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Name
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Meaning
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A
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Account
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Formal record that
represents, in words, money or other unit of measurement, certain resources, claims to such
resources, transactions or other events that result in changes to those
resources and claims.
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Account Payable
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Amount owed to
a CREDITOR for
delivered goods or completed services.
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Accounts Receivable
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Claim against
a DEBTOR for an
uncollected amount, generally from a completed transaction of sales or
services rendered.
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Accountant
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Person skilled in
the recording and reporting of financial transactions.
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Accountant Report
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Formal document that
communicates an independent accountant's: (1) expression of limited assurance on FINANCIAL STATEMENTS as a result of
performing inquiry and analytic procedures (REVIEW REPORT); (2) results of procedures performed (AGREED-UPON PROCEDURES
REPORT); (3) non-expression of opinion or any form of assurance on a
presentation in the form of financial statements information that is the
representation of management (COMPILATION REPORT); or (4) an opinion on an assertion made by management in accordance with the Statements on
Standards for Attestation Engagements (ATTESTATION REPORT). An accountants' report does not
result from the performance of an AUDIT.
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Accounting
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Recording and
reporting of financial transactions, including the origination of the
transaction, its recognition, processing, and summarization in the FINANCIAL STATEMENTS.
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Accounting Cycle
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The sequence of
steps followed in the accounting process to measure business transactions and transform
the measurements into FINANCIAL
STATEMENTS for a specific period.
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Accounts Payable
Subsidiary Ledger
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A financial record
of an individual ACCOUNT PAYABLE in which entries can be made daily.
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Accounts Receivable
Turnover
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Used to measure a
company’s ability to collect cash from credit customers. Found by dividing net sales by
average net ACCOUNT RECEIVABLE.
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Accrual
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The recognition of
an expense or
revenue that has occurred but has not yet been recorded.
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Accrual Accounting
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The attempt to
record the financial effects of transactions and other events in the periods
in which those transactions or events occur rather than only in the periods
in which cash is received or paid by the business, using all the
techniques developed by accountants to apply the MATCHING PRINCIPLE.
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Accrual Basis
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Method of ACCOUNTING that
recognizes REVENUE when earned, rather than when collected. Expenses are
recognized when incurred rather than when paid.
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Accrued Expense
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An expense that has
occurred but is not recognized in the accounts.
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Accrued Interest
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INTEREST that has accumulated between the most recent payment and
the sale of a BOND or other
fixed-income security.
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Accumulated Depreciation
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Total DEPRECIATION pertaining to
an ASSET or group of
assets from the time the assets were placed in services until the date of the
FINANCIAL STATEMENT or tax return. This total is the CONTRA ACCOUNT to the related asset account.
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Accumulation
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Profits that are not
paid out as DIVIDENDS but are instead added to the company’s capital base.
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Acid Test Ratio
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The relationship of
a company’s current assets that can be converted into cash to its current
liabilities. It is determined by dividing QUICK
ASSETS by current liabilities.
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Acquisition
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One company taking over
controlling interest in another company.
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Actuary
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Mathematician
employed by an insurance company to calculate PREMIUMS, RESERVES, DIVIDENDS, and
insurance, PENSION, and ANNUITY rates, using risk factors obtained from experience tables.
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Additional Paid In
Capital
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Amounts paid for
stock in excess of its PAR VALUE or STATED VALUE. Also, other amounts paid by stockholders and charged to
EQUITY ACCOUNTS other than CAPITAL STOCK.
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Adjusted Basis
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After a taxpayer's
basis in property is determined, it must be adjusted upward to include any additions
of capital to the property and reduced by any returns of capital to the
taxpayer. Additions might include improvements to the property and
subtractions may include depreciation or depletion. A taxpayer's adjusted basis in property is deducted from the amount realized to find
the gain or loss on sale or
disposition.
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Adjusted Gross Income
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Gross income reduced by business and other specified expenses of
individual taxpayers. The amount of adjusted
gross income affects the extent to which medical
expenses, non business casualty and theft losses and charitable contributions
may be deductible. It is also an important figure in the basis of many other
individual planning issues as well as a key line item on the IRS form 1040 and
required state forms.
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Adjusted Trial Balance
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A trial balance prepared after
all adjusting entries have been recorded and posted to the accounts. Should
have equal credit and debit totals.
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Adjusted Journal Entry
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An accounting entry made
into a subsidiary ledger called
the General journal to account for a periods changes, omissions or other financial data
required to be reported "in the books" but not usually posted to
the journals used for typical period transactions (the cash receipts journal, cash disbursements
journal, the payroll journal, sales journal and so on) the entry is posted to
the general ledger accounts directly and usually will be numbered itself,
dated and have an explanation. Example: AJE# 1 12-31-2003, debit Cash in bank
$1,000. Credit interest income $1,000, to record
interest income on business bank account at year end, not recorded in cash
receipts journal but credited by the bank. (Cross-reference bank reconciliation and account
where it was found)
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ADR
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Receipts for shares
of foreign company stock maintained by an intermediary indicating
ownership.
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Adverse Opinion
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Expression of an
opinion in an AUDITORS' REPORT which states that FINANCIAL
STATEMENTS do not fairly present the financial
position, results of operations and cash
flows in conformity with GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (GAAP).
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Affiliated Company
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Company, or other organization related through common ownership, common control
of management or
owners, or through some other control mechanism, such as a long-term LEASE.
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Agency Fund
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Fund consisting of
ASSETS where the holder agrees to remit the assets, income from the
assets, or both, to a specified beneficiary in due course or at a specified
time.
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Allocate
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To set aside for a
specific reason.
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Allowance for Doubtful
Accounts
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A contra-asset account used to reduce
ACCOUNTS RECEIVABLE to the amount that is expected to be collected in cash.
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Alternative Dispute
Resolution
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An alternative to
formal litigation which includes techniques such as arbitration, mediation,
and a non-binding summary jury trial.
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Alternative Minimum Tax
(AMT)
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Tax imposed to back up the regular income tax imposed
on CORPORATION and
individuals to assure that taxpayers with economically measured income
exceeding certain thresholds pay at least some income tax.
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American Depository Receipt
(ADR)
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Receipts for shares
of foreign company stock maintained by an intermediary indicating
ownership.
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Amortization
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Gradual and periodic
reduction of any amount, such as the periodic writedown of a BOND premium, the cost of
an intangible ASSET or periodic payment Of MORTGAGES or other DEBT.
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AMT
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Tax imposed to back up the regular income tax imposed
on CORPORATION and
individuals to assure that taxpayers with economically measured income
exceeding certain thresholds pay at least some income tax.
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Analyst
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Person in a
brokerage house, bank trust dept., or mutual fund group who studies a number of companies and makes buy or
sell recommendations on the securities of particular companies and industry
groups.
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Analytical Procedures
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Substantive tests of
financial information which examine relationships among data as a means of
obtaining evidence. Such procedures include: (1) comparison of financial
information with information of comparable prior periods; (2) comparison of
financial information with anticipated results (e.g., forecasts); (3) study
of relationships between elements of financial information that should
conform to predictable patterns based on the entity's experience; (4)
comparison of financial information with industry norms.
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Annual Report
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Report to the stockholders of a company which includes
the company's annual, audited BALANCE SHEET and related statements of earnings, stockholders'
or owners' equity and cash flows, as well as other financial and business information.
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Annunity
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Series of payments,
usually payable at specified time intervals.
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Anti-Dilution
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Condition that may
increase the computation of EARNINGS PER SHARE
(EPS) or decrease loss per share
solely because of the inclusion of COMMON STOCK equivalents, such as STOCK OPTIONS, WARRANTS,
convertible DEBT or convertible PREFERRED
STOCK, nomination or selection of the independent
AUDITORs.
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Apperciation
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Increase in
the value of an ASSET such as a
stock, BOND, commodity,
or real estate.
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Assertion
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Explicit or implicit
representations by an entity's management that are embodied in financial statement components and
for which the AUDITOR obtains and evaluates evidential matter when forming
his or her opinion on the entity's financial
statements.
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Asset
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An economic resource
that is expected to be of benefit in the future. Probable future economic
benefits obtained as a result of past transactions or events. Anything
of value to which
the firm has a legal
claim. Any owned tangible or intangible object having economic value useful
to the owner.
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Asset Turnover
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A way of measuring
how profitably and efficiently assets are being used to produce sales. This
is determined by dividing net sales by average total assets.
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At Par
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At a price equal to
the face, or nominal, value of a security.
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Audit
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A professional
examination of a company’s financial statement by a professional accountant or group to determine that the statement has been
presented fairly and prepared using GENERALLY
ACCEPTED ACCOUNTING PRINCIPLES (GAAP).
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Audit Documentation
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The written record
of the basis for the AUDITOR's conclusions that provides the support for the auditor's
representations, whether those representations are contained in the
auditor's report or otherwise. (May be referred to as work papers
or working papers).
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Audit Engagement
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Agreement between
a CPA firm and its client
to perform an AUDIT.
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Audit Risk
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The risk that the AUDITOR may
unknowingly fail to modify appropriately his or her opinion on financial statements that are
materially misstated.
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Audit Sampling
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Application of
an AUDIT procedure to
less than 100% of the items within an account BALANCE or class of transactions for the purpose of evaluating
some characteristic of the balance or class.
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Authorized Shares
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Maximum number of
shares of any class a company may legally create under the terms of its articles
of incorporation.
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Average Days Inventory
On-Hand
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The average number
of days required to sell the current inventory of products available for sale. It is found by
dividing the number of days in a year by inventory
turnover.
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Average Days Sales
Uncollected
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A ratio that shows
the average length of time it takes a company to receive payment for credit sales.
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Average Cost Method
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A way of arriving at
the cost of inventory that computes the average cost of all goods available for sale during a
fixed period in order to
determine the value of inventory.
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B
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Backup Withholding
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Payors of interest,
dividends and other reportable payments must withhold income tax equal at a
rate equal to the fourth lowest rate applicable to single filers if they fail
to supply a federal id # or if they fail to certify that they are not subject
to it.
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Bad Debt
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All or portion of an
ACCOUNT, loan, or note receivable considered to be uncollectible.
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Balance
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Basic FINANCIAL
STATEMENT, usually accompanied by appropriate DISCLOSURES that describe the
basis of ACCOUNTING used in its preparation and presentation of a specified
date the entity's ASSETS, LIABILITIES and the EQUITY of its owners. Also
known as a STATEMENT OF FINANCIAL CONDITION.
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Bank Reconciliation
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A process by which
an accountant determines
whether and why there is a difference between the balance shown on
the bank statement and the balance of the cash account in the
firm’s GENERAL LEDGER.
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Bank Statement
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A periodic statement, usually monthly,
that a bank sends to the holder of a checking account showing
the balance in
the account at the beginning of the month, during, and at the end of the
month.
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Bankruptcy
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Legal process,
governed by federal statute, whereby the DEBTS of an insolvent person are
liquidated after being satisfied to the greatest extent possible by the DEBTOR'S ASSETS.
During bankruptcy,
the debtor's assets are held and managed by a court appointed TRUSTEE.
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Base Market Value
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Average market price of a group of
securities at a given time.
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Beta Coefficient
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Measure of a stock’s
relative volatility. The beta is the covariance of a stock in relation to the
rest of the stock market.
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Bid and Asked
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Bid is the highest
price a prospective buyer is prepared to pay at a particular time for a
trading unit of a given SECURITY; asked is the
lowest price acceptable to a prospective seller of the same security. The
difference between the prices is the SPREAD.
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Bond
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One type of long-term PROMISSORY NOTE, frequently issued
to the public as a SECURITY regulated under federal securities laws or state BLUE
SKY LAWS. Bonds can either be registered in the owner's name or are issued as
bearer instruments.
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Bond Discoount
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The amount
below PAR VALUE that
a BOND sells for.
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Bond Indenture
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An additional
agreement to a BOND issue that defines the rights, privileges, and limitations of
BONDHOLDERS.
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Bondholder
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A person who owns
a BOND certificate
issued by a government or CORPORATION.
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Book Value
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Amount, net or CONTRA ACCOUNT balances, that
an ASSET or LIABILITY shows on the
BALANCE SHEET of acompany. Also known as CARRYING VALUE.
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Bookkeeping
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The process of
recording financial transactions and keeping financial records.
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Boot
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The non
technical term used by some to describe any cash or other
property that is received in exchange of property that would be otherwise
nontaxable.
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Bottom Line
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The line in a
FINANCIAL STATEMENT that shows NET INCOME or LOSS.
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Break-Even Point
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The point at which
TOTAL REVENUES equals
TOTAL COSTS.
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Break-Even Units
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The number of units
of a product that must be sold before a company makes enough money to pay for direct and indirect costs
of making the product.
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Budget
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Financial plan that
serves as an estimate of future cost, REVENUES or both.
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Burden Rate
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Standard rate multiplied by a level of activity to determine
the OVERHEAD cost
of that activity. Activity measures include LABOR or machine
hours
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Buyout
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Purchase of at least
a controlling percentage of a company’s stock to take over its ASSETS and
operations.
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Bylaws
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Collection of formal,
written rules governing the conduct of a CORPORATION'S affairs (such as what officers it will have, what their
responsibilities are, and how they are to be chosen). Bylaws are approved
by a corporation's stockholders, if a stock corporation, or other owners, if
a non-stock corporation.
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C
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Call Loan
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Loan repayable on demand. Also known as DEMAND LOAN.
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Call Price
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A specified price,
usually above face value, at which a CORPORATION may, at its option, buy back and retire BONDS before maturity.
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Callable
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Redeemable by
the issuer before the
scheduled maturity.
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Callable Instrument
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BOND which accords an issuer the right to redemption before it is due.
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Capital Asset Pricing
Model (CAPM)
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Sophisticated model
of the relationship between expected risk and expected return.
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Capital Expenditure
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Outlay of money to
acquire or improve capital assets such as buildings and machinery.
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Capital Gain
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Portion of the total GAIN recognized on
the sale or exchange of
a noninventory asset which is not taxed as ORDINARY INCOME. Capital gains have
historically been taxed at a lower rate than ordinary income.
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Capital Project Funds
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Funds used by
a not-for-profit organization to account for all resources used for the development of a land improvement or building
addition or renovation.
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Capital Stock
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Ownership shares of
a CORPORATION authorized
by its ARTICLES OF INCORPORATION. The money valueassigned to a corporation's issued shares. The BALANCE SHEET account with the
aggregate amount of the PAR VALUE or STATED VALUE of all stock issued by a corporation.
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Capitalize
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Convert a schedule
of INCOME into a principal amount, called
capitalized value, by dividing by a rate of INTEREST.
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Capitalized Cost
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Expenditure identified with goods or services acquired and measured
by the amount of cash paid or the market value of other property, CAPITAL
STOCK, or services surrendered. Expenditures that
are written off during two or more accounting periods.
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Capitalized Interest
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INTEREST cost incurred during the time necessary to bring
an ASSET to the
condition and location for its intended use and included as part of the HISTORICAL COST of acquiring
the asset.
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Capitalized Lease
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LEASE recorded as an ASSET acquisition accompanied by a corresponding LIABILITY by the LESSEE.
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Carrying Value
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Amount, net or CONTRA ACCOUNT balances, that
an ASSET or LIABILITY shows on the
BALANCE SHEET of a company. Also known as BOOK VALUE.
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Carryovers
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Provision of tax law that
allows current losses or certain tax credits to be utilized in the tax
returns of future periods..
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Cash
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ASSET account on a balance sheet representing paper currency and coins, negotiable money orders
and checks, bank balances, and certain short-term government securities.
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Cash Account
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Brokerage firm account whose
transactions are settled on a cash basis.
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Cash Basis
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Method of bookkeeping by which REVENUES and
EXPENDITURES are recorded when they are received and paid.
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Cash Dividend
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Distribution of a
CORPORATION’s earnings to stockholders in the form of CASH.
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Cash Equivalents
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Short-term (generally less than three months), highly liquid
INVESTMENTS that are convertible to known amounts of cash.
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Cash Flow to Assets
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Used to measure the
ability of ASSETS to generate operating CASH
FLOWS.
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Cash Flow to Sales
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A way of measuring
the ability of sales to generate operating CASH FLOWS.
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Cash Flows
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Net of cash receipts and cash disbursements relating to a particular
activity during a specified accounting period.
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Cash Payments Journal
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A multicolumn journal used to record
sums of cash paid out for
expenses.
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Cash Ratio
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Ratio of CASH and MARKETABLE SECURITIES to CURRENT
LIABILITIES.
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Cash Recepits Journal
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A multicolumn journal used to record
business transactions involving the receipt of CASH from other
individuals or businesses.
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Casualty Loss
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Any loss of an asset due to fire
storm act of nature causing asset damage from unexpected or accidental force.
Generally it is deductible regardless of whether it is business or personal.
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Certificate of Deposit
(CD)
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Formal instrument issued by a
bank upon the deposit of funds which may not be withdrawn for a specified
time period. Typically, an
early withdrawal will incur a penalty.
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Close
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To clear the
BALANCES of temporary accounts in order to be ready for the next accounting period.
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Closed-End Mutual Fund
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MUTUAL FUND with a fixed number of shares outstanding that may be
bought or sold.
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Closing Entry
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A journal entry made at the
end of an accounting period in order to prepare for the next accounting period by
clearing the BALANCES of temporary accounts and summarizing the
period’s REVENUES and expenses.
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Collateral
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ASSET provided to a CREDITOR as security for a loan.
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Collateralized Mortgage
Obligation (CMO)
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SECURITY whose cash flows equal the difference between the cash flows of the
collateralizing ASSETS and the collateralized obligations of a
securitized TRUST. Characteristics of CMO residuals vary greatly and can be extremely complex in
nature.
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Comfort Letter
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Letter provided by
a company's
independent public accountant to an underwriter when the underwriter has a DUE DILIGENCE responsibility
under Section 11 of the Securities Act of 1933 regarding financial
information included in an offering statement.
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Commercial Paper
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A way of borrowing
money by using unsecured short-term loans sold directly to the public, usually through
professionally managed investments firms.
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Commission
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Percentage of the
selling price of the property, paid by the seller.
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Comodities
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Bulk goods such as
grains, metals, and foods traded on a commodities exchange or on the SPOT
MARKET.
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Common Stock
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CAPITAL STOCK having no preferences generally in terms of dividends, voting rights
or distributions.
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Comparative Financial
Statement
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FINANCIAL STATEMENT presentation
in which the current amounts and the corresponding amounts for previous
periods or dates also are shown.
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Compensate
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To pay or make
payment for something.
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Compensatory Balance
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Funds that a
borrower must keep on deposit as required by a bank.
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Compilation
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Presentation of
financial statement data without the ACCOUNTANT'S assurance as to conformity with GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (GAAP).
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Compliance Audit
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Review of financial records to determine whether the entity is
complying with specific procedures or rules.
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Compound Interest
Principles
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Interest computed on principal plus interest earned in previous periods.
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Consolidated Financial
Statements
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Combined FINANCIAL STATEMENTS of a parent company and one or
more of its subsidiaries as one economic unit
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Consolidation
|
BUSINESS COMBINATION
of two or more entities that occurs when the entities transfer all of
their NET ASSETS to
a new entity created for that purpose.
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Constructive Report
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A taxpayer is
considered to have received the income even though the monies are not in hand, it may have been
set aside or otherwise made available. An example is interest on a
bank account.
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Consumer Goods
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Goods bought for
personal or household use, as distinguished from capital goods or producer’s
goods, which are used to produce other goods.
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Contingency
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An event that might
happen but that is not likely or planned.
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Contingent Liability
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Potential LIABILITY arising from a
past transaction or
a subsequent event
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Continuing Operations
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Portion of a
business entity expected to remain active.
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Contra Account
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ACCOUNT considered to be an offset to another account. Generally
established to reduce the other account to amounts that can be realized or
collected.
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Contra-Liability Account
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A deduction from
a LIABILITY,
such as discounts on notes payable, which is a deduction from the balance of notes
payable.
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Contribution Margin
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The excess of REVENUES over all variable costs related to a
particular sales volume.
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Control Deficiency
|
This exists when the
design or operation of a control does not allow management or employees,
in the normal course of performing their assigned functions, to prevent or
detect misstatements on a timely basis.
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Control Risk
|
Measure of risk that errors
exceeding a tolerable amount will not be prevented or detected by an entity's
internal controls.
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Control Tests
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Tests directed
toward the design or operation of an internal
control structure policy or procedure to
assess its effectiveness in preventing or detecting material misstatements
in a financial report.
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Conversion
|
Exchange of a
convertible security such as a BOND into another security such as a fixed number of shares
of the issuing CORPORATION’s COMMON STOCK.
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Convertible Stock
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Stock that may be
exchanged for other SECURITIES of the issuer.
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Corporate Bond
|
DEBT instrument issued by a private CORPORATION, as distinct from one issued by a government agency or a
municipality.
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Corporate Income Tax
|
The TAX that an
incorporated business must pay to the federal government and, often, to state
and city governments as well.
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Cost Accounting
|
Procedures used for
rationally classifying, recording, and allocating current or predicted costs
that relate to a certain product or production process.
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Cost Basis
|
Original price of
an ASSET, used in
determining CAPITAL GAIN.
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Cost of Capital
|
Rate of return that a business could earn if it chose another investment with
equivalent risk.
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Cost of Goods Sold
|
Figure representing
the cost of buying raw materials and producing finished goods.
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Cost Recovery Method
|
Method of REVENUE
RECOGNITION which recognizes profits after costs are completely recovered.
Generally used only when the total amount of collections is highly uncertain.
In tax, the ACCOUNTING METHOD used to depreciate ASSETS.
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Coupon
|
INTEREST rate on a DEBT SECURITY the ISSUER promises to pay to the holder until maturity, expressed as an
annual percentage of FACE VALUE.
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Coupon Bond
|
A BOND that is
usually not registered with the issuing CORPORATION but instead bears interest coupons stating the amount of INTEREST due and the
payment date.
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Credit
|
Entry on the right
side of a DOUBLE-ENTRY
BOOKKEEPING system that represents the reduction
of an ASSETor expense or the
addition to a LIABILITY or RVENUE.
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Credit Agreement
|
Arrangement in which
one party borrows or takes possession in the present by promising to pay in
the future.
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Credit Balance
|
BALANCE remaining after one of a series of bookkeeping entries. This
amount represents a LIABILITY or incometo the entity.
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Creditor
|
Party that loans
money or other ASSETS to another party.
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Current Asset
|
ASSET that one can reasonably expect to convert into cash, sell, or consume
in operations within a single operating cycle, or within a year if more than one cycle is completed each
year.
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Current Liability
|
Obligation
whose LIQUIDATION is
expected to require the use of existing resources classified as CURRENT
ASSETS, or the creation of other current liabilities.
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|
Current Ratio
|
Used as an indicator
of a COMPANY’s liquidity and ability to pay short-term debts. This is found by dividing CURRENT ASSETS by
CURRENT LIABILITIES.
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Current Value
|
1) Value of an ASSET at the present
time as compared with the asset's HISTORICAL COST. (2) In finance, the amount determined by discounting the future revenue
stream of an asset using COMPOUND INTEREST
PRINCIPLES.
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|
Current Yield
|
Annual INTEREST on a BOND divided by
the market price.
|
|
|
|
D
|
|
Debenture
|
General DEBT obligation
backed only by the integrity of the borrower and documented by an agreement
called and INDENTURE.
|
|
Debenture Stock
|
Stock issued under
a contract providing
for fixed payments at scheduled intervals and more like preferred stock than a DEBENTURE, since their status
in liquidation is EQUITY and not DEBT.
|
|
Debit
|
Entry on the left
side of a DOUBLE-ENTRY
BOOKKEEPING system that represents the addition of
an ASSET or expense or the
reduction to a LIABILITY or REVENUE.
|
|
Debit Balance
|
BALANCE remaining after one or a series of bookkeeping entries. This
amount represents an ASSET or an expense of the entity.
|
|
Debt
|
General name for
money, notes, BONDS, goods or services which represent amounts owed.
|
|
Debt Instrument
|
Written promise to
repay a DEBT.
|
|
Debt Retirement
|
Repayment of DEBT.
|
|
Debt Security
|
Document which is
evidence of an obligation or LIABILITY.
|
|
Debt Service Fund
|
Fund whose PRINCIPAL or INTEREST is set aside
and accumulated to retire DEBT.
|
|
Debt to Equity Ratio
|
A way of measuring
the relationship of DEBT financing to EQUITY FINANCING, or the extent to which a companyis leveraged.
|
|
Debtor
|
Party owing money or
other ASSETS to a CREDITOR.
|
|
Decedent
|
Individual who has
died.
|
|
Declare
|
Authorize the
payment of DIVIDEND on a specified date, an act of the BOARD OF DIRECTORS of a CORPORATION.
|
|
Declining- Balance Method
|
An accelerated
method of depreciating a tangible long-lived ASSET by applying a
fixed-rate based on some multiple of the STRAIGHT-LINE
DEPRECIATION rate to its CARRYING VALUE.
|
|
Defalcation
|
To misuse or
embezzle funds.
|
|
Default
|
Failure to meet any
financial obligation. Default triggers a CREDITOR'S rights and remedies identified in the agreement and under
the law.
|
|
Defeasance
|
Annulment of a contract or deed; a
clause within a contract or deed that provides for annulment.
|
|
Deferral
|
The postponement of
the date that an expense already paid or incurred, or of a REVENUE already
received, is entered in the LEDGER.
|
|
Deferred Charge
|
Income received but not earned until all events have occurred.
Deferred income is reflected as a LIABILITY.
|
|
Deferred Income Taxes
|
ASSETS or
LIABILITIES that arise from timing or measurement differences between tax and accounting principles.
|
|
Deferred Income Bond
|
BOND that pays INTEREST at a later date.
|
|
Deferred Payment Annuity
|
ANNUITY whose contract provides that payments to the annuitant be postponed
until a number of periods have elapsed.
|
|
Deficit
|
Financial shortage
that occurs when LIABILITIES exceed ASSETS.
|
|
Deflation
|
Decline in the
prices of goods and services.
|
|
Demand Loan
|
Loan repayable on demand. Also known as a CALL LOAN.
|
|
Depreciation
|
Expense allowance made for wear and tear on an ASSET over its
estimated useful life.
|
|
Derivatives
|
Financial
instruments whose value varies with the value of an underlying asset (such as a
stock, BOND, commodity or
currency) or index such as interest rates. Financial instruments whose
characteristics and value depend on the characterization of an underlying
instrument or asset.
|
|
Direct Labor Costs
|
The labor cost is for specific
work that can be easily and economically traced to an end product.
|
|
Direct Material
|
A material that will
become part of a finished product and can be easily and economically traced
to specific product units.
|
|
Direct Overhead
|
Portion of OVERHEAD costs
allocated to manufacturing, by the application of a standard factor termed
a BURDEN RATE or OVERHEAD APPLICATION RATE.
|
|
Disbursement
|
Payment by cash or check.
|
|
Disclosure
|
Process of
divulging accounting information so that the content of FINANCIAL STATEMENTS is understood.
|
|
Discount
|
Reduction from the
full amount of a price or DEBT.
|
|
Discount Bond
|
BOND selling below its REDEMPTION
VALUE.
|
|
Discount Rate
|
Rate at
which INTEREST is deducted in advance of the issuance, purchasing,
selling, or lending of a financial instrument. Also, the rate used to
determine the CURRENT VALUE, or present value, of
an ASSET or incomestream.
|
|
Discount Yield
|
Yield on a SECURITY sold at a DISCOUNT.
|
|
Discounted Cash Flow
|
Present value of future cash estimated to be generated.
|
|
Disposable Income
|
Personal INCOME remaining
after personal taxes and noncommercial government fees have been paid.
|
|
Dissolution
|
Termination of
a CORPORATION.
|
|
Distribution Expense
|
Expense of selling, advertising, and delivery of goods and
services.
|
|
Distributions
|
Payment by a
business entity to its owners of items such as cash ASSETS,
stocks, or earnings.
|
|
Dividend Payout Ratio
|
Percentage of
earnings paid to shareholders in CASH.
|
|
Dividends
|
Distribution of
earnings to owners of a CORPORATION in CASH, other ASSETS of the corporation, or the corporation's CAPITAL STOCK.
|
|
Dividends in Arrears
|
DIVIDENDS on cumulative PREFERRED STOCK that remain unpaid in the year they are due.
|
|
Dividends Payable
|
A LIABILITY for payment of
a COMPANY’s earnings to its shareholders.
|
|
Dividends Yield
|
Used to measure the
current return to an investor
in a stock.
|
|
Double Taxation
|
The act of taxing
corporate earnings twice, once as the NET
INCOME of the CORPORATION and once as
the DIVIDENDS distributed
to stockholders.
|
|
Double-Declining-Balance
Depreciation Method (DDB)
|
Method of ACCELERATED DEPRECIATION, approved by
the INTERNAL REVENUE SERVICE (IRS), permitting twice the rate of annual DEPRECIATION as
the STRAIGHT-LINE DEPRECIATION method.
|
|
Double-Entry Bookkeeping
|
Method of recording
financial transactions in which each transaction is entered in two or more
accounts and involves two-way, self-balancing posting. Total DEBITS must
equal total CREDITS.
|
|
Draft
|
Signed, written
order by which one party (drawer) instructs another party (drawee) to pay a
specified sum to a third party (payee).
|
|
Due Date
|
Each governing
agency and its forms scheduled reporting and most importantly payments have a
required due date. It is this date that if most files timely may result in
a penalty,
fine, and commence interest charges.
|
|
Due Diligence
|
(1) Procedures
performed by underwriters in connection with the issuance of a SECURITIES
EXCHANGE COMMISSION (SEC) registration statement. These procedures involve questions concerning the company and its
business, products, competitive position, recent financial and other
developments and prospects. Also performed by others in connection with
acquisitions and other transactions. (2) Requirement found in ethical codes
that the person governed by the ethical rules exercise professional care in
conducting his or her activities.
|
|
|
|
E
|
|
Earned Income
|
Wages, salaries,
professional fees, and other amounts received as compensation for services
rendered.
|
|
Earned Income Tax Credit
(EITC)
|
A refundable tax credit for eligible
low income workers,
subject to computations based on qualifying children and phase in and phase
out income levels.
|
|
Earnings Per Share (EPS)
|
Measure of
performance calculated by dividing the net earnings of a company by the average number of shares outstanding during a period.
|
|
Earnings Per Ratio
|
Relationship
of EARNINGS PER SHARE (EPS) to current stock price.
|
|
Econometrics
|
Use of computer
analysis and modeling techniques to describe in mathematical terms the
relationship between key economic forces such as labor, capital, interest
rates, and government policies, the test the effects of changes in economic
scenarios.
|
|
Economic Growth Rate
|
Rate of change in
the gross national product, as expressed in an annual percentage.
|
|
Economics
|
The study of the
ways goods and services are produced, transported, sold, and used.
|
|
Effective Interest Method
|
A way of AMORTIZING
BOND DISCOUNTS or PREMIUMS by applying a constant interest rate to the CARRYING VALUE of the BONDS
at the beginning of each interest period.
|
|
Effective Interest Rate
|
The rate of INTEREST actually paid
or earned.
|
|
Effective Tax Rate
|
Total income taxes
expressed as a percentage of NET INCOME before taxes.
|
|
Employee Stock Ownership
Plan (ESOP)
|
Stock bonus plan of
an employer that acquires SECURITIES issued by the plan sponsor.
|
|
Encumbrance
|
(1) MORTGAGE or other lien on the
entity's ASSETS; (2) Anticipated EXPENDITURE; (3) Uncompleted or undelivered portion of a purchase
commitment.
|
|
Endorsement
|
The process by which
the payee transfers ownership of a CHECK to a bank or another party by
writing his or her name on the back of it.
|
|
Equilibrium Price
|
Price when the
supply of goods in a particular market matches demand.
|
|
Equity
|
Residual INTEREST in the ASSETS
of an entity that remains after deducting its LIABILITIES. Also, the amount
of a business' total assets less total liabilities. Also, the third section
of a BALANCE SHEET,
the other two being assets and liabilities.
|
|
Equity Account
|
ACCOUNT in the EQUITY section of the BALANCE SHEET. Includes CAPITAL
STOCK, ADDITIONAL PAID IN CAPITAL and RETAINED EARNINGS.
|
|
Equity Financing
|
Raising the money by
issuing shares of COMMON STOCK or PREFERRED STOCK.
|
|
Equity Method of
Accounting
|
Investors cost basis is adjusted up
or down (in proportion to the % of stock ownership) as the investee's retained earnings fluctuation;
used for long-term investments in equity
securities of affiliate where holder can exert
significant influence; 20% ownership or greater is arbitrarily presumed to
have significant influence over the investee.
|
|
Equity Securities
|
CAPITAL STOCK and other SECURITIES that represent ownership shares, or
the legal rights to purchase or acquire CAPITAL STOCK.
|
|
Estimated Tax
|
Amount of tax LIABILITY a taxpayer may
expect to pay for the current tax period. Usually paid through quarterly installments.
|
|
Estimation Transactions
|
Activities that
involve management judgments
or assumptions in formulating account balances in the absence of a precise means of
measurement.
|
|
Exchanges
|
Transfer of money, property or services in exchange for any
combination of these items.
|
|
Excise Tax
|
Tax or duty on the manufacture, sale, or consumption of commodities.
|
|
Exclusions
|
Income item which is excluded from a taxpayer's gross income by the INTERNAL REVENUE CODE or an
administrative action. Common exclusions include gifts, inheritances, and death proceeds paid
under a life insurance contract. Also known as excluded income.
|
|
Executor
|
Person appointed by
a will to manage a DECENDENT'S estate.
|
|
Exemption
|
Amount of a
taxpayer's income that is not subject to tax. All individuals, TRUSTS, and
estates qualify for an exemption unless they are claimed as a dependent on another
individual's tax return. Exemptions also are granted to taxpayers for their dependents.
|
|
Expectation Gap
|
The difference in
perception between the public and the CPA as a result of accounting and audit service.
|
|
Expenditure
|
Payment, either
in CASH, by assuming
a LIABILITY,
or by surrendering ASSET.
|
|
Expense
|
Something spent on a
specific item or for a particular purpose.
|
|
Expense ratio
|
Amount, expressed as
a percentage of total investment, that shareholders pay for MUTUAL FUND operating
expenses and management fees.
|
|
|
|
F
|
|
Face Value
|
Amount due at maturity from a BOND or note.
|
|
Factoring
|
Selling a RECEIVABLE
at a discounted value to a third party for cash.
|
|
Factoring: Over-Advances
|
Circumstance where a
business receives more money from a factor than the value of the
RECEIVABLES, which is a loan against inventory in anticipation of future sales.
|
|
Factory Overhead Costs
|
Various production-related costs that
cannot be practically or conveniently traced to an end product.
|
|
Fair Market Value
|
Price at which
property would change hands between a buyer and a seller without any
compulsion to buy or sell, and both having reasonable knowledge of the
relevant facts.
|
|
Favorable Variance
|
Excess of actual
REVENUE over projected revenue, or actual costs over projected costs.
|
|
Finance
|
The science of
the management of
money and other financial ASSETS.
|
|
Financial Institution
|
Organization engaged in any of the many aspects of finance including
commercial banks, thrift institutions, investment banks, securities brokers and dealers, credit unions,
investment companies, insurance companies, and REAL
ESTATE INVESTMENT TRUSTS.
|
|
Financial Leverage
|
The ability to
increase earnings for stockholders by earning more on ASSETS than is paid
in INTEREST on DEBTincurred to finance the assets.
|
|
Financial Statements
|
Presentation of
financial data including BALANCE SHEETS, INCOME STATEMENTS and STATEMENTS OFCASH FLOW, or any
supporting statement that is intended to communicate an entity's financial
position at a point in time and its results of operations for a period then ended.
|
|
Finished Goods
|
The products that
have been made and are ready for sale.
|
|
Finished Goods Inventory
|
An inventory account unique to
manufacturing operations.
|
|
Firm
|
A business partnership, especially when it
is unincorporated.
|
|
Fiscal Year
|
Period of 12 consecutive months chosen by an entity as
its ACCOUNTING period
which may or may not be a calendar year. Fixed Asset - Any tangible
ASSET with a life of more than one year used in an entity's operations.
|
|
Fixed Annuity
|
Investment contract sold by an insurance company that guarantees fixed payments, either for life or for a
specified period, to an annuitant.
|
|
Fixed Assets
|
Tangible LONG TERM ASSETS used in
the continuing operation of a business that are unlikely to change for a long
time.
|
|
Fixed Costs
|
Costs that remain
constant within a defined range of activity, volume, or time period.
|
|
Fixed Price
|
In a public offering of new
SECURITIES, price at which investment bankers in the underwriting syndicate
agree to sell the issue to the public.
|
|
Fixture
|
Attachment to real property that is not
intended to be moved and would create damage to the property if it were
moved.
|
|
Flotation Cost
|
Cost of issuing new
stocks or BONDS.
|
|
Foreclosure
|
Seizure of COLLATERAL by a CREDITOR when DEFAULT under a loan agreement
occurs.
|
|
Free Cash Flow
|
The amount of cash that remains
after deducting the funds a COMPANY must commit to continue operating at its planned level.
|
|
Freight In
|
Transportation
charges on merchandise purchased for resale.
|
|
Freight Out
|
Transportation
charges on merchandise sold; an operating expense.
|
|
Full Disclosure
|
Requirement to
disclose all material facts relevant to a transaction.
|
|
Fund Accounting
|
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
|
Research of such
factors as interest rates, gross national product, inflation, unemployment, and
inventories as tools to predict the direction of the economy.
|
|
Funding
|
Refinancing a DEBT on or before
its MATURITY;
also called REFUNDING and, in certain instances, pre-refunding.
|
|
Future Contract
|
Transferable
agreement to deliver or receive during a specific future month a standardized
amount of a commodity.
|
|
Future Value
|
The amount that
an investment will
be worth at a future date if it is invested at compound interest.
|
|
|
|
G
|
|
Gain
|
Excess of REVENUES received over
costs relating to a specific transaction.
|
|
General Journal
|
The simple and most
flexible type of journal.
|
|
General Ledger
|
Collection of
all ASSET, LIABILITY, owners EQUITY, REVENUE, and expense accounts.
|
|
General Partnership
|
PARTNERSHIP with no limited partners.
|
|
Gift
|
A valid transfer of property
from one taxpayer to another without consideration or compensation. A gift may be subject
to the unified estate and gift transfer tax.
|
|
Going Concern
|
Assumption that a
business can remain in operation long enough for all of its current plans to
be carried out.
|
|
Going private
|
Movement from public
ownership to private ownership of a COMPANY’s shares either by the company’s
repurchase of shares or through purchases by an outside private investor.
|
|
Going Public
|
Activities that
relate to offering a private company's shares to the general investing public including registering with the SEC.
|
|
Goods Available for Sale
|
The sum of beginning inventory and the net cost of purchases during a period; the total goods available for sale to customers
during an accounting period.
|
|
Goodwill
|
Premium paid in the acquisition of an entity over the fair value of its
identifiable tangible and intangible ASSETS less LIABILITIES assumed.
|
|
Grantee
|
Person to whom
property is transferred.
|
|
Grantor
|
(1) Person who
transfers property. (2) Person who creates a trust.
|
|
Gross Income
|
The beginning point
for the determination of income, including income from whatever sources derived.
|
|
Gross Margin
|
The difference
between NET SALES and COST OF GOODS SOLD.
|
|
Gross Sales
|
The total amount of
sales for cash and on credit accumulated during a specific accounting period.
|
|
Gauaranty
|
Legal arrangement
involving a promise by one person to perform the obligations of a second
person to a third person, in the event the second person fails to perform.
|
|
|
|
H
|
|
Hedge
|
A financial term for a specific
type of commodities planning
and trading.
|
|
Held-to-Maturity Security
|
A DEBT SECURITY that management intends to
hold to its MATURITY or payment date and whose cash value is not needed
until that date.
|
|
High-Low Method
|
A common, simple way
of separating VARIABLE COSTS from FIXED COSTS.
|
|
High-Premium Convertible
Debenture
|
BOND with a long-term, high-premium, COMMON STOCK conversion feature and also offering a fairly competitive interest rate.
|
|
Historical Cost
|
Original cost of an asset to an entity.
|
|
Holding Period
|
The time in which a
taxpayer acquires property and the date on which it is sold.
|
|
Horizontal Analysis
|
A technique for
analyzing FINANCIAL
STATEMENTS that involves the computation of
changes in both dollar amounts and percentages from the previous year to the
current year.
|
|
|
|
I
|
|
Imputed Interest
|
If no interest or an
unrealistic amount of interest is charged in a salve involving certain kinds
of deferred payments, then the transaction will be treated as if the realistic rate of interest had
been used. The difference between the realistic interest and the interest
actually used is referred to as imputed interest.
|
|
In Arrears
|
Not paid at the time
originally agreed to and overdue.
|
|
Income
|
Inflow of REVENUE
during a period of time.
|
|
Income from Operations
|
Gross margin with operating expenses subtracted.
|
|
Income Statement
|
Summary of the effect
of REVENUES and
expenses over a period of time.
|
|
Income Summary
|
A temporary account used during
the closing process that holds a summary of all REVENUES and EXPENSES
before the NET INCOME or loss is transferred to the capital account.
|
|
Income Tax Basis
|
(1) For tax purposes, the
concept of basis determines the proper amount of gain to report when an ASSET is sold. Basis
is generally the cost paid for an asset plus the amounts paid to improve the
asset less deductions taken against the asset, such as DEPRECIATION and AMORTIZATION. (2) For accounting purposes, a
consistent basis of accounting that uses income tax accounting rules while GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (GAAP) does not.
|
|
Incorporation
|
Process by which
a COMPANY receives
a state charter allowing it to operate as a CORPORATION.
|
|
Incremental Cash Flow
|
Net of cash outflows and inflows attributable to a corporate investment project.
|
|
Indenture
|
Formal agreement,
also called a deed of trust, between an issuer of bonds and the BONDHOLDER covering certain considerations such as form of the BOND
for example.
|
|
Index
|
Statistical
composite that measures changes in the economy or in financial markets, often
expressed in percentage changes from a base year or from the previous month.
|
|
Indirect Cost
|
Any cost that cannot
be conveniently and economically traced to a specific department; a
manufacturing cost that is not easily traced to a specific product and must
be assigned using an allocation method.
|
|
Indirect Labor Cost
|
Labor costs for production-related activities that cannot be connected with or
conveniently and economically traced to a specific end product.
|
|
Indirect Manufacturing
Costs
|
Various production-related costs that
cannot be practically or conveniently traced to an end product.
|
|
Indirect Materials
|
Minor materials and
other production supplies
that cannot be conveniently and economically traced to specific products.
|
|
Indirect Method
|
The procedure for
converting the INCOME STATEMENT from an ACCRUAL to a CASH BASIS.
|
|
Inflation
|
Rise in the prices
of goods and services, as happens when spending increases relative to the
supply of goods on the market.
|
|
Individual Retirement
Account (IRA)
|
A personal savings
plan that allows an individual to make cash contributions per year dependent on the individual'sadjusted gross income and
participation in an employer's retirement plan. Under a traditional IRA these earnings
are not taxable until the time of withdrawal from the plan.
|
|
Inflation Rate
|
Rate of change in
prices.
|
|
Initial Public Offering
(IPO)
|
When a private company goes public
for the first time.
|
|
Inquiry
|
A procedure that
consists of seeking information, both financial and non financial, of
knowledgeable persons throughout the company. It is used extensively throughout the audit and often is
complementary to performing other procedures. Inquiries may range from formal
written inquiries to informal oral inquiries.
|
|
Insolvency
|
Inability to pay
DEBTS when due.
|
|
Insovent
|
When an entity's
LIABILITIES exceed its ASSETS.
|
|
Installment Method
|
Tax ACCOUNTING method of reporting GAIN on the sale of an ASSET exchanged for a RECEIVABLE. In general, the gain is
reported as the note is paid off.
|
|
Insurance
|
System whereby
individuals and companies that are concerned about potential hazards pay
premiums to an insurance company, which reimburses them in the event of loss.
|
|
Instrument
|
A legal document
used for a specific purpose, such as paying for goods received.
|
|
Insured Account
|
Account at a bank, savings and loan association, credit union, or
brokerage firm that belongs to a federal or private insurance organization.
|
|
Intangible Asset
|
Asset having no physical existence such as trademarks and
patents.
|
|
Interest
|
Payment for the use
or forbearance of money.
|
|
Interest Coverage Ratio
|
A way of measuring
the degree of protection that a CREDITOR has from a DEBTOR’s DEFAULT on interestpayments.
|
|
Interest Rate
|
An amount of money
charged for borrowing money or paid for the use of somebody else’s money.
|
|
Interim Dividend
|
DIVIDEND declared
and paid before annual earnings have been determined, generally quarterly.
|
|
Interim Financial
Statements
|
FINANCIAL
STATEMENTS that report the operations
of an entity for less than one year.
|
|
Internal Audit
|
AUDIT performed within an entity by its staff rather than an
independent certified public accountant.
|
|
Internal Control
|
Process designed to
provide reasonable assurance regarding achievement of various management objectives
such as the reliability of financial reports.
|
|
Internal Rate of Return
|
Method that
determines the discount rate at which the present value of the future CASH FLOWS will exactly equal investment outlay.
|
|
Internal Revenue Code
|
Collection of tax rules of the
federal government. Also referred to as Title 26 of the United States Code.
|
|
Intrinsic Value
|
Valuation determined by applying data inputs to a valuation theory
or model.
|
|
Inventory
|
Tangible property
held for sale, or materials used in a production process to make a product.
|
|
Inventory Financing
|
Circumstance where
loans in excess of ACCOUNTS RECEIVABLE are made against inventory in
anticipation of future sales. Sometimes used as a synonym for OVER-ADVANCES
IN FACTORING.
|
|
Inventory Turnover
|
A ratio used to
indicate the number of times a COMPANY’s average inventory is sold during
an accounting period.
|
|
Invest
|
To put money into
something such as property, stocks, or a business, in order to earn INTEREST or make
a profit.
|
|
Investing
|
The practice of
putting money into something, such as property, in order to earn INTEREST or make
a profit.
|
|
Investment
|
EXPENDITURE used to purchase goods or services that could produce
a return to the
investor.
|
|
Investment Banker
|
Firm, acting as underwriter or agent, that serves as intermediary
between an issuer of SECURITIES and the investing public.
|
|
Investment Income
|
Income from
SECURITIES and other non-business investments; such
as DIVIDENDS, INTEREST, etc.
|
|
Invoice
|
Bill prepared by a
seller of goods or services and submitted to the purchaser.
|
|
Issue
|
Stock or BONDS sold
by a CORPORATION or
a government entity at a particular time.
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|
Issue and Outstanding
|
Shares of a CORPORATION, authorized in the
corporate charter, which have been issued and are outstanding.
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|
Issuer
|
This term means an issuer, the securities of
which are registered under Section 12 of the Securities Exchange Act of 1934,
or that is required to file reports under Section 15(d) of that Act, or that
files or has filed a registration statement with the SEC that has not yet become effective under the
Securities Act of 1933 and that it has not withdrawn.
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|
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J
|
|
Joint Venture
|
When two or more
persons or organizations gather CAPITAL to provide a product or service.
Often carried out as a PARTNERSHIP.
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|
Journal
|
Any book containing
original entries of daily financial transactions.
|
|
Journal Entry
|
A notation in
the GENERAL JOURNAL. It records a single transaction.
|
|
Just-In-Time
|
An overall operating
philosophy of INVENTORY management in which all resources, including materials, personnel,
and facilities, are used only as needed.
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|
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|
L
|
|
Labor
|
Physical or mental
effort; work.
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|
Laissez-Faire
|
Doctrine that
interference of government in business and economic affairs should be
minimal.
|
|
Lay Off
|
Reduce the risk in standby
commitment, under which the bankers agree to purchase and resell to the
public any portion of a stock issue not subscribed to by shareowners who hold rights.
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|
Lease
|
Conveyance of land, buildings,
equipment or other ASSETS from one person (LESSOR) to another (LESSEE) for a specific period of time for monetary or other consideration, usually in
the form of rent.
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|
Lease Acquisition Cost
|
Price paid by
a real estate limited partnership, when acquiring
a lease, including legal
fees and related expenses.
|
|
Lease-Purchase Agreement
|
Agreement providing
that portions of lease payments may be applied toward the purchase of the
property under lease.
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|
Leasehold
|
Property INTEREST a LESSEE owns in the
leased property.
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|
Ledger
|
Any book of accounts
containing the summaries of debit and credit entries.
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|
Ledger Account
|
A complete record of
the transactions recorded in each individual account.
|
|
Lender
|
Individual or firm that extends
money to a borrower with the expectation of being repaid, usually with INTEREST.
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|
Lending Securities
|
SECURITIES borrowed
from a broker’s INVENTORY, other MARGIN accounts, or from other brokers, when a customer makes
a short sale and
the securities must be delivered to the buying customer’s broker.
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|
Lessee
|
Person or entity
that has the right to use property under the terms of a LEASE.
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|
Lessor
|
Owner of property,
the temporary use of which is transferred to another (LESSEE) under the terms of
a LEASE.
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|
Letter Of Credit
|
Conditional bank
commitment issued on behalf of a customer to pay a third party in accordance
with certain terms and conditions. The two primary types are commercial
letters of credit and standby letters of credit.
|
|
Letter Of Intent
|
Any letter
expressing an intention to take an action, sometimes subject to other action
being taken.
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|
Leverage
|
The use of borrowed
funds to increase the profit from an investment.
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|
Leverage Buy Out
|
Acquisition of a controlling INTEREST in a company in a transaction financed by the issuance of DEBT instruments by the
acquired entity.
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|
Leveraged Lease
|
Transaction under which the LESSOR borrows funds to acquire property which is leased to a
third party. The property and lease rentals are security for the
LESSOR'S indebtedness.
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|
Liability
|
DEBTS or OBLIGATIONS owed by one
entity (DEBTOR) to another entity
(CREDITOR)
payable in money, goods, or services.
|
|
Lien
|
CREDITOR’s claim
against property. For example a MORTGAGE is a lien against a house.
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|
Life Expectancy
|
Age to which an
average person can be expected to live, as calculated by an ACTUARY.
|
|
LIFO
|
ACCOUNTING method of valuing inventory under which the costs of the last goods acquired are the
first costs charged to expense.
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|
LIFO Liquidation
|
The reduction
of INVENTORY levels
at year’s end below beginning-of-the-year levels for businesses using the
LAST IN, FIRST OUT (LIFO) inventory method.
|
|
Limited Company
|
A COMPANY, usually registered
in the United Kingdom, that is organized to protect its owners from financial
responsibility.
|
|
Limited Liability
|
The obligation of
owners of a CORPORATION, who are liable only for the amount of their INVESTMENT and are not
liable for the corporation’s DEBTS.
|
|
Limited Liability Company
(LLC)
|
Form of doing
business combining LIMITED LIABILITY for all owners (called members) with taxation as a PARTNERSHIP. An LLC is formed by
filing ARTICLES OF ORGANIZATION with an appropriate state official. Rules governing LLCs
vary significantly from state to state.
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|
Limited Liability
Partnership (LLP)
|
GENERAL PARTNERSHIP which, via registration with an appropriate state
authority, is able to enshroud all its partners in LIMITED LIABILITY. Rules governing
LLPs vary significantly from state to state.
|
|
Limited Partnership
|
PARTNERSHIP in which one or more partners, but not all, have LIMITED LIABILITY to CREDITORS
of the partnership.
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|
Liquid Assets
|
Cash, cash equivalents, and marketable
SECURITIES.
|
|
Liquidation
|
Winding up an
activity by distributing its ASSETS to the appropriate parties and settling
its DEBTS.
|
|
Liquidity
|
Available money on
hand to pay bills when they are due and to take care of unexpected needs
for CASH.
|
|
Liquidity Ratio
|
Measure of a firm’s
ability to meet maturing SHORT-TERM OBLIGATIONS.
|
|
Loan
|
Transaction wherein an owner of property, called the LENDER allows another
party, the borrower, to use the property.
|
|
Loan Value
|
Amount a LENDER is willing
to LOAN against COLLATERAL.
|
|
Long Bond
|
BOND that matures in more than 10 years.
|
|
Long Term
|
HOLDING PERIOD of six months or longer, according to the Tax Reform Act of
1984 and applicable in calculating the CAPITAL GAINS tax until 1988.
|
|
Long-Term Asset
|
An ASSET that has the
following characteristics: (1) it has a useful life of more than one year;
(2) it is acquired for use in the operation of a business; and (3) it is not
intended for resale to customers.
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|
Long-Term Debt
|
DEBT with a maturity of more than one year from the current date.
|
|
Long-Term Investment
|
An INVESTMENT that management plans to hold
for more than one year.
|
|
Long-Term Liability
|
A DEBT that falls due
more than one year in the future or beyond the normal OPERATING CYCLE, or that is to be
paid out of noncurrent assets.
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|
Long-Term Loss
|
Negative counterpart
to LONG-TERM GAIN as defined by the same legislation.
|
|
Loss
|
Excess of
EXPENDITURES over REVENUE for a period or activity. Also, for tax purposes, an
excess of basis over the amount realized in a transaction.
|
|
Loss on Disposal of Plant
and Equipment
|
The account in which
a LOSS is recorded
when a firm sells or
trades in an ASSET and receives an amount less than the BOOK VALUE for that
asset.
|
|
Lump-Sum Distribution
|
Single payment to a
beneficiary covering the entire amount of an agreement.
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|
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|
M
|
|
Macroeconomics
|
Analysis of a
nation’s economy as a whole, using such aggregate data as price levels,
unemployment, INFLATION, and industrial production.
|
|
Management Accounting
|
Reporting designed
to assist management in decision-making, planning, and control. Also known
as MANAGERIAL ACCOUNTING.
|
|
Management Discussion and
Analysis (MD&A)
|
SEC requirement in financial reporting for an explanation
by management of
significant changes in operations, ASSETS, and LIQUIDITY.
|
|
Management's Report
|
Management is required to include in its annual report its assessment
of the effectiveness of the company's internal control
over financial reporting in addition to
its audited financial
statements as of the end of the most recent fiscal year.
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|
Managerial Accounting
|
Reporting designed
to assist management in decision-making, planning, and control.
|
|
Manipulation
|
Buying or selling
a SECURITY to
create a false appearance of active trading and thus influence other
investors to buy or sell shares.
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|
Manufacturing Overhead
|
Another term for
FACTORY OVERHEAD COSTS.
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|
Margin
|
Excess of selling
price over the unit cost.
|
|
Margin of Profit
|
Relationship of
gross profits to net sales.
|
|
Marginal Cost
|
Increase or decrease
in the TOTAL COSTS of a business firm as the result of one more or one less unit of output.
|
|
Marginal Tax Rate
|
Amount of tax imposed on an
additional dollar of income.
|
|
Mark-to-Market
|
Method of valuing
ASSETS that results in adjustment of an asset's carrying amount to its market value.
|
|
Market Capitalization
|
Value of a CORPORATION as determined by the MARKET
PRICE of its ISSUED AND OUTSTANDING COMMON STOCK.
|
|
Market Index
|
Numbers representing
weighted values of the components that make up the INDEX.
|
|
Market Interest Rate
|
The rate of interest paid in
the MARKET on BONDS of
similar risk.
|
|
Market Price
|
Last reported price
at which a SECURITY was sold on an exchange.
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|
Market Share
|
Percentage of
industry sales of a particular COMPANY or product.
|
|
Market Value
|
The price investors
are willing to pay for a share of stock on the open market.
|
|
Marketable Securities
|
Stocks and other negotiable instruments
which can be easily bought and sold on either listed exchanges or over-the-counter markets.
|
|
Maturity
|
The time at which
payment of a loan or BOND becomes due.
|
|
Maturity Date
|
Date on which
the principal amount
of a NOTE, DRAFT, acceptance, BOND, or other DEBT INSTRUMENTbecomes due and
payable.
|
|
Merger
|
BUSINESS COMBINATION
that occurs when one entity directly acquires the ASSETS and LIABILITIES of
one or more entities and no new corporation or entity is created.
|
|
Mixed Costs
|
Costs that result
when both VARIABLE COSTS and FIXED COSTS are charged to the same GENERAL LEDGER account.
|
|
Modeling
|
Designing and
manipulating a mathematical representation of an economic system or corporate
financial application so that the effect of changes can be studied and forecast.
|
|
Monetary Items
|
Definite fixed
amounts stated in terms of dollars, either by law or by contract agreement.
|
|
Money Laundering
|
The use of an
intermediate agent, such as a bank, to disguise the source of money received
from illegal activities.
|
|
Money Market
|
MARKET for SHORT-TERM DEBT instruments.
|
|
Monopoly
|
Control of the production and
distribution of a product or service by one firm or a group of
firms acting in concert.
|
|
Mortgage
|
Legal instrument evidencing
a security interest in ASSETS, usually real
estate. Mortgages serve as COLLATERAL for PROMISSORY
NOTES.
|
|
Moving Average
|
Average of SECURITY or COMMODITY
prices constructed on a period as short as a few days or as long as several years and
showing trends for the latest interval.
|
|
Moving Average Method
|
A modified version
of the WEIGHTED-AVERAGE-COST METHOD. It is used to compute the average cost of a PERPETUAL INVENTORY.
|
|
Municipal Bond
|
BOND issued by a government or public body, the INTEREST on which is
typically exempt from federal taxation.
|
|
Mutual Agency
|
The ability of each
partner in a COMPANY to act as an agent of the company.
|
|
Mutual Fund
|
Numbers
representing weighted values of the components that make up the INDEX.
|
|
|
|
N
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|
Net Asset Value (NAV)
|
In mutual funds,
the MARKET VALUE of
a fund share, synonymous with
bid price; BOOK VALUE of a company’s different classes of securities, usually
stated as NET ASSET value per BOND, net asset value per share of PREFERRED STOCK, and net book value
per common share of COMMON STOCK.
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|
Negotiable
|
Something that can
be sold or transferred to another party in exchange for money or as
settlement of an obligation.
|
|
Net
|
Figure remaining
after all relevant deductions have been made from the gross amount.
|
|
Net Assets
|
Excess of the value of SECURITIES
owned, cash, receivables, and
other ASSETS over the LIABILITIES of the company.
|
|
Net Current Assets
|
Difference between
current assets and current liabilities; another name for WORKING CAPITAL.
|
|
Net Income
|
Excess or DEFICIT of total REVENUES and GAINS
compared with total expenses and losses for an ACCOUNTING period.
|
|
Net Loss
|
The difference
between expenses and REVENUES when expenses exceed revenues over a period of time.
|
|
Net Present Value (NPV)
|
Method used in
evaluating investments whereby the net present value of all CASH outflows and cash inflows is calculated using a
given DISCOUNT RATE,
usually required rate of return.
|
|
Net Present Value Method
|
A capital INVESTMENT evaluation
method that discounts future CASH FLOWS to their PRESENT VALUE.
|
|
Net Proceeds
|
Amount received from
the sale or disposition
of property, from a LOAN, or from the sale or issuance of securities after deduction
of all costs incurred in the transaction.
|
|
Net Sales
|
Sales at gross invoice amounts less
any adjustments for returns, allowances, or discounts taken.
|
|
Net Worth
|
Similar to EQUITY, the excess of
ASSETS over LIABILITIES.
|
|
No-Par Stock
|
Stock authorized to
be issued but for which no PAR VALUE is set in the ARTICLES OF INCORORATION. A STATED VALUE is set by
the BOARD OF DIRECTORS on the issuance of this type of stock.
|
|
No-Par Value
|
Stock or bond that does not
have a specific value indicated.
|
|
Non-Callable
|
PREFERRED STOCK or BOND that cannot be redeemed at the OPTION of the ISSUER.
|
|
Non for Profit
Organization/Tax exempt Organization
|
An incorporated organization which exists
for educational or charitable purposes, and from which its shareholders or
trustees do not benefit financially. Also called NOT-FOR-PROFIT organization.
|
|
Note
|
Written promise to
pay a specified amount to a certain entity on demand or on a specified date.
|
|
Notes Payable
|
Collective term for written
promissory notes that are due in less than one year.
|
|
Notes Receivable
|
Collective term for written
promissory notes that are due in less than one year and are held by the
entity to whom payment is promised.
|
|
Notional
|
Value assigned to ASSETS or LIABILITIES that is not based on
cost or market (e.g., the
value of a service not yet rendered).
|
|
|
|
O
|
|
Obligations
|
Any amount which may
require payment by an entity at a future time.
|
|
Obsolescence
|
The process of
becoming out-of-date.
|
|
Offer
|
Price at which
someone who owns a SECURITY offers to sell it.
|
|
Offering Price
|
Price per share at which a new
or secondary distribution of securities is offered for sale to the public.
|
|
Open End Mutal Fund
|
MUTUAL FUND that does not have a fixed number of shares outstanding, offers new shares
to the public, and buys back outstanding shares at market value.
|
|
Operating Agreement
|
Agreement, usually a
written document, that sets out the rules by which a LIMITED LIABILITY COMPANY (LLC) is
to be operated. It is the LLC equivalent of corporate BYLAWS or a PARTNERSHIP agreement.
|
|
Operating Cycle
|
Period of time between the acquisition of goods and services involved in the manufacturing
process and the final cash realization resulting from sales and subsequent collections.
|
|
Operating Expense
|
An EXPENSE other
than COST OF GOODS SOLD that is incurred in running a business.
|
|
Operating Lease
|
Type of LEASE, normally involving
equipment, whereby the CONTRACT is written for considerably less than the life of the
equipment and the lesser handles all maintenance and servicing.
|
|
Operating Profit (or
Loss)
|
The difference
between the REVENUES of a business and the related costs and expenses,
excluding INCOME derived from a sources other than its regular activities
and before income deductions.
|
|
Opportunity Cose
|
Highest price
or rate of return an alternative course of action would provide.
|
|
Option
|
Right to buy or sell
something at a specified price during a specified time period.
|
|
Ordinary Annunity
|
A series of equal
payments made at the end of equal intervals of time, with compound interest on these
payments.
|
|
Ordinary Income
|
One of two classes
of income (the other
being CAPITAL GAINS) taxed under the INTERNAL
REVENUE CODE. Historically, ordinary income is taxed at a
higher rate than capital gains.
|
|
Orginial Cost
|
In ACCOUNTING, all costs
associated with the acquisition of an ASSET.
|
|
Outsourcing
|
The act or an
instance of purchasing essential products or services from another COMPANY.
|
|
Outstanding
|
Not settled or paid.
|
|
Outstanding Check
|
A CHECK that has
been written by the drawer and deducted on his or her records but has not
reached the bank for payment and is not deducted from the bank BALANCE by the time
the bank issues its statement.
|
|
Over the Counter
|
Sold to customers at
retail and without any special restrictions.
|
|
Overhead
|
Costs of a business
that are not directly associated with the production or sale of goods or services.
|
|
Owner's Equity
|
The residual INTEREST in the assets
of a business entity that remains after deducting the entity’s liabilities.
|
|
|
|
P
|
|
P/E Ratio
|
A ratio that is used
as a way of measuring investor confidence in a COMPANY and comparing
stocks for profitability. It is found by dividing MARKET
PRICE per share by EARNINGS PER SHARE (EPS).
|
|
Paid in Capital
|
Portion of the
stockholders' EQUITY which was paid in by the stockholders, as opposed to
CAPITAL arising from profitable operations.
|
|
Par
|
Equal to the nominal
or face value of
a SECURITY.
|
|
Par Value
|
Amount per share set in the
ARTICLES OF INCORPORATION of a CORPORATION to be entered in the CAPITAL
STOCKS account where
it is left permanently and signifies a cushion of EQUITY capital for
the protection of CREDITORS.
|
|
Parent Company
|
Company that has a controlling interest in the COMMON STOCK of another.
|
|
Partnership
|
Relationship between
two or more persons based on a written, oral, or implied agreement whereby
they agree to carry on a trade or business for profit and share the resulting profits. Unlike a CORPORATION'S shareholders,
the partnership's
general partners are liable for the DEBTS of the partnership.
|
|
Passive activity Loss
|
LOSS generated from activities involved in the conduct of
a trade or business in
which the taxpayer does not materially participate.
|
|
Passive Income
|
Includes income derived from
such sources as dividends, interest, royalties, rents, amounts received from personal service
contracts, and income received as a beneficiary of an estate or trust.
|
|
Payback Period
|
In capital
budgeting; the length of time needed to recoup the cost of capital investment.
|
|
Payback Period Method
|
A way of judging
capital investments that bases the decision to invest in capital
equipment on the minimum length of time it will take to earn back in CASH the amount of
the initial INVESTMENT.
|
|
Payout Ratio
|
Percentage of a
firm’s profits that is paid out to shareholders in the form of DIVIDENDS.
|
|
Penalty
|
The various
government codes contain numerous provisions which impose penalties on a
taxpayer (any type of taxpayer) for failure to perform a specific act or
omitting vital information on a return.
|
|
Pension
|
Retirement plan
offered by an employer for the benefit of an employee, usually at retirement,
through a TRUSTEEwho controls the plan ASSETS.
|
|
Periodic Inevntory System
|
A system for
determining INVENTORY on hand by a physical count that is taken at the end of
an accounting period.
|
|
Perpetual Inventory
|
System that requires
a continuous record of all receipts and withdrawals of each item of INVENTORY.
|
|
Personal Financial
Planning
|
Process for arriving
at a comprehensive plan to solve an individual's personal, business, and
financial problems and concerns.
|
|
Personal Financial
Specialist (PFS)
|
CERTIFIED
PUBLIC ACCOUNTANT who
specializes in PERSONAL FINANCIAL
PLANNING and completes a series of requirements
that include education, experience, ethics and an exam.
|
|
Personal Financial
Statements
|
FINANCIAL
STATEMENTS prepared for an individual or family
to show financial status
|
|
Plant
|
A building or group
of buildings where something is made or processed; factory.
|
|
Pooling of Interest
|
Used to account for the acquisition of
another company when
the acquiring company exchanges its voting COMMON STOCK for the voting common stock of the acquired company when
certain criteria are met.
|
|
Portfolio
|
Combined holding of
more than one stock, BOND, commodity, real estate investment, cash equivalent, or other ASSET by an individual or institutional investor
|
|
Post-Closing Trial
Balance
|
A trial BALANCE prepared at
the end of an accounting period after all adjusting and closing entries have been
posted; a final check on the balance of the LEDGER.
|
|
Post-Retirement Benefits
|
PENSIONS, health
care, life insurance and other benefits that are provided by an employer to
retirees, their dependents, or survivors.
|
|
Predetermined Overhead
Rate
|
A rate that is used
as a way of estimating and assigning OVERHEAD costs to products or jobs for each department or
operating unit before the end of an accounting period.
|
|
Preferred Stock
|
Type of CAPITAL STOCK that carries
certain preferences over COMMON STOCK, such as a prior claim on DIVIDENDS and ASSETS.
|
|
Premium
|
(1) Excess amount
paid for a BOND over its face amount. (2) In insurance, the cost of
specified coverage for a designated period of time.
|
|
Premium Bond
|
BOND with a selling price above face or REDEMPTION VALUE.
|
|
Prenuptial Contract
|
Agreement between a
future husband and wife that details how the couple’s financial affairs are
to be handled both during the marriage and in the event of divorce.
|
|
Prepaid Expense
|
Cost incurred to
acquire economically useful goods or services that are expected to be
consumed in the revenue-earning process within the operating cycle.
|
|
Present Value
|
CURRENT VALUE of a given future CASH flow stream, discounted at a given rate.
|
|
Price Range
|
High/low range in
which a stock has traded over a particular period of time.
|
|
Preventive Controls
|
These have the
objective of preventing errors or fraud from occurring in the first place that could result in a
misstatement of the financial
statements.
|
|
Price/Earnings (P/E
Ratio)
|
A ratio that is used
as a way of measuring investor confidence in a COMPANY and comparing
stocks for profitability. It is found by dividing MARKET
PRICE per share by EARNINGS PER SHARE (EPS).
|
|
Primary Earnings Per
Share
|
Earnings available
to COMMON STOCK divided
by the number of common shares OUTSTANDING.
|
|
Prime Rate
|
Rate of INTEREST charged by
major U.S. banks on loans made to their preferred customers.
|
|
Principal
|
Face amount of
a SECURITY,
exclusive of any PREMIUM or INTEREST. The basis for INTEREST computations.
|
|
Private Placement
|
Sales of SECURITIES
not involving a PUBLIC OFFERING and exempt from registration pursuant to certain
EXEMPTIONS.
|
|
Privilege
|
A right or immunity
granted as a peculiar benefit advantage.
|
|
Privity
|
An interest in a transaction, contract or legal
action to which one is not a party, arising out of a relationship to one of
the parties.
|
|
Pro Forma
|
Presentation of
financial information that gives effect to an assumed event (e.g., MERGER).
|
|
Pro Rata
|
Distribution of
an expense,
fund, or DIVIDEND proportionate with ownership.
|
|
Product Line
|
The place in a
factory where products are made.
|
|
Profit
|
Positive difference
that results from selling products and services for more than the cost of
producing these goods.
|
|
Profit Margin
|
Used to measure the
percentage of each sales dollar that results in NET INCOME.
|
|
Profit Margin Pricing
|
An approach to
cost-based pricing in which price is computed using a percentage of a
product’s total costs and expenses.
|
|
Profit Sharing Plan
|
DEFINED
CONTRIBUTION PLAN characterized
by the setting aside of a portion of an entity's profits in participant's
accounts.
|
|
Profitability
|
The ability to earn
enough INCOME to attract and
hold INVESTMENT capital.
|
|
Projection
|
Prospective FINANCIAL STATEMENTS that include
one or more hypothetical assumptions.
|
|
Promissory Note
|
Evidence of a DEBT with specific
amount due and interest rate. The note may specify a maturity date or it may be payable on demand. The promissory note may or may not
accompany other instruments such as a MORTGAGEproviding security for the payment thereof.
|
|
Property, Plant, and
Equipment
|
Long-term tangible
assets used in the continuing operation of a business for a long time.
|
|
Proprietorship
|
Business owned by an
individual without the limited liability protection of a CORPORATION or a LIMITED LIABILITY
COMPANY (LLC). Also known as SOLE PROPRIETORSHIP.
|
|
Proxy
|
Document authorizing
someone other than the shareholder to exercise the right to vote the stock owned by the
shareholder.
|
|
Public Offering
|
Offering shares to
the public. Generally done through SEC filings.
|
|
Purchase Order
|
Written
authorization to a vendor to deliver specified goods or services at a stipulated
price.
|
|
Purchases
|
A temporary ACCOUNT used under
the PERIODIC INVENTORY SYSTEM to record the TOTAL COST of all MERCHANDISE purchased for resale during an accounting period.
|
|
Purchase Discounts
|
Discounts taken by
merchants in return for prompt payment for MERCHANDISE purchased for
resale.
|
|
Purchase Returns &
Allowances
|
A CONTRA ACCOUNT used under
the PERIODIC INVENTORY SYSTEM to accumulate CASH refunds, credits on ACCOUNT, and other allowances made
by suppliers for unsatisfactory or incorrect MERCHANDISE that was
originally purchased for resale.
|
|
Puts
|
A put is an option to sell a
certain number of shares of stock at a stated price within a certain period. The gain or loss on a put is
short or long term depending on the holding
period of the stock involved.
|
|
|
|
Q
|
|
Qualitative Analysis
|
Analysis that
evaluates important factors that cannot be precisely measured.
|
|
Quality
|
An operating
environment in which a company’s product or service meets a customer’s
specifications the first time it is produced or delivered.
|
|
Qualitative
|
Relating to quality, especially as
distinguished from quantity or amount.
|
|
Quantitative Analysis
|
Analysis dealing
with measurable factors as distinguished from such QUALITATIVE considerations
as the character of management or the state of employee morale.
|
|
Quantity
|
An amount or number.
|
|
Quarter
|
Three-month
intervals of the year.
|
|
Quarterly Reports
|
Another term for INTERIM FINANCIAL STATEMENTS.
|
|
Quasi- Reorganization
|
Type of reorganization in which,
with shareholder approval,
the management revalues
ASSETS and eliminates the DEFICIT (increased by asset devaluations if any) by charging it
to other EQUITY accounts without the creation of a new corporate entity or
without court intervention.
|
|
Quick Assets
|
Assets that are or
are expected to be converted into CASH in the near term: cash, accounts receivable, SHORT-TERM INVESTMENTS.
|
|
Quick Ratio
|
The relationship of
a company’s QUICK ASSETS to its current liabilities.
|
|
|
|
R
|
|
R & D
|
Research is a
planned activity aimed at discovery of new knowledge with the hope of
developing new or improved products and services. Development is the
translation of research findings into a plan or design of new or improved
products and services.
|
|
Rate of Return
|
The amount of PROFIT or INTEREST earned on
an INVESTMENT,
usually expressed as a percentage, such as an interest; the COST OF CAPITAL; the cost of money.
|
|
Ratio Analysis
|
Comparison of actual
or projected data for a particular company to other data for that company or industry in order to
analyze trends or relationships.
|
|
Raw Material
|
Something in its
natural state that will be used in a manufacturing process.
|
|
Raw Material Inventory
Account
|
Another term for MATERIALS INVENTORY ACCOUNT.
|
|
Real Estate
|
Piece of land and all
physical property related to it, including houses, fences, landscaping, and
all rights to the air above and earth below the property.
|
|
Real Estate Investment
Trust (REIT)
|
Investor-owned TRUST which invests
in real estate and,
instead of paying income tax on its income, reports to each of its owners his or
her pro rata share of its income
for inclusion on their income tax returns. This unique trust arrangement is
specifically provided for in the INTERNAL REVENUE
CODE.
|
|
Real Estate Mortgage
Investment Conduit (REMIC)
|
An entity that holds
a fixed pool of mortgages and issues multiple classes of interests in itself to
investors. A qualified REMIC is generally taxed like a partnership, unless it takes
contributions after its start up day or engages in a prohibited transaction.
|
|
Real Income
|
Income of an individual, group, or country adjusted for changes
in purchasing power caused by INFLATION.
|
|
Real Interest Rate
|
Current INTEREST RATE minus INFLATION RATE.
|
|
Real Property
|
LAND and improvements, including buildings and PERSONAL PROPERTY, that is
permanently attached to the land or customarily transferred with the land.
|
|
Real Rate of Return
|
RETURN on an INVESTMENT adjusted for INFLATION.
|
|
Realization
|
Conversion into CASH, as happens in the sale of asset.
|
|
Realized Profit (or Loss)
|
PROFIT or LOSS resulting from the sale or other disposal of a SECURITY.
|
|
Reasonable Assurance
|
Management's assessment of the effectiveness of internal control over financial reporting is expressed at the level of reasonable assurance. It includes the
understanding that there is a remote likelihood that material misstatements
will not be prevented or detected on a timely basis. It is a high level of
assurance.
|
|
Rebate
|
In lending, UNEARNED INTEREST refunded to a
borrower if the LOAN is paid off before MATURITY.
|
|
Recapitalization
|
An internal reorganization of a corporation including a
rearrangement of the capital structure by changing the kind of stock or the
number of shares outstanding or issuing stock instead of bonds. It is distinguished
from most other types of reorganization because it involves only one
corporation and is usually accomplished by the surrender by shareholders of
their securities for other stock or securities of a different type.
|
|
Receivables
|
Amounts of money due
from customers or other DEBTORS.
|
|
Receivable Turnover
|
A ratio for
measuring the relative size of a company’s accounts receivable and the
success of its CREDIT and collection policies during an accounting period.
|
|
Recession
|
Downturn in economic
activity, defined by many economists as at least two consecutive quarters of
decline in a country’s gross national product.
|
|
Reconcile
|
To resolve.
|
|
Reconciliation
|
Comparison of two
numbers to demonstrate the basis for the difference between them.
|
|
Recovery
|
Period in a business cycle when economic activity picks up and
the gross national product grows, leading into the expansion phase of the
cycle.
|
|
Redemption Value
|
Price to be paid by
an ENTITY to retire its BONDS or PREFERRED STOCK.
|
|
Refinancing Agreement
|
Arrangement to
provide funding to
replace existing financing, the most common being a refinance of a home MORTGAGE.
|
|
Refunding
|
Replacing an
old DEBT with a new
one, often in order to lower the INTEREST costs of the issuer.
|
|
Regression Analysis
|
Statistical
technique used to establish the relationship of a dependent variable, such as
the sales of a COMPANY, and one or more independent variables, such as family
formations, gross national product, per capita income, and other economic
indicators.
|
|
Regressive Rate
|
Rate that decreases
as the calculation base increases. Often used to describe taxes where the TAX
rate paid decreases as the TAXABLE INCOME increases.
|
|
Reinsurance
|
Process by which
an insurance company obtains
insurance on its insurance claims with other insurers in order to spread the risk.
|
|
Reinvestment Rate
|
RATE OF RETURN resulting from the reinvestment of the INTEREST from a BOND or other
fixed-income SECURITY.
|
|
Reorganization
|
This is a change in
the businesses capital arrangements. If for a CORPORATION there are
seven statutory options for reorganization that would cause the corporation and shareholders to not
recognize any GAIN or LOSS on the exchange of stock.
|
|
Repairs
|
EXPENDITURES made in
order to keep property in good condition but that do not appreciably prolong
the life or increase the value of the property.
|
|
Replacements
|
EXPENDITURES for
making good or whole the portions of property that have deteriorated through
use or have been destroyed through accident.
|
|
Report
|
An oral or written
description of something, such as a book, event, or situation.
|
|
Repos
|
Agreement whereby an
institution purchases SECURITIES under a stipulation that the seller will
repurchase the securities within a certain time period at a certain
price.
|
|
Required Rate of Return
|
RETURN required by investors before they will commit money to
an INVESTMENT at
a given level of risk.
|
|
Residual Value
|
The estimated NET scrap,
salvage, or trade-in value of a TANGIBLE ASSET at the estimated date of disposal.
|
|
Restructuring
|
Reorganization within an entity. Restructuring may occur in the form of changing the components of
CAPITAL, renegotiating the terms of DEBT agreements, etc.
|
|
Retained Earnings
|
Accumulated undistributed
earnings of a company retained for future needs or for future distribution to
its owners.
|
|
Retained Earnings Account
|
The ACCOUNT that reflects
the stockholders’ claim to the assets earned from operations and reinvested
in corporate operations.
|
|
Return
|
PROFIT on a securities or capital INVESTMENT, usually expressed
as an annual percentage rate.
|
|
Return on Assets
|
A measurement of a
company’s PROFITABILITY or overall earning power, that is, how efficiently a
company uses its assets to produce INCOME. It is found by dividing INCOME by average total assets.
|
|
Return on Equity
|
A measurement
of PROFITABILITY that
relates the amount earned by a business to the stockholders’ investments in
the business. It is found by dividing NET
INCOME by average OWNER'S EQUITY.
|
|
Return on Investment
(ROI)
|
Ratio measure of the
profits achieved by a firm through its basic operations. An indicator of management's general
effectiveness and efficiency. The simplest version is the ratio of NET INCOME to total
ASSETS.
|
|
Return on Sales
|
NET pretax profits as a percentage of NET SALES. A useful measure
of overall operational efficiency when compared with the prior periods or
with other companies in the same line of business.
|
|
Revenue Recognition
|
Method of
determining whether or not income has met the conditions of being earned and realized or
is realizable.
|
|
Revenues
|
Sales of
products, merchandise, and services; and earnings from INTEREST, DIVIDEND, rents.
|
|
Risk
|
Measurable
possibility of losing or not gaining value.
|
|
Risk Management
|
Process of
identifying and monitoring business risks in a manner that offers a RISK
/ RETURN relationship
that is acceptable to an entity's operating philosophy.
|
|
|
|
S
|
|
Sale
|
Any exchange of
goods or services for money.
|
|
Sales Discount
|
A discount that is given
to a buyer for early payment for a sale made on CREDIT.
|
|
Sales Tax
|
A TAX that is levied
by a state or city government on the retail sale of goods and
services.
|
|
Salvage Value
|
Selling price
assigned to retired FIXED ASSETS or merchandise unsalable through usual channels.
|
|
Seasonality
|
Variations in
business or economic activity that recur with regularity as the result of
changes in climate, holidays, and vacations.
|
|
Secondary Market
|
EXCHANGES and OVER-THE-COUNTER markets where securities are bought and sold subsequent
to original issuance, which took place in the primary MARKET.
|
|
Secured Bond
|
A BOND that gives the
bondholders a pledge of certain company assets as a guarantee of repayment.
|
|
Secured Debt
|
DEBT guaranteed by the pledge of assets or other COLLATERAL.
|
|
Securitization
|
Source of financing
whereby an entity's ASSETS (typically mortgage loans, lease obligations or other types of RECEIVABLES) are placed in a special
purpose vehicle that issues SECURITIES collateralized by such assets.
|
|
Security
|
Any kind of
transferable certificate of ownership including EQUITY SECURITIES and DEBT SECURITIES.
|
|
Security Interest
|
Legal interest of one person
in the property of another to assure performance of a second person under
a contract.
|
|
Sell Out
|
LIQUIDATION of a MARGIN ACCOUNT by a broker after a margin call has failed to produce
additional EQUITY to bring the margin to the required level.
|
|
Selling, General, &
Administrative (SG&A) Expenses
|
Grouping of expenses
reported on a company’s PROFIT and LOSS statement between COST OF GOODS SOLDand INCOME deductions.
|
|
Sensitivity Analysis
|
Study measuring the
effect of a change in a variable on the RISK or PROFITABILITY of an INVESTMENT.
|
|
Separate Entity
|
A business that is
treated as distinct from its creditors, customers, and owners.
|
|
Settlement Method
|
Method of ACCOUNTING for SECURITIES
whereby transactions are recorded on the date the securities settle by the
delivery or receipt of securities and the receipt or payment of cash.
|
|
Share
|
Unit of EQUITY in a CORPORATION.
|
|
Shareholder
|
Owner of one or more
shares of stock in a CORPORATION.
|
|
Shares Authorized
|
Number of shares of
stock provided for in the articles of INCORPORATION of a COMPANY.
|
|
Shares Outstanding
|
The number of shares
in a COMPANY that
have been issued and remain in circulation.
|
|
Short Bond
|
BOND with a short MATURITY; a somewhat subjective concept, but generally meaning two
years or less.
|
|
Short Coupon
|
BOND INTEREST payment covering less than the conventional
six-month period.
|
|
Short Interest
|
Total amount of
shares of stock that have been sold short and have not yet been repurchased
to close out short
positions.
|
|
Short Sale
|
Sale of an item before it is purchased. A person entering
into a short sale believes
the price of the item will decline between the date of the short sale and the
date he or she must purchase the item to deliver the item under the terms of
the short sale.
|
|
Short Term
|
Current; ordinarily
due within one year.
|
|
Short Term Debt
|
All DEBT obligations coming due
within one year; show on a balance sheet as CURRENT LIABILITIES.
|
|
Short Term Gain or Loss
|
For TAX purposes,
the PROFIT or LOSS realized from
the sale of securities
or other capital assets held six months or less.
|
|
Short Term Investment
|
The temporary INVESTMENT of
excess CASH, intended to be
held until needed to pay current OBLIGATIONS.
|
|
Simple Interest
|
INTEREST calculation based only on the original PRINCIPAL amount.
|
|
Sinking Fund
|
Money accumulated on
a regular basis in a separate custodial ACCOUNT that is used to redeem DEBT securities
or PREFERRED STOCK issues.
|
|
Solvency
|
State of being able
to meet maturing OBLIGATIONS as they come due.
|
|
Solvent
|
Capable of paying
one’s financial obligations.
|
|
Specialized Mutual Fund
|
Fund that limits its
investments to a particular sector of the marketplace.
|
|
Speculation
|
Assumption of RISK in
anticipation of gain but recognizing a higher than average possibility
of LOSS.
|
|
Spinoff
|
Transfer of all, or a portion of, a subsidiary's stock or other
ASSETS to the stockholders of its PARENT COMPANYon a PRO RATA basis.
|
|
Spot Market
|
MARKET for buying and selling COMMODITIES or financial
instruments for immediate delivery and payment based on the settlement
conventions of the particular market.
|
|
Standard Cost
|
Realistic costs for
direct materials, direct labor, and factory overhead that have been determined before they occur.
|
|
Standard Deviation
|
Statistical measure
of the degree to which an individual value in a probability distribution tends to vary from the
mean of the distribution.
|
|
Statement of Cash Flows
|
One of the
basic FINANCIAL STATEMENTS that isGENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (GAAP) required as
part of a complete set of financial statements prepared in conformity
with . It categorizes net cash provided or used during a period as
operating, investing and financing activities, and reconciles beginning and
ending cash and cash equivalents.
|
|
Stock Exchange
|
Organized
marketplace in which stocks, COMMON STOCK equivalents, and bonds are traded by members of the
exchange, acting both as agents and principals.
|
|
Stock Market
|
General term referring to
the organized trading of securities through the various EXCHANGES and the OVER-THE-COUNTER MARKET.
|
|
Stock Split
|
Increase in the
number of shares of a company's COMMON STOCK outstanding that result from the issuance of additional shares
proportionally to existing stockholders without additional capital investment. The PAR VALUE of each share
is reduced proportionally.
|
|
Stockholder
|
A person who owns
shares of STOCK in a COMPANY.
|
|
Stockholder's Equity
|
The OWNER'S EQUITY in a CORPORATION.
|
|
Straight Line
Depreciation
|
ACCOUNTING method that reflects an equal amount of wear and tear
during each period of an ASSET'S useful life. For instance, the annual STRAIGHT-LINE DEPRECIATION of
a $2,500 asset expected to last five years is $500.
|
|
Straight Line Percentage
|
A percentage used to
determine the amount of DEPRECIATION to be recorded each ACCOUNTING period for the straight-line method.
|
|
Strike Price
|
Price of a
financial instrument at which conversion or exercise occurs.
|
|
Subsidiary
|
COMPANY of which more than 50% of the voting shares are owned by
another CORPORATION,
called the PARENT COMPANY.
|
|
Surplus
|
Not needed; extra.
|
|
Swap
|
Financial contract in which two
parties agree to exchange net streams of payments over a specified period. The payments are usually
determined by applying different indices (e.g., interest rates, foreign exchange rates, equityindices) to a NOTIONAL amount. The
term notional is used because swap contracts generally do not involve exchanges of PRINCIPAL.
|
|
|
|
T
|
|
Takeover
|
The act or an
instance of taking control of something, especially by force.
|
|
Tangible Asset
|
ASSETS having a
physical existence, such as cash, land, buildings, machinery, or claims on property, investments or
goods in process.
|
|
Tax
|
Charge levied by a
governmental unit on income, consumption, wealth, or other basis.
|
|
Tax Basis
|
Original cost of an ASSET, less ACCUMULATED
DEPRECIATION, that goes into the calculation of a GAIN or LOSS for TAX purposes.
|
|
Tax Lien
|
ENCUMBRANCE placed on property as security for unpaid
taxes.
|
|
Tax Shelter
|
Arrangement in which
allowable tax deductions or EXCLUSIONS result in the deferral of tax on INCOME that would otherwise be payable currently.
|
|
Tax Year
|
The period used to
compute a taxpayer's TAXABLE INCOME is tax year. It is an annual period that is either a calendar year
, FISCAL YEAR or
fractional part of a year for which the return is made.
|
|
Taxable Earnings
|
The amount of an
employee’s earnings subject to a TAX.
|
|
Taxable Income
|
Taxable income is generally equal to a taxpayer's ADJUSTED GROSS INCOME during
the TAX YEAR less
any allowable EXEMPTIONS and deductions.
|
|
Term
|
Period of time during which the conditions of a CONTRACT will be
carried out.
|
|
Term Loan
|
Loan for a specified time period.
|
|
Time Value
|
Price put on the
time an investor has to wait until an INVESTMENT matures, as determined by calculating the PRESENT VALUE of the
investment at MATURITY.
|
|
Time Value of Money
|
The concept
that CASH FLOWS of
equal dollar amounts separated by a time interval have different present
values because of the effect of compound INTEREST.
|
|
Total Capitalization
|
Capital structure of
a COMPANY,
including LONG-TERM DEBT and all forms of EQUITY.
|
|
Total Cost
|
Sum of FIXED COSTS, semi-variable costs, and VARIABLE
COSTS.
|
|
Total Direct Labor Cost
Variance
|
The difference
between the actual LABOR costs incurred and the standard labor costs
for the good units produced.
|
|
Total Direct Materials
Cost Variance
|
The difference
between the actual materials costs incurred and the standard costs of those
items.
|
|
Total Gain
|
Excess of the
proceeds realized on the sale of either INVENTORY or noninventory goods.
|
|
Total Inventory Method
|
A lower-of-cost-or-market method of
valuing INVENTORY.
|
|
Total Quality Management
|
An organizational
environment in which all business functions work together to build quality into the
firm’s products or services.
|
|
Trade
|
Buying or selling
goods and services among companies, states, or countries, called commerce.
|
|
Trademark
|
Distinctive name,
symbol, motto, or emblem that identifies a product, service, or firm.
|
|
Trader
|
Anyone who buys and
sells goods or services for PROFIT; a DEALER or merchant.
|
|
Transaction
|
The act of
transacting, especially a business agreement or exchange; event or condition
recognized by an entry in the book ACCOUNT.
|
|
Transfer
|
To move or cause to
go from one place, person, or thing to another.
|
|
Transfer Price
|
Price charged by
individual entities in a multi-entity COPORATION on transactions among
themselves; also termed transfer cost.
|
|
Treasurer
|
COMPANY officer responsible for the receipt, custody, INVESTMENT, and DISBURSEMENT of funds, for
borrowings, and, if it is a public company, for the maintenance of a MARKET for its
securities.
|
|
Treasury
|
A place where
private or public funds are controlled.
|
|
Treasury Bill
|
Short-term obligation that bears no INTEREST and is sold at
a discount.
|
|
Tresaury Bond
|
Long-term obligation
that matures more than five years from issuance and bears INTEREST.
|
|
Treasury Note
|
Intermediate-term
obligation that matures one to five years from issuance and bears INTEREST.
|
|
Trend
|
Long-term price or
trading volume movements
either up, down, or sideways, which characterize a particular MARKET, commodity or SECURITY.
|
|
Trend Analysis
|
A type of horizontal analysis in which
percentage changes are calculated for related items for several successive
years instead of for two years.
|
|
Trial Balance
|
A comparison of the
total of DEBIT and CREDIT balances in the LEDGER to check that
they are equal.
|
|
Trust
|
Ancient legal
practice where one person (the GRANTOR) transfers the legal title to an ASSET, called the principal or corpus, to another person (the TRUSTEE), with specific
instructions about how the corpus is to be managed and disposed.
|
|
Trustee
|
Person who is given
legal title to, and management authority
over, the property placed in a TRUST.
|
|
Turnover
|
The number of times
a particular product is sold and restocked during a fixed period of time.
|
|
|
|
U
|
|
Unamortized Bond Discount
|
Difference between
the FACE VALUE of
a BOND and the
proceeds received from the sale of the bond by the issuing COMPANY, less whatever
portion has been amortized, that is, written off to EXPENSE as recorded
periodically on the PROFIT and LOSS statement.
|
|
Unamortized Premiums on
Investments
|
Unexpensed portion
of the amount by which the price paid for a SECURITY exceeded
its PAR VALUE.
|
|
Uederlying Debt
|
MUNICIPAL BOND term referring to the debt of government entities within the jurisdiction of larger
government entities and for which the larger entity has partial CREDIT responsibility.
|
|
Underlying Security
|
SECURITY that must be delivered if a put OPTIONS or call
option contract is
exercised.
|
|
Undervalued
|
SECURITY selling below its LIQUIDATION value or the MARKET VALUE analysts believe it deserves.
|
|
Underwrite
|
To assume the RISK of buying a
new ISSUE of securities
from the issuing CORPORATION or government entity and reselling them to the public,
either directly or through dealers.
|
|
Unearned Discount
|
ACCOUNT on the books of a lending institution recognizing INTEREST deducted in
advance and which will be taken into INCOME as earned over the life of the LOAN.
|
|
Unearned Income
|
Payments received
for services which have not yet been performed.
|
|
Unearned Interest
|
Unexpensed portion
of the amount by which the price paid for a SECURITY exceeded
its PAR VALUE.
|
|
Unit
|
Any division
of quantity accepted
as a standard of
measurement or of exchange.
|
|
Unlimited Liabilty
|
The responsibility
of all the partners in a COMPANY for its DEBT.
|
|
Unrealized Loss or Gain
on Long Term Investments
|
A BALANCE sheet ACCOUNT for entering
increases or decreases in the value of long-term investments.
|
|
Unrealized Profit or Loss
|
PROFIT or LOSS that has not become actual.
|
|
Unrestricted Fuunds
|
Resources of a not-for-profit entity that
have no restrictions as to use or purpose.
|
|
Unsecured Bonds
|
A BOND issued on the
general CREDIT of a COMPANY.
|
|
|
|
V
|
|
Valuation
|
The process of
determining the PRESENT VALUE of a BOND based on the current MARKET
INTEREST RATE.
|
|
Valuation Allowance
|
Method of lowering
or raising an object's CURRENT VALUE by adjusting its acquisition cost to reflect its market
value by use of a CONTRA ACCOUNT.
|
|
Value
|
How much money
something is worth.
|
|
Value Added Tax (VAT)
|
Consumption TAX levied on
the VALUE added to a
product at each stage of its manufacturing cycle as well as at the time of
purchase by the ultimate consumer
|
|
Variable Annuity
|
Life insurance ANNUITY CONTRACT whose VALUE fluctuates
with that of an underlying securities PORTFOLIO or other INDEXof performance.
|
|
Variable Costs
|
Total costs that
change in direct proportion to changes in productive output or any other
measure of volume.
|
|
Variable Manufacturing
Costs
|
Costs that increase
or decrease in direct proportion to the number of units produced.
|
|
Variable Overhead
|
The portion of mixed
or semi-variable overhead costs that changes proportionately with some measure of
activity or output.
|
|
Variable Rate Loan
|
Loan whose interest rate changes over its life in relation to the level of
an index.
|
|
Variance
|
Deviation or
difference between an estimated value and the actual value.
|
|
Velocity
|
Rate of spending,
or turnover of
money- in other words, how many times a dollar is spent in a given period of time.
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Vendor
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Supplier of goods or
services of a commercial nature; may be a manufacturer, importer, or wholesale distributor.
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Venture Capital
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Investment company whose primary objective is capital growth. New ASSETS
invested largely in companies that are developing new ideas, products, or
processes.
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Vertical Analysis
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A technique for
analyzing FINANCIAL
STATEMENTS that uses percentages to show the
relationships of each stated item to the total, which is 100 percent of the
figure in a single statement.
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Volatile
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Tending to rapid and
extreme fluctuations.
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Volatility
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Characteristic of
a SECURITY,
commodity, or MARKET to rise or fall sharply in price within a SHORT-TERM period.
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Volume
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Total number of
stock shares, bonds, or COMMODITIES futures contracts traded in a particular period.
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W
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Wage
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Payment for services
of employees at an hourly rate.
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Warrant
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Option to purchase additional SECURITIES from the issuer.
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Weighted Average Cost
Method
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An AVERAGE-COST METHOD procedure for
determining the cost of ENDING INVENTORY under the PERIODIC INVENTORY
SYSTEM
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Wholesale
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The sale of goods in
large quantities, especially to a person or COMPANY that plans to
sell them at retail.
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Wholesaler
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Middleman or
distributor who sells mainly to retailers, jobbers, other merchants, and
industrial, commercial, and institutional users as distinguished from
consumers.
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Withholding
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Amount withheld or
deducted from employee salaries by the employer and paid by the employer, for
the employee, to the proper authority.
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Work in Progress
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INVENTORY account consisting of partially completed goods awaiting
completion and transfer to finished inventory.
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Working Capital
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Excess of CURRENT
ASSETS over CURRENT LIABILITIES.
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Working Interest
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Direct participation
with UNLIMITED LIABILITY, as distinguished from passive LIMITED PARTNERSHIP shares.
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Wrap Around Mortgage
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Second MORTGAGE which
conveniently expands the total amount of borrowing by the mortgagor without
disturbing the original mortgage.
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Write Off
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Charging an ASSET ACCOUNT to EXPENSE or LOSS.
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Y
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Yield
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Return on an INVESTMENT an investor receives from DIVIDENDS or INTEREST expressed as a
percentage of the cost of the SECURITY.
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Yield Curve
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Graph showing
the TERM structure of
interest rates by plotting the yields of all bonds of the same quality with
maturities ranging from the shortest to the longest available.
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Yield to Call
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YIELD on a BOND assuming the bond will be redeemed by the ISSUER at the first
call date specified in the INDENTURE agreement.
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Yield to Maturity
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Rate of return on a SECURITY to its maturity, giving effect to the stated interest rate, accrual of discount, or AMORTIZATION of PREMIUM.
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Z
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Zero Coupon Bond
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BOND on which the holder receives only one payment at maturity which includes
both PRINCIPAL and INTERESTfrom issuance to
maturity.
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Zero Coupon Convertible
Security
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ZERO-COUPON BOND convertible into the COMMON STOCKof the issuing COMPANY when the stock
reaches a predetermined price.
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