsic value of a stock, i.e. value based on stock valuation and what the company is actually worth and the price that the market sets on a stock, i.e. a stock price is a matter of the market participants' opinions.
MARINE INSURANCE is insurance coverage protecting against loss or damage of goods transported by sea.
MARK ENDORSEMENT, normally, it is when a signatory (payee) cannot endorse with their signature, due to illiteracy or an infirmary, the signatory is allowed to make a mark that identifies that the signatory has signed. Such mark endorsements are normally witnessed with the witness endorsing the mark endorsement.
MARKETABLE CAPACITY is an assessment of total capacity compared to that capacity that sales projections indicate that the market can absorb. Dependent upon demand, the analysis will indicate whether the marketable capacity is at capacity, over capacity (inflationary), or under capacity (deflationary).
MARKETABLE SECURITY is a readily tradable equity or debt security with quoted prices; to include commercial paper and Treasury bills. It is a "close to cash" asset which is classified as a current asset.
MARKET ANAMOLY is a persistent and systematic differential of returns that cannot be accounted for by systematic risk factors, i.e. it is an inexplicable price distortion on a market.
MARKET CAPITALIZATION is the total dollar value of all outstanding shares. It is calculated by multiplying the number of shares times the current market price. The term is commonly referred to as “market cap”.
MARKET DISCOUNT is the stated redemption price of a bond at maturity minus your basis in the bond immediately after you acquire it. Market discount arises when the value of a debt obligation decreases after it's issue date.
MARKET DISCOUNT BOND is any bond having market discount except: short-term obligations with fixed maturity dates of up to 1 year from the date of issue, tax-exempt obligations that you bought before May 1, 1993, U.S. savings bonds, and certain installment obligations.
MARKETING EXPENSE see SALES & MARKETING EXPENSE.
MARKETING LEVER is anything that provides positional advantage or power to act effectively: Potential levers may be price, brand name, corporate image, broad distribution, effective advertising, etc.
MARKET MULTIPLE see PRICE/EARNINGS RATIO.
MARKET POSITION, from a marketing context, is the strength of an entity or product within the target market. In investing, it is the amount and/or depth and breadth of holdings within identified sectors of the capital market.
MARKET SEGMENT is a group of consumers, within a broader market, that has similar characteristics and needs.
MARKET SHARE is the percentage of sales a company captures for a particular product line, i.e., the percentage of total industry sales that a particular company controls within a given market.
MARKET TO BOOK VALUE is calculated by dividing the market value (MV) of a company, i.e., the total value of all its outstanding shares, by the value of its tangible assets (TA). Also known as TOBIN RATIO = MV/TA.
MARKET VALUE, in general, is the price at which buyers and sellers trade similar items in an open marketplace. In the absence of a market price, it is the estimated highest price a buyer would be warranted in paying and a seller justified in accepting, provided both parties were fully informed and acted intelligently and voluntarily. See also OPEN MARKET VALUE (OMV).
MARK-TO-MARKET (MTM) is the recording of the price or value of a security, portfolio, or account on a daily basis, to calculate profits and losses or to confirm that margin requirements are being met. This is done most often in futures accounts to make sure that margin requirements are being met. If the current market value causes the margin account to fall below its required level, the trader will be faced with a margin call. Mutual funds are marked to market on a daily basis at the market close so that investors have an idea of the fund's NAV.
MARKUP is the amount added to the cost of goods in order to produce the desired profit.
MARSHALLING is to make ready for action or use, e.g., the marshalling of resources.
MASTER BUDGET formalizes the whole budget system into one single final document in which all the operational budgets flow; its goal is to draft the main economic and financial statements. However, dependent upon the individual or geographic location, is variously contains the cash budget only; or the income statement and the balance sheet combined; or the income statement and the balance sheet and the cash budget combined.
MAT is Management, Administrative, and Technological.
MATCHING, in accounting, is the matching of invoices to purchase orders and delivery notes prior to payment.
MATCHING CONCEPT is the accounting principle that requires the recognition of all costs that are directly associated with the realization of the revenue reported within the income statement.
MATCHING PRINCIPLE see MATCHING CONCEPT.
MATERIAL CONTROL normally refers to the department responsible for the proactive control of materials within a manufacturing environment: Do procedures exist for storage, release, and movement of material? Are materials in stores identified and controlled? Are in-process materials identified and controlled? Are materials in inspection identified and controlled? Do storage areas and facilities provide control to protect material from degradation? Are nonconforming items identified, segregated and controlled?
MATERIAL CONTROL SYSTEM (MCS) is the software program used to control the routing and transfer of material within an automated material handling and control system.
MATERIALITY is the importance of information or an event that influences a company's price of stock.
MATERIALITY PRINCIPLE requires accountants to use generally accepted accounting principles except when to do so would be expensive or difficult, and where it makes no real difference if the rules are ignored. If a rule is temporarily ignored, the net income of the company must not be significantly affected, nor should the reader's ability to judge the financial statements be impaired.
MATERIAL MISSTATEMENT is accidental or intentional untrue financial statement information that influences a company's value or price of stock.
MATERIAL REQUISITION PLANNING (MRP) entire purpose is to plan for materials that are required for a particular purpose. An MRP is usually automated using transaction codes. MRP can be done for a single material item or a multilevel plan can be run for a material within a plant. MRP creates purchase requisitions, purchase orders, or planned orders for the material. This is done on the basis of the settings selected in the transactions. To take an example, a particular material item may be procured externally, in such a case, an MRP run creates requirements for that material through the respective plant from a sales document.
MATERIALS are physical goods (and their cost) used in the manufacture of a product, often separated into DIRECT MATERIAL (that which goes directly into the product such as cream into ice cream, or steel into cars) and INDIRECT MATERIAL (that which is used in maintaining the manufacturing environment such as cleaning fluids or oil for lubrication of manufacturing equipment). Indirect materials are usually part of the overhead component of cost. The term material, when used without the direct or indirect qualifier, usually refers to direct materials.
MATERIAL WEAKNESS is a condition that could potentially result in the material misstatement of the financial statements.
MATRIX ORGANIZATION is where a company superimposes a group or interdisciplinary team of project specialists on a functional organizational design. In a matrix organization the members have dual allegiances, i.e., to that particular assignment or project as well as their normal organizational department.
MATURITY DATE of a financial asset is the date at which that asset is converted into a specified amount of money or physical assets, e.g. the date on which an issuer of a bond promises to repay the full amount borrowed.
MATURITY VALUE, in securities, is the amount that will be received at the time a security is redeemed at its maturity. For most securities, maturity value equals par value; in insurance, it is the amount payable under a whole life insurance policy if the insured person lives to the last age on the mortality table on which the values of the contract were based.
MBE see MANAGEMENT BY EXCEPTION.
MBO see MANAGEMENT BY OBJECTIVES.
MCP is Microsoft Certified Professional or Master of City Planning.
MCS see MATERIAL CONTROL SYSTEM.
MD&A is an acronym for Management Discussion and Analysis. MD&A usually refers to that section of a corporate annual or quarterly report that provides managerial comment on corporate performance for the time period in question.
MEAN is the measure of central tendency; also called the 'average'. It is calculated by the sum of the data points divided by the number of data points.
MEASUREMENT THEORY involves the assignment of numerals to objects or events in order to represent certain attributes, or properties, of those objects and events.
MEDIAN is the value of the midpoint variable when the data are arranged in ascending or descending order.
MEDIA PLAN, in advertising, is the plan that details the usage of media in an advertising campaign including costs, running dates, markets, reach, frequency, rationales, and strategies.
MEDIUM TERM usually encompasses a calendar of 2-3 years or less.
MEDIUM TERM ASSETS, usually, are those assets that are expected of having a useful life of between six months and two years of the present.
MEMO ENTRY is supplemental or explanatory information on a reporting schedule. It is used for clarification of sometimes complex entries.
MEMORANDUM ACCOUNT see SPECIAL MEMORANDUM ACCOUNT.
MEMORANDUM FOR RECORD (MR) is an in-house memo covering information that would otherwise not be recorded in writing.
MER (Management Expense Ratio) is the percentage of the assets that were spent to run a mutual fund. It includes things like management and advisory fees, travel costs and 12b-1 fees. The expense ratio does not include brokerage costs for trading the portfolio. Also referred to as the Expense Ratio.
MERCHANDISE is commodities offered for sale or to engage in the trade of commodities that are for sale.
MERCHANDISING CONCERN is an entity that derives its revenue through the provisioning of products provided or manufactured by others. See MANUFACTURING CONCERN.
MERGER is the union of two or more commercial interests or corporations. The distinction being that identity of the merged companies, product lines, etc., may or may not lose its individual identity.
MEZZANINE FINANCING usually is a class of investment that is a stage intermediate between venture capital and an initial public offering; or, subordinated debt used in leveraged buyouts (LBOs).
MID-CAP is a stock with a capitalization, total equity value, between $500 million and $5 billion.
MIDDLE MARKET COMPANY: see MID-CAP.
MILLAGE is a rate (as of taxation) expressed in mills per dollar.
MINIMUM PAYMENT is the minimum amount that you must pay, e.g. usually monthly on a home equity loan or line of credit. In some payment agreements the minimum payment may be "interest only" (simple interest). In other loan agreements, the minimum payment may include principal and interest (amortized).
MINIMUM WAGE is the lowest compensation you are allowed to pay an employee for hourly work. It is defined by Federal, state, and sometimes local laws. State or local laws may be more restrictive than Federal law, and certainly may differ.
MINORITY INTEREST is the interest or percentage ownership of a group of stockholders who, in total, own less than 50% of the shares in the corporation.
MINOR MATTERS is a term used in accounting and legal reports to cover areas considered to be cosmetic or superficial; thereby deemed by the author to be of little consequence.
MIS see MANAGEMENT INFORMATION SYSTEM.
MISAPPROPRIATON is a nonviolent criminal taking of property. Includes embezzlement, theft, and fraud. Often applied to an employee’s taking of an employer’s property.
MISCELLANEOUS is a grouping consisting of a haphazard assortment of different kinds.
MISCELLANEOUS INCOME is that income realized that is not directly related to the sale of standard products and services.
MMOE is a slang acronym meaning Make Money or Else.
MMU is Maintained Mark-Up.
MODIFIED ACCELERATED COST RECOVERY SYSTEM (MACRS) is a system used in accounting to define the rate and method under which a fixed asset will be depreciated for tax purposes.
MODIFIED ACCRUAL BASIS accounting is a mixture of the cash and accrual basis. The modified accrual basis should be used for governmental funds. To be recognized as a revenue or expenditure, the actual receipt or disbursal of cash must occur soon enough after a transaction or event has occurred to have an impact on current spendable resources. In other words, revenues must be both measurable and available to pay for the current period's liabilities. Revenues are considered available when collectible either during the current period or after the end of the current period but in time to pay year-end liabilities. Expenditures are recognized when a transaction or event is expected to draw upon current spendable resources rather than future resources.
MODIFIED INTERNAL RATE OF RETURN is the rate of return which equates the initial investment with the terminal value, where the terminal value is the future value of the cash inflows compounded at the required rate of return (the opportunity cost of capital).
MONETARY is anything pertaining to or having to do with money, money creation, money supply, and the government management of money.
MONETARY ASSETS are measured at their collectible amounts, while nonmonetary assets are measured at historical costs.
MONEY MARKET is a sector of the capital market where short-term obligations such as Treasury bills, commercial paper and bankers' acceptances are bought and sold.
MONEY MARKET FUND is a fund that invests in various short-term debt instruments, i.e., commercial paper, negotiable certificates of deposit, banker's acceptances, Treasury bills, etc.. Shares seek to maintain a net asset value of $1 but the interest rate changes daily.
MONEY MEASUREMENT CONCEPT stipulates that all business transactions must be expressed in money terms, i.e., if something cannot be measured in money; it will not be included in accounting books.
MONEY MEASUREMENT PRINCIPLE see MONEY MEASUREMENT CONCEPT.
MONETARY UNIT is the unit used to measure economic activity (e.g.,
MONETARY UNIT ASSUMPTION assumes that values can be relevantly measured in current monetary units. It is not necessary that the currency be stable or that inflation effects be negligible. The discount rate (cost of capital) automatically takes into account expected inflationary effect on dollar or inventory values for the specific entity. This supports economic valuation and enhances comparability.
MONITOR, generally, is to keep tabs on; keep an eye on; or, keep under surveillance. In business, it is a person or firm appointed to review and report on, without controlling or approving, the day-to-day transactions of a business. Particulars of the engagement are usually set out in an exchange of letters, an agreement or court order.
MORATORIUM a legally authorized postponement before some obligation must be discharged.
MORTGAGE is a conditional conveyance of property as security for the repayment of a loan.
MORTGAGE BOND is a bond in which the issuer has granted the bondholders a lien against the pledged assets.
MOU is Memorandum of Understanding.
MR see Memorandum for Record.
MRP see MATERIAL REQUISITION PLANNING.
MSCC is Material Supply Chain Cost.
MSRP is Manufacturer's Suggested Retail Price.
MTM see MARK-TO-MARKET.
MUD is Multi Unit Discount.
MULTINATIONAL is involving or operating in several nations or nationalities (Example: Multinational corporations).
MULTIPLE see PRICE/EARNINGS RATIO.
MULTIPLE REGRESSION of approximating cost is a statistical method that can be used to estimate a cost function when there is more than one independent variable.
MULTIPLIER is a. the investment multiplier which quantifies the overall effects of investment spending on total income; or, b. the deposit multiplier which shows the effects of a change in bank deposits on the total amount of outstanding credit and the money supply.
MUTUAL AGENCY is the right of all partners in a partnership to act as agents for the normal business operations of the partnership, with the authority to bind it to business agreements.
MUTUAL FUND, according to the SEC, is a company that brings together money from many people and invests it in stocks, bonds or other assets. The combined holdings of stocks, bonds or other assets the fund owns are known as its portfolio. Each investor in the fund owns shares, which represent a part of these holdings.
1 comment:
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